Good Position Control Helps You Avoid Gambling Traps

In recent years, due to the development of science and technology, the age group exposed to investment field has gradually decreased, and even many minor students have begun to actively get to know the investment market mainly because they are not satisfied with their lives, hoping to improve the life with extra money made by investment.

Although it is not a bad idea to develop the concept of investing and managing money from an early age, most people confuse investment with gambling, even some adults, middle-aged and elderly people. Why? Because they don’t fully understand the basic concept of "investment". They believe that investment can bring high profits in a short period of time, and they can get rich over night by throwing a sprat to catch a herring, which is no different from gambling.

Gamblers in the casino have various betting modes and are good at different games, however, they all share the same mentality of being eager to regain money when encountering a large loss, which is quite the same when it comes to transactions. Lots of people have experienced continuous losses in the market and still continue to add positions, hoping that a rebound can make up for the previous losses, even using the Martingale strategy.

Simply speaking, Martingale strategy means bet bigger and bigger, for example, the first 1 hand, the second 2 hands, and the third 4 hands, and so on. It can make up for the loss, if there happens to be a rebound, if not, then game over.

In fact, you can avoid the high losses caused by the above situation by thinking about the following questions before placing the order.

1. Do you have enough principal?

Think about how much you have left in your position. If it is still sufficient and you can bear the risk of placing an order, it will be fine. However, if there is not much capital left, and your life may be influenced by the continued deposit, then you had better stop for a while, because trading is to improve the quality of life. It is better to spend the time and money on ribs if you keep spending money on tradings without profit.

2.  Is your mentality strong enough?

Make an assessment about how much you can afford to lose at the current size of the position. If the balance of the position is $1,000, the amount of loss can be sustained in each trade varies from person to person. Some people think that a loss of $100 is nothing, while others cannot bear even a loss of $5, so there is no clear answer.

Well, there is still a prevailing method in the market as a reference for readers, which is based on a fixed percentage of the total principal, so that you will not care too much about the size of fund. Taking the same example of $1,000, the cost of a single transaction is 3%, and the total capital can make at least 33 transactions. Think that way and you may feel that a 3% ratio is not particularly large, so that to allocate the cost of each transaction more appropriately, avoiding a large loss.

3. How much loss can you bear?

Taking forex as an example, the only calculation formula that will be used to execute foreign exchange transactions is: money = lots * distance

For example,

Loss = Number of orders * Distance between entry point and stop-loss point

Profit= Number of orders * Distance between entry point and stop-profit point

Back to the topic, when seeing the entry timing, first you must know the stop loss timing, which is the most basic. You can assess the expected loss by the formula with the entry and the stop loss point, this way you will know how much cost should be put into this transaction without losing your mind at the stop loss.

The Buttom Line

During the execution of trading, many traders are so excited that they forget to control positions, which should’ve become a habit. There is no shortcut, only practice. One day, when the approximate cost or the size of a single position is instantly reflected in your mind, and can be applied to the transaction stably, then congratulations, you have become a real trader!

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