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CAPITAL PRESERVATION
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• DO NOT LOSE FOCUS ON WHY YOU ARE TRADING

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• IGNORANCE

• IGNORANT STAGE

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• OUT OF
BUSINESS
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 $150 million in assets

Multiple large hedge funds 17 year old hedge fund

close around the world $1 billion over in assets, losing
$17.8 billion lost in pulled
capital
• CAPITAL PRESERVATION
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• DISCIPLINE
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• PORTFOLIO MANAGERS (FIXED PERCENTAGE)
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• RACE
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Here volatility changed, spreads
changed, sentiment changed.

If you retained your old habits from

before September and same stop
losses, same money management.

You would have either lost more

money, or got stopped out MORE
OFTEN.
The stock you played in the
morning was less volatile,
bid/ask spread was tighter.

Now news hits and bid/ask

spreads widen causing LUDP
halts.

If you don’t change your

risk/money management with
current market conditions you
will lose even on the best
winning %/ strategy.
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$100,000 IN YOUR
ACCOUNT

• THIS IS FOR SIMPLIFYING AND MAKING SURE EVERYONE IS ON THE SAME PAGE.

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FIT US, BUT FIRST WE MUST UNDERSTAND MANAGEMENT AT AN APPROPRIATE LEVEL.
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• CONFIDENCE
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• GETTING OUT OF TRADES TOO EARLY
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• IRRITABLE AFTER THE TRADING DAY
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• CONFIDENCE
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• EQUITY RISK
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How much of my account?
How much do I scale?
Where is my psychological tipping point?
How many black swan events can I suffer?
How much can you lose in one day?
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Money Management
Starting capital:
$100,000

Risk – 1%

Entry $57.00
Stop Loss - $55

Stop loss is $2.00 away

Number of shares =
(100,000 * 0.01)/2.00

Number of shares for

this position is 500.
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Money Management
Starting capital:
$100,000

Risk – 1%

Entry $238
Stop Loss - $237

Stop loss is $1.00 away

Number of shares = (100,000 *

0.01)/1.00

Number of shares for this position

1000.

However, issue arises, that

1000*$237 is $237,000, when my
account is only $100,000.

NOW WHAT?
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• EXPOSURE UNITS
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Money Management
Starting capital:
$100,000

Exposure units = 5

Entry $238
Stop Loss - $237

# of shares = ($100,000/5)/Entry

# of shares allowed = 84 shares

New % at risk = (84 *

$1.00/$100,000)

0.08% at risk of total account.

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Money Management
Starting capital:
$100,000

Risk – 1%

Entry $16
Stop Loss - $15

Stop loss is $1.00 away

Number of shares = (100,000 *

0.01)/1.00

Number of shares for this position is

1000.

Cost = $16,000

It has now run to $18.00 but you

think it can go further. Should I
sell?
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• THERE’S NO
SUCH THING AS HOUSE MONEY.
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It has now run to $18.00 but you
think it can go further. Should I
sell?

Depends – you just reached your

PROFIT target, if you sell there’s
nothing wrong with that. But if you
wish to let it ride then…

Remember your risk should always

be 1.00%

So your trailing stop should be

$1.00 away. When and where it
should be placed is on you.
At $18 per share = 18% of exposure

At $20 per share = 20% of exposure

At $22 per share = 22% of exposure

Remember, you have made your

Risk/Reward. Now we have to decide
how much you want to start paying
yourself.

One way is to reduce your exposure

back down to the original size.

At $20 a share you have 4% exposure to

get rid of.

$4000/$20 = 200 shares you need to sell

to get back to your original exposure.

Remember your account is still at

$100,000, these profits are NOT locked in
yet.
Starting capital : $100,000

Entry : $7.00
Risk: $0.50

# of shares based on 1%

2000 shares
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Starting Capital: $100,000
Risk – 1%

Entry $5.3
Stop Loss - $5.5

Stop loss differential $0.20

Number of Scale ins: 2

# of shares for first entry =

($100,000 * 0.005)/0.20

2,500 shares for first entry

To make it simple 2nd entry

should also be 2,500 shares

Lets say 2nd Entry is at $4.60

Now where do I set my stop?

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Entry A at $5.30 for 2,500 shares
Entry B at $4.60 for 2,500 shares

New stop loss is:

$5.5-5.3 + ($5.3 + $4.60)/2

New stop loss is going to be

$5.15

How does this turnout in terms

of risk?
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• ACTUALLY

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Example of R multiple:

30 trades in total from Blue line

Losers:
6 trades that are experienced at -1R

Winners:
4 trades that are experienced at 10R
$500/$50

The same applies for the rest

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• LOSING

• WINNING

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Expectancy = (0.63*2) – (0.37*1)

Expectancy is 0.89

Meaning that for every $100 I

trade with this strategy the
expected out come is $89 worth
of profit
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• PRESERVE CAPITAL IGNORANCE

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•
• EXPIRATION
• THINK OR SWIM
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