I. The Importance of Capital Management
Many people are looking for the secret to making profits in the market, thinking that relying on accurately judging the market direction will enable them to win steadily in the long term. In fact, the most important thing for stable profits in the market is capital management.
Warren Buffett believes that safety is the primary principle of investing: “The first rule is to preserve capital, the second rule is to preserve capital, and the third rule is to remember the first two rules.”
George Soros said: I desire to survive and do not wish to take catastrophic risks. If we do not understand how to stop losses, we will face destruction.
Larry Williams said: Capital management is the most important secret in my investment life; there is nothing more important than that.
Many investment masters and trading experts do not have a high success rate, yet they can continuously make profits because they are better at grasping trends and managing capital. Effective capital management strategies allow investors to earn substantial profits in major trends and markets without increasing risk.
It can be said that all successful investors excel in capital management, while those who perform poorly, even going bankrupt, ultimately did not manage their capital well. Many excellent individuals fail because they neglect capital management.
Although financial trading is highly risky, it is not impossible to hold large positions; rather, it is essential to accumulate positions gradually while controlling risk as the market trend continues. Only in this way can we minimize risk and maximize profits. This is the essence of capital management.
II. The Concept of Capital Management
What is capital management? In simpler terms, it means using reasonable capital input and strict risk control to minimize capital risk and maintain a stable, flowing investment state. This is called a good capital management model.
Under an excellent capital management model, the pursuit is for long-term stable returns, for happy investing, easy investing, and joyful investing, rather than short-term windfall profits. The chase for short-term profits corresponds to the risk of being wiped out. As long as you have the idea of making quick profits, you will inevitably experience being wiped out, along with fear and anxiety, even nightmares. This is because everything has both positive and negative aspects; what kind of positive corresponds to what kind of negative. Windfall profits correspond to being wiped out. A steady investment model corresponds to long-lasting and stable safe profits, as a steady investment method bears low risk. In the high-risk, high-leverage investment field, first ensuring one's long-term survival is the true principle and the true foundation.
III. Methods of Capital Management
1. Test with light positions, enter the market in batches;
2. Hold positions in line with the trend, increase profits;
3. Set stop-loss levels to limit losses;
4. Allow profits to grow sufficiently while keeping losses small;
5. Do not increase positions against the trend; buying more as prices drop in an attempt to lower costs, etc.
