Wednesday, June 19, 2024

How can you Protect Your Trading Capital?

‘Protecting your capital is the most important part when it comes to trading. If you can’t protect your capital then you cannot survive in trading.’

Trading capital drawdown is a topic of debate in the world of trading. I have come across many traders who lose their capital completely at the beginning of their trading and some of them are not that unfortunate end up 40% to 50% of their capital.

Language of the video: Hindi

I too encountered a similar situation when I started my trading journey. 40% of the capital loss.

Worked on it.

Made a plan and I follow it till date.

If you have already done it, I will tell you some protective measures.

No matter your capital is how big or how small, you have to protect your capital.

Trading capital is fuel for your trading career. You need to have money to make living out of trading.

Why Traders Lose Money?

We work alone, we work in our pajamas in our homes, we get the freedom here but we also lose accountability here, we are not answerable to anyone about what trade we took, how much was it for, did you lose? We are the master of our own actions and thus end up committing a lot of mistakes. This is often the beginning of downfall!

How to save your Trading capital?

Each of your trade must have any of the following results:

  1. A small profit.
  2. A big profit.
  3. A small loss.
  4. Break even.

There should never be a fifth scenario which is a big loss. A big loss makes a really big impact on your trade. A big loss triggers your emotion and makes you turn to revenge trading and revenge trading might or might not work for you that make the loss too big to be afforded by you or your trading capital. If you continue adding up your losing trade and moving your stop loss, start trading in a bigger lot sizes, get more revenge trading done, this might destroy most of your winning trades. Maybe the winning trade of an entire month. I have even seen people taking up a big loss in their first-ever trade that takes away their entire capital.

After a person faces all of this, he/ she gets on a big mission: To search.

What do they search for?

Another strategy!

Something that simply doesn’t have any chance to fail. 

People start a maniac search on most search engines using keywords like ‘ No losing strategy for trading’.

Trust me, there is NO ‘no loss’ strategy that is ever made. You need to know this fact and REMEMBER It. The quicker you do that, the better.

So what to do?

I will suggest you to not to change your strategy after any loss but just fix it a bit, refine it and do its backtesting and try to make the stop loss always half the profit or one by a third which means your profit should be always double or triple of your stop loss. If someone follows this risk management strategy, this would ensure a winning situation. People who do a 1: 1 trading, with stop loss equal to the target, in such a situation, the winning trade has to be 60-70 % that can get frustrating, so try to find trades with double to triple rewards on the stop loss.

Always keep stop-loss that your trading capital can afford, you can afford.

After entering the trade, never move your stop loss because that’s a really bad practice.

Another advice that I want to give you is to give up your greed while you are trading.

Greed makes traders commit the biggest trading mistakes. Hunger to make it big is one thing and greed is another. The quicker you understand the difference between the two, the better it is for you.

Never take trades that you have to force

Always have a proper setup, proper knowledge of where to put stop-loss, keep the target.

If you don’t know the direction of your trade, you will pick any direction in your mind and you will become emotional toward that direction and it will trigger an emotion that might result in either over trading or moving your stop loss and it will result in a big loss.

I know being a trader that it is not easy to sit in front of the screen and keep waiting for the right opportunity, right entry. It is simply not feasible.

You can involve yourself in some other work and keep the time productive.

Pro Tip: You can do backtesting.

But make sure to set a price alert at some other device, you don’t have to lose your focus from the trade completely.

Some people have the mentality that what harm could a loss trade do, one might get a loss, then do revenge trading and bridge the loss. But it is the beginning of a bad habit. This would go on, and one day would eat away your trading capital

I would request you guys to stop this habit right now.

Most people are still going to commit this mistake even after me telling them not to but then it’s my duty to tell you!

Focus on risk management

They say, ‘losses make you a great trader’ but the losses should be something that you would have the capacity to bear. You should never bear a loss that breaks you down or demotivates you. Your loss should never affect your ability to trade in the future. 

These were all the tips for protecting your trading capital. I hope you incorporate them in your trading and get the best of results.  So, keep trading, keep winning! See you later.


Sharat Nik
Sharat Nik is the founder of TradingSutra who has been in Trading and Web business for over ten years now. Sharat Nik is a Delhi University graduate in Economics & Insurance who is focused on making trading and investment more accessible and a career option in India. He is dedicated to teaching you about making money trading with the freedom of doing what you love and enjoying a healthy life.



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