Understand Risk

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Downfall

The downfall talks about the common pitfall where people often bust their account

The Downfall #3

The Downfall #3

How bad is it to be trading/investing without knowledge of risk management? Imagine driving without understanding what traffic lights are for. You may be lucky for awhile, you might even make some good return in the short term. But eventually car crash will happen, it is not even accident.

The Downfall #2 Drawdown

The Downfall #2 Drawdown

Drawdown is your biggest loss of capital over a period of time. To calculate, simply take the highest point - lowest point / highest point. With the example above, the highest point is $10,000, lowest point is $7,500. Take (10000-7500)/10000 you will get 0.25. Which translate to

The Downfall

The Downfall

Don't bet when you have negative expectation. Although the above sentence seems to be such a basic information, one probably need to do some math to fully appreciate the simplicity and precision of the message. I always tell others, regarding gambling, that you essentially only have two gains