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Loss in stock market

Loss in stock market - how to survive a series of losses on the stock market?

Every investment method from time to time generates losses. Even if you correctly set defensive stop orders, these losses can be severe. In addition, statistics indicate that a series of losses are sometimes occurring. Five or more losses in a row will hurt even more. Here comes help ...

Here comes the help with proper capital management.

One method to solve a problem is the so-called delawaration. Of course, as with every investment, everything must be counted before your money goes to the stock market.

How to properly manage capital at stock market losses?

1. Apply your maximum permissible loss on a single transaction Ms%. For an individual investor I recommend 5%. If you are exceptionally careful take 2-3%. These are also some investment funds. If you want to invest aggressively and risky you can accept up to 10%.

2. Specify the purchase price of the asset you want to invest.

3. Specify the initial level of the stop order.

4. Calculate how much% of capital you will lose if the market reaches your stop order - S%. Include all commissions.

5. If it goes out that the loss is less than or equal to the assumed maximum (S% <= Ms%) you end the calculation. You can buy the value for all the capital for that.

6. If it comes out that the loss is greater than expected, count what% of the capital you can commit to the transaction. K% = Ms% / S%


Assume that from the calculation it follows that K% = 67%

When you start an investment with $ 10,000, for example, you can buy $ 6700 (67% of the $ 10,000). The remaining 3300 USD must be deposited in the account as collateral for this transaction.

Under no circumstances can you use them in any other transaction.

They are the protection of this started. They guarantee that the potential loss will not exceed the initial assumptions.

Only when you begin to move the defense order stop, you can begin to gradually release blocked capital. Once the stop order has exceeded the purchase price so that its operation will guarantee no loss - you can release the blocked money completely.

Loss in stock market: delaware

This is what is called delawaration. They can be used not only for leveraged instruments. It is great for action, where it is sometimes useful to set up a reverse lever.

Of course, this method is not the only one. There are still rules of management with a fixed position, rules of volatility, and finally rules that are a function of risk. However, classical delawaration is a very effective method, and at the same time very simple to calculate.


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