Hmm...here he go again! Carry on with his explanation," In ancient time, when one country decided to declare war with another country, they normally will choose the nearby one first. After conquering, they will station a portion of their army at their new territory and recruit new soldiers from this country that they had conquered. In this way, it will reduce casualties rate from their own army and at the same time they had increased their army strength to proceed with another journey of conquering." It make sense to me know why there is a link in between the art of war and forex. In facts, there are 3 basic principal that i have apply on managing my account, they are:-
1.) 80/20 rules
- After conquering of land, most general will leave a portion of their soldiers behind to guard the new conquered land, and he will recruit new soldiers from the the new place and proceed to another place for war. Same thing in forex account managing, if you withdraw 80% every week of profits that you have generated and left 20% behind, you will be able to cover your initial capital very fast. The logic behind this is very simple, many traders make mistake by thinking that with their account increase in revenue, they will also have more room to hold their position where thing goes wrong. They have the tendency to hold longer even the losses get bigger, hoping that with the profit that they had generated can withstand the current situation of wrong entry. It end up with more profits being wipe off and can even damage the initial capital.
- With 80% withdrawal from profit generated, these 80% will compound very fast to cover what you have invest as a initial capital. These 80% can then be re-invest in other financial products to generate more revenue. That 20% left behind may not seem much initially, but will increase subsequently, and at the same time it does help trader to remain caution on their entry. When traders know they do not have much room for losses, naturally they will minimize the risks.
2.) Recruitment from new land
- Just a further illustration from 80/20 rules, when the 20% have compound in to a substantial size, it is also the time where you can increase the lots of entry. At these point, most of your capital should be returned back into your pocket. (Some may argue that it will take one or even two years for some traders to make it, and it take too much time. Why not leave what you have earn and increase the size of entry? Of course you can! But can you overcome your psychological barrier to liquidate your position at a minimum loss? Like I mention in 80/20 rules, most traders tend to lost more when they know their account get bigger, forgetting the basic rules of forex game.)
- With return of capital covered, these new force of account will keep generate revenue for you! At these point, you should have cultivate a habit of not reinforce your existing account as all losses have being minimize. Never have the thinking that you can always top-up your capital even there are losses or worst, got a margin call! It will turn out to be a habit of being a LOSER!
3.) Safeguard your capital
- One tactic to maintain the capital is to allow only a portion of your profits generated to be sacrificed. Only by sticking to the targeted stop-loss level that it will ensure you the safety your capital, it will also ensure that you will still have enough capital to re-generate back what is loss.
- Always remember not to risk your new force of "army" even though you have your capital generated back. If you feel that it is not much of a problem to loss it, very soon you will see yourselves pumping back your own "army" back to the war!
Always remember A GOOD LOSER WILL BECOME A LONG TERM WINNER! It means that you accept your targeted losses and move forward rather than holding on to your wrong position entry until your capital is harm. Bad loser always end-up with nothing! You choose what you want to be, a GOOD LOSER or a BAD LOSER? Please do not hesitate to comment if you have any queries. Hope Forex art of war helps you in your trading, if you are interested in technical analysis, do visit http://forexoceanview.blogspot.com/ for more information.
