The boss of the trading company gave his traders a psychological training. When they heard that a psychiatrist was coming, they were shocked and loudly protested, "We're not crazy." It wasn't until the manager told them they had to attend - or leave - that they quieted down. Once we started engaging and focusing on psychology and money management, the results were quite different. That trader loudly protested that 100 shares were too few, as he wouldn't make any money that way. I told him to stop deceiving himself because a larger trade size wouldn't make him earn either, and he reluctantly began to accept my advice. A week later, when we met again, he reported that he had made profits for four out of five days, and overall was profitable. Because his trade size was very small, he only made a little money, but he had already beaten the game. He continued to make money in the following week, then the trade size rose to 200 shares.
When you are trading smoothly and your account principal increases by the end of the month, the 6% rule allows you to trade with a larger size next month. If you perform poorly, it will reduce your trade size for the next month. When you are continuously profitable, the 6% rule encourages you to increase your trade size; when there is continuous loss, the 6% will make you stop trading. The 2% rule and the 6% rule provide guidance criteria for pyramiding positions - increasing winning positions.
When you try to make a large trade without a stop-loss, professional trading requires strong capital management skills. All successful traders' survival and success owe to their discipline. The 2% rule will help you guard against sharks, and the 6% rule will help you guard against piranhas. Then, if you have a moderately good trading system, you are already far ahead of the game.
If you have profited significantly last month, then when you enter the next month, you must reset your stop-loss and trade size so that the risk amount of any single trade does not exceed 2% of the new principal, and the total risk of all open trades does not exceed 6% of the new principal.
First, I said this: I tip my hat to the traders who had the courage to continue trading the next morning after losing 13 days in a row. Then, I asked him how many shares he traded, because the company set an upper limit for each trader. He was allowed to trade 700 shares at first, but due to consecutive losses, it was reduced to 500 shares. I told him to lower it to 100 shares until he had more profitable days than losing days over two consecutive weeks, and was overall profitable. Once he overcame that obstacle, he could trade 200 shares. Then, after another two-week profitable period, he could trade 300 shares, and so on. For every two weeks of profitable trading, he would be allowed to add 100 shares. If he had a losing week, he would have to drop back a level until he had two consecutive profitable weeks. In other words, he had to start with a small size, gradually increase, and quickly reduce the trade size if problems arose.
Over-trading - making transactions that are too large for you - is a fatal error. Beginners can't wait to make money, while disciplined traders first measure the risks when starting. If you start trading with a small amount and focus on improving the quality of your trades, you will soon make great progress. Once you've become familiar with how to trade - looking for trades, entering, setting stop-losses and profit targets, exiting - you can gradually increase your trade size, allowing your account to start generating significant income for you.
Making a trade is like going treasure hunting. Gold is buried under rocks at the bottom of the ocean. When you dig, remember to check your air pressure from time to time. How much gold can you dig up while ensuring your survival? The ocean floor is littered with the remains of divers who discovered huge opportunities. Professional divers first consider the remaining oxygen supply. If he doesn't dig up gold today, he can come back tomorrow. All he has to do is preserve his life and dive again. Beginners, however, kill themselves by running out of oxygen.
At our next seminar, he asked me, "Do you think that's a psychological issue?" The students burst into laughter. Why does a trader lose money when trading 500 shares but make money when trading 100 shares?
At our first seminar, a trader complained that he had lost money for 13 consecutive days. His manager was also present, confirming that he was trading according to the company's system, but he hadn't earned any money.
Beginners often put the cart before the horse when calculating profits. Turn that approach around and calculate the risk first. Ask yourself, according to the 2% and 6% rules, what is your maximum allowable risk.
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