Dear readers,

With the current volatility in the market, it takes a heart of a lion to be able to stomach the wild swings in the equities market.

There would be investors who will loose their pants when the market tumble due to the "Blame it on Trump"effect, How would you fare when you are unable to make sound judgement call of when to buy or sell your stocks?.  

This the most common issues arises for self directed investors as most often than not, we will "cut loss" and take the heavy losses incurred. Although there is nothing wrong with the approach, investors needs to be disciplined as "cutting losses" will create what we call "drawdown. 

What is a drawdow then?

Drawdowns also describe the likely survivability of your system over the long run. A large drawdown puts an investor in an untenable position.

Consider this: A client who endures a 50-percent drawdown has a large task and a real challenge ahead of him because he must have a 100-percent return on the reduced capital stake just to break even on the reduced equity position. 

Key Take Away

One of the greatest tips is to have a predetermined stop loss point on your trade before entering. This will limit the amount of any drawdown you will take. You'll be able to stand back after you've entered the trade, knowing that you're out of it with no questions asked when and if the level is hit.

A lot of traders make the mistake of trying to negotiate with the market as to whether they should stay in the trade. It's a mistake because you'll be emotionally driven and likely to do the thing that is the least painful at the time but not necessarily more beneficial down the road.

3-5% rule and position sizing.

You may ask, why 5% rule and not more or less.. Well very simple, if you lose 20X in a row..your trading or investment capital is totally wipe out...sounds reasonable? or if you have tighter rules like 3% then you will need to adjust the total number of your shares and the pre-determined cut loss level before you exit...get it?  

Always remember, before you even make a single dollar in stock investing or trading, take care of the risk first. This way, you will be more successful in this journey.

Keith

www.facebook.com/xcelcapital