What is the safer and more efficient method of "fund management" that is more important than trading methods?

Hello. This is Guava.

Previous article talked about how to create a trading logic.

To create a trading logic, you need statistical backing.

First, start by conducting a visual backtest.

That is how it ends.

In this article, regarding the trading rules

I would like to talk about “fund management.”

Please stay with me until the end!

Why fund management is important

I’ll start with the conclusion.

Fund management is more important than the trading logic.

Because even if there is an edge in the trading logic,

fund management can easily cause a drawdown (loss of capital).

Drawdown＝end of the game

If funds run out, you have to start saving money again with sweat and tears.

In the board game Snakes and Ladders, it is the same as “returning to square one.”

So, no matter what financial shocks occur or how many losses in a row you have,

you must never allow drawdown.

That is why fund management is necessary.

What are concrete fund management methods?

Although important, fund management is very simple.

Basically, to avoid drawdown,

just reduce the amount you bet.

How much to reduce depends on your trading method, but

roughly speaking2% or less is recommended.

For example, with 1 million yen in capital,

the amount you bet at one time should be at most 20,000 yen.

With 2%, you can endure up to 49 consecutive losses at worst.

If you have an edge in your logic, you probably won’t experience 49 consecutive losses, and

the odds are highly likely to tilt toward profit before reaching that point.

(Conversely, if you manage at 2% but the drawdown probability remains high, it means the logic is not good.)

How to check the drawdown probability

To know how likely your trading method is to blow up,

you can grasp it with the “Balsa-ara bankruptcy probability.”

However, keep in mind that this is only a rough参考 number.

I won’t go into the exact formulas, but if you’re interested, please search for it.

The trap of compounding

“Compounding” is humanity’s greatest invention and the most powerful force in the universe

,they say Einstein said that.

However, compounding in short-term investing has a big pitfall.

If you simply increase bet size as capital grows,

the drawdown probability will remain at a constant level.

Even if the drawdown probability is 0.1% for a method,

continuing to take a 0.1% risk increases the likelihood of drawdown.

Unlike real estate or government bonds,

short-term investments like FX or binary options

always carry drawdown risk.

Therefore, even with compounding, as your funds grow,

it is safer to manage funds so that the drawdown probability decreases.

The pitfalls of the Martingale

Martingale, loved by high-win-rate tools, is also essential in fund management discussions.

First of all, I am someone who would never use Martingale.

Up to nowI have experienced drawdown many times using Martingale-based methods.

Of course, Martingale is not entirely bad.

The problem is that using Martingale can wreck fund management.

If you go up to 1x Martingale, perhaps okay, but when it becomes 2x or 3x,

fund management concept may disappear altogether.

Even so, if you align fund management with the maximum bet amount of 3x Martingale,

I think it is far more efficient to start with a single-entry from the beginning.

What matters in trading is not win rate,

but how quickly and sustainably you canearn, over the long term.

Conclusion

That is all for the content.

If this article was helpful to even one person, I would be glad.

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Thank you for reading to the end.

Thank you for reading.