An investor designed a trading plan for a maximum return in the long term, but if you trade to find other factors more important.
This might seem strange for beginner traders, but if you have traded for a long time, you will realize that certain types of plans, while very profitable in the long run, are not practical as a means to support bills with bills.
In general, if you want a fixed income, you must have a plan that trades regularly with short duration trading. Today’s trade is very good at this. The reason for this is simple to be seen if you consider an example.
Plan a: Every day, you throw a coin. If it comes to head, you get $ 200. If it falls down, you lose $ 100.
Plan B: every 10 days, you throw a coin. If you come to head, you get $ 2000. If you fall tail, you lose $ 1000.
Which plan is the best? Or are they both the same?
Assuming the head or tail is a chance of fifty fifty, you will win an average of $ 50 per trade with a plan A, and $ 500 per trade with plan B. When you put 10 trades with plan A to each plan B trades, you Hope it’s a long time you will win $ 500 every 10 days with both plans. So they are the same? Absolutely not…
Suppose the price is $ 10 to trade. During a 10-day period, trading costs for plan A is $ 100, while the cost for plan B is only $ 10, savings $ 90. In other words, trading costs for plan A are 20% of the expected profit, while the cost for plan B is 2%. So plan B better? Well, it will have a higher return for a long time, say a few years, so it must definitely be a choice of long-term investors with inner bags. However, our traders who need a stable cash flow must dig deeper.
We all know that if we flip coins, it doesn’t go down in order – hithht etc. in real life, we often get the results of one or another – eg. TTTTTTHTHTHH etc. Assuming we get a loss, let’s determine the “withdrawal period” because the number of trades is needed to return to the profit situation. Suppose it succeeded that the average withdrawal period for these two plans is 5 trade, but unusual has a 10 trade withdrawal period, and sometimes a bad run for 20 trade.
That means for plan A, the average withdrawal period is 5 days, sometimes around 10 days, and sometimes 20 days. A trader who relies on trade income may be able to rise through a period like this without too much trouble, provided he has a little backup of capital to cover this time. (There will be tremendous trial times that can be used to refill capital reserves.)
However, for plan B, the average withdrawal period is 50 days, sometimes 100 days and sometimes 200 days! So to trade this plan, who remembers having a higher long-term return, you must be ready to regularly have no income for a month or more, and sometimes goes for almost a year without income (assuming around 260 trading days in the year calendar). How many people hope to undergo trade profits have resources, both in terms of capital and psychological force, to exchange plans like this? In my experience, not much.
Another important aspect that needs to be considered is the size of the account traded. Suppose a trader has a $ 5,000 of Capital and Trade Plan A. Lady Luck is not good and the trader starts with a series of 3 losses – unusual, but of course very possible. The capital fell to $ 4,670 (including trade costs) which was unpleasant, but not disaster.
Suppose other traders apply to a greater return of plan B, invest $ 5,000, and face a series of the same bad luck. The capital account fell to $ 1,970 and this trader was destroyed. In all probabilities, the account is closed, and trade is abolished as a game mug. Whatever plans you choose, you must consider what the effect of the losses will exist in your capital.