For those who w forexrebatenetworkh to survive bestforexrebate the market for a long time, especially those who intend to trade for a living, in addition to excellent trading skills, money management is also a very important aspect What is forex rebate in a sense, money management is more important than trading skills. Money management model, hope that investors can be flexible in the actual battle, and eventually find their own trading model Money management case study In the past three days in the loss of 70% of the Whatisforexrebate, John almost went into shock, but still believe that they can earn back the old capital Finally, before the market destroyed him, he has lost 200% of his account in the end only What advice would you give John?　　Your advice would probably be to get out of the market immediately, you dont have enough money to continue speculating, but most people usually have the fatal idea in the market that he or she can grow his or her account to $1 million in a year, although such a performance is possible, there is a chance of destroying the account for anyone who wants to try it. The 40 doctors used a computer game to trade They each had a $10, cashback forex account and could make 100 trades in a game with a 60% win rate When they won they got back as much money as they risked, and when they lost they lost their risk money Guess how many doctors made a profit after 100 trades? When the results were announced, only two made a profit and the rest of the 38 doctors lost. Imagine that 95% of the people who played this game with a higher win rate than any game in Vegas lost money. The reason they lost is because they used the gamblers fallacy and poor money management techniques Lets look at how to play this game with a risk size of 1,000 You played 3 times and lost all 3 times - which is totally possible in the game Now you have $7,000 in your account and you think, Ive lost 3 times in a row, I should win next time, right? This is the gamblers fallacy because the probability of you winning is still 60% (its independent and random, in terms of probability, its an independent process) and then you lose 3 more times and you only have $4000 left in your account. 150% = 10,000 to reach the initial amount of money) Although the probability of you losing 4 times in a row is very small - 0.0256 - (0.4*0.4*0.4*0.4*0.4 = 0.0256) but it can still happen in 100 attempts (within 100 times will be an average of 2.56 times possible, especially in trading, frequent trading situations, more likely to occur in extreme cases ) Heres another play that leads to bankruptcy Lets start with $2500 After three consecutive losses, the account has only $2500 left and now must make a profit of 300% to recover, which is impossible to do before going bankrupt In the previous example, the reason for failure is that they took too much risk for psychological reasons - greed and a lack of understanding of probability, even in the case of The Kelly Formula Note: The Kelly Formula is a formula that can be applied to investment funds and bets in multiple random gambling games with the highest expected growth rate of funds and never resulting in a total loss of all funds. = odds p=chance of winning q=chance of losing (generally equal to 1-p) For example, if a game has a 40% (p=0.40) chance of winning with odds of 2:1 (b=2), the gambler should bet (20.40-0.60)/2=10% of his money each time. Of course there is room for improvement in the investment field regarding the Kelly formula, but this formula gives us a quantitative This is a typical mistake people make when they enter a very speculative market with a small amount of money An account under $50,000 is small enough, but the average account size is $5,000 to $10,000 The result is that these people have no way to manage their money properly because their account size is too small and their mathematical probability of failure is very high. But a 40% loss requires 66.7% profit to recover, and a 50% loss requires 100% profit to recover. When you lose more than 50%, recovery is almost impossible.　　10Percent11.1%Gain 15Percent17.6%Gain 20Percent25%Gain 25Percent33%Gain 30Percent42.9%Gain 40Percent66.7%Gain 50Percent100%Gain　　60Percent150%Gain 75Percent300%Gain 90Percent900%Gain Table1RecoveryafterDrawdowns Managing Other Peoples Capital In the futures industry, when an account loses money, we call it a drawdown. After a month and a half of management its net worth grew a bit and on September 30th it became $80,000, a 60% profit. At this point in time, your trading position may still be unchanged but as a professional, at the end of the month you must distribute the statement to your clients so they can decide if it is worthwhile to continue investing in you. Now lets say your position starts to fall in equity on October 6th and on the 14th you liquidate your position and now your account equity becomes $60,000. The next year, on August 30, your account only had $52,000 and it never rose above $80,000. According to industry rules, you now have a 4% return and a 35% Drawdown on your account. Even though you only tried to recover some of your lost profits, you are still considered a very bad fund manager and most of the time fund managers have to wear the worst account drawdown hat. From the clients point of view, you watched $28,000 disappear from your account which is a real loss. The conclusion is that the risk-reward ratio is the best indicator of investment performance, and the return is your annual profit, while the risk is measured by the maximum account drawdown. You would normally expect a risk-reward ratio of 1:2 or less. For example, if your account started with $50,000 and appreciated to $58,000, thats a 16% annual return. This means that your account Drawdown is only 0.0189. So the risk-reward ratio at this point is a very attractive 1:8.5 (risk of 0.0189, return of 8000/50000 = 0.16, 0.16:0.0189 = 1:8.5). At this point there will be a large group of people who want to invest in you Lets change the perspective and assume that $50,000 is your own Do you feel that in which case the investment performance is better? In the first scenario you made $2,000 and gave $28,000 back to the market. In the second scenario you made $7,000 and gave $1,000 back to the market. You may not be a very good fund manager, but with a huge Drawdown you can accept, you are likely to grow your own account very fast. In both of the above profitable cases and in the other losing cases the same trading system may have been used. It is very interesting to note that one study showed that money management explained 91.5% of the difference in performance of 82% of pension plans over a 10-year period, and the study also showed that the selection and timing of investments accounted for only 10% of profits. The obvious conclusion is that money management is the most critical factor in investment decisions. Now that you understand the importance of money management, lets move on to different money management models to give you a better idea of how it works. I recently attended a seminar on what investment methods brokers should use to help their clients. The seminar was horrible, and the topic of money management - which I define here as money management - was not mentioned at all. I asked him after the session: What do you mean by money management? He replied: Thats a good question, I think its about how to do investment