Why do many people often talk about capital allocation?
What are the benefits of capital allocation and what is capital allocation?
- Let’s conduct a preliminary study today:
1/ What are the benefits and advantages of capital allocation?
- Investing without labor certainly generates profit, but there is always the possibility of losses; you need to preserve your initial capital well to exploit many investment fields and various investment tasks. This is a key factor in achieving ultimate victory and enabling the scaling up of the account.
When you have 100 dollars but spend 10-50-80-100 dollars on a single task? Well, you are imposing a lot of pressure and risk on yourself; you could win big but also have the potential to lose.
2/ the power of a stable trading psychology and discipline
- After using the initial capital of 100 dollars to trade multiple times, you can summarize a distinct playing discipline, sharpness, and good manipulation of the market; this is the time to scale up the real account.
- The image above is a theory of compound trading with an extremely simple R:R of 1:1.3 risk of 30%.
A simple understanding is placing an order of 1 dollar, the capital will lose 0.3 dollars and the take profit is 0.39 dollars.
Next, use the profit of 0.39 dollars combined with the initial principal amount of 1 dollar to continue this scaling process; if it fails at any step, go back to the previous step and still have a profit difference of 0.3 from the last time.
=> To do this, it is necessary to cultivate discipline and stable trading psychology. Never all or only criticize small profits, sometimes because you do not know how to exploit.