Here I give a friendly reminder to all beginners and advanced traders that holding (hodl'ing) your position is not ideal up to a certain point. The math of percentages shows that as losses get larger (compound interest), the return necessary to recover to break-even increases at a much faster rate. A loss of 10 percent necessitates an 11 percent gain to recover - and that is where it goes all downhill. Increase that loss to 20 percent and it takes a 25 percent gain to get back to break-even. A 50 percent loss requires a 100 percent gain to recover and an 80 percent loss necessitates 400 percent in gains to get back to where the investment value started.
Investors who get hit by a bear market need to be aware that it will take a while to recover, but the math of compounding returns will help the cause. Consider a bear market with a 30 percent drop in value, down to 70 percent of what the stock portfolio was worth. A 10 percent gain returns the portfolio to 77 percent. The next 10 percent recovers to 84.7 percent. Two more 10 percent gain years put the portfolio back to 102.5 percent of the value before the drop. So a 30 percent drop necessitates a 42 percent recovery, but 10 percent a year compounded for four years puts the account back into profitable territory. I will be doing a second part to this post on the idea of "DOLLAR COST AVERAGING" (DCA).
What the math of stock market losses shows best is that investors need to protect themselves against big losses as shown in the diagram above. Mental or limit based stop-loss orders to sell stocks or cryptocurrencies are there for a reason. When a certain loss level is reached, it will pay off big if the market is moving into bear market territory. Investors sometimes have trouble selling stock they like at a loss, but they will like the stock or cryptocurrency if it can be bought back at a lower price.
If you are interested in how to create the perfect trading plan, please see my previous post here:
Trade Safe. X Force
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For those who are also interested in how disciplined trading goes a long way, please have a look at this post, too!
Man just learnt a lot from you and blessed to be part of your premium group. Stay blessed. Keep rocking <3
ICEKI
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This is the best article to read about how important of the money management!
Very simple easy understand 2 pictures of your post; keep it up bro; also congrats for the Editor Pick <3
XForceGlobal
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@ICEKI, Aww thank you so much for the kindness!! Thank you so much for your support and I hope your journey comes with many successes
TradingandNews
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One can make multiple 100% or 200% wins consecutively.
But in a funny manner, they can be annihilated by only 50% losses consecutively fairly easy.
This is the crux why trading is hard.
You must generate multiple 100% wins more often than youre allowed of losing a only 50% compared to the 100% you won.
Meaning you must generate huge, huge, hugely more and hugely bigger wins. Whereas it only small -% that can fuck you over. :)
if you're that good that you find investments that do +100% you would already just take profit and leave that market knowing better and find something new that has "bottomed out" and do another +100% and then leave again
XForceGlobal
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@Supdolt, Again, you are 100% correct on this from the other perspective. I actually agree with you more, as it is much harder to get consistent 100% gains in the market. It is certainly possible, but very difficult.
ReallyMe
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on the other hand, a loss is only a loss if you have cashed it in. if there are good reasons for assumptions about the long-term price development (like an index), you can stay cool and leave it to the others to cash in their losses. but who knows for sure? nobody can predict the future with certainty. how much time are you willing to wait? so all in all a very good idea. thumbs up!