In the previous article, I have introduced to you a complete trading system in Olymp Trade. Along with that is a way to create an effective trading strategy in Olymp Trade. You can read again here if you do not know:
Building such a system is the safest and most effective way for you to make money on the platform. Once you have an effective Olymp Trade trading strategy, what you need to do next is to use a capital management method that suits this strategy.
Today, I will show you how to use a capital management method in your trading system. This is the factor that will help keep your account safe. It even helps you optimize your profits when trading.
The important role of capital management in Olymp Trade trading
If someone tells you that a trading strategy is the most important factor to help you profit in Olymp Trade, then that guy is just bragging. Or they may know nothing about the importance of capital management in trading.
I will give you a specific example so that you know managing capital in trading is a must if you do not want to continuously “tribute” money to the market.
Let’s say you are trading in Olymp Trade with a win rate of 80%. This means that you win 8 orders out of 10. The payout rate here is 82%. If you win 8 orders with $100 each and lose 2 orders with $10 each, so you have a profit of (8 × 82) – (2 × 10) = $636
But what about the opposite? It means that you win 8 orders with $10 each and lose 2 orders with $100 each. You will lose (8 × 8.2) – (2 × 100) = -134.4. This is not pleasant at all.
What about a win rate of 30%?
Now, considering the 30% win rate, you have 3 winning orders with $100 each and 7 losing orders with $10 each. You will win (3 × 82) – (7 × 10) = $176. And if the opposite happens, it is, of course, a disaster.
In the two examples above, we can see that with a payout rate of 82%, you can still lose $134. However, the win rate of 30% with proper capital management gives a profit of $170.
Therefore, managing capital in trading is a must. Proper capital management will help you at least not lose money in Olymp Trade even though the trading strategy is inefficient. And when the strategy has a high win rate, you will definitely make money in Olymp Trade.
How to choose a capital management method that suits your trading strategy in Olymp Trade
There are many capital management methods you can use for your strategy. Each capital management method has its own advantages and disadvantages. If your choice is not suitable for your trading strategy, you will lose or even burn your account.
Which popular capital management methods in Olymp Trade do you know? If not, you can review this article: Capital management in Olymp Trade: The key to making money.
In that article, you will know about the management methods commonly used by traders in Olymp Trade. Each method of capital management will have its disadvantages. Please read it carefully before continuing with this article.
Ok, if you have read this far, we are going to get started. Below, I will guide you on how to find the right capital management method for your trading strategy.
Classic capital management method
The key to this method of capital management is stability. That means you will trade with a constant amount of capital. If you want to use it, your trading strategy must have a big and consistent win rate.
Along with that, the strategy must allow you to open enough orders within a certain amount of time. Because the Classic capital management method helps you to profit when and only when you trade enough. To be able to know this, you need to thoroughly test your trading strategy long enough. Coming with that is accurate statistics. I will give you an example for better understanding.
For example, I use the Classic capital management method when trading in Olymp Trade following the price trend and retest. After verifying, I realized that when the price creates a trend, there would definitely be a retest. 8 times out of 10 retests, the price will continue to follow the trend. Therefore, if I trade all 10 of these retests, I will have about 7-8 winning transactions. This condition is enough for me to apply the Classic capital management method.
Open orders with the Martingale method
This is the capital management method for traders with risk trading. Martingale’s principles are: If you lose, double the bet on the next trade. With just one win, you will get back both capital and profit.
It may sound easy, but the truth is that you can completely burn out your account with this way of capital management. See the following article to learn more about Martingale: How To Trade In Olymp Trade Using Martingale: A Waste Of Money If You Don’t Know How To Use It.
In this section, I will show you the prerequisites of your strategy for using Martingale.
Conditions for using Martingale in Olymp Trade trading
You can only use Martingale if your trading style ensures the following:
+ Your strategy cannot yield a big losing streak. Usually, a Martingale cycle will last about 4-6 orders. If you have a strategy in which you can lose 6 consecutive orders, using Martingale will only lead to burning out your account.
+ The strategy must not have too many transactions within a certain time. For example, in 1 day, your trading strategy should only allow opening 1-2 Martingale cycles. If you open more, the chance of losing money is very high. Because if you lose 2 cycles, you will need 10 winning cycles to regain the capital.
For example, the trading strategy in Olymp Trade using the Out Bollinger Bands candlestick combined with the resistance & support can use Martingale. Only 5% of candlesticks are Out Band candlesticks. And within one day, they are less likely to appear in the resistance & support zones. Therefore, you can only have at most 1 or 2 Martingale cycles with this strategy.
Capital management by gradually reducing the amount of capital for each order
The nature of this method is: The capital of the next trade is from the profit of the previous trade. With this capital management method, your account will be more secure. Because, if you win, your profits will increase. If you lose, you break even and you have to stop. With this capital management method, the more orders you open, the better it is for you.
Its downside, however, is that the first trade will weigh on your mentality. This capital management method is suitable for trend trading. In which, the winning probabilities of transactions decrease gradually.
For example, When trading following the trend combined with the SMA 30, I will open an order when the price touches the SMA and bounces back. Usually, the longer a trend is formed, the higher the chance of it getting broken and crossing the SMA to reverse. Therefore, if you trade with decreasing capital, you will make the most of your profits with this trading strategy.
Capital management with compound interest
That means after 1 winning order, you will combine both capital and profit for the next order. In trading, it is called all-in. And this is the fastest way for you to make money. But if you lose, you only lose a small amount of your initial capital. It may sound easy, but this capital management method is difficult for you to apply because of the following:
+ You will need to have a strategy with a very high win rate to be profitable.
+ Psychology weighs more on the last orders of the cycle because the capital for these orders will be extremely large.
For example, you start at $100. If you win 4 orders in a row, you will get $490. If you lose, you only lose $100. Therefore, you are allowed to be wrong 4 times. And with only 1 win, you will get back all your capital.
See the following article to see how difficult it is to use this capital management method. The Fastest Way To Earn Money In Olymp Trade: Compound Interest And 1 Minute
Opening orders with capital based on the hunch towards each transaction
With this capital management method, you really have to be a pro-trader to use it effectively. The key to this capital management is that you need to “feel” the orders with a high probability of winning. From there, you will adjust the amount of capital for that transaction more or less.
For example, when trading with reversal candlestick patterns, I will base on the accuracy of the candlestick patterns to adjust the capital. For example, when the Bearish Harami pattern appears in an uptrend, I only invest $20. But with the Pin Bar candlestick appearing at the price retest, I can consider opening an order with a capital of $100.
With this capital management method, your judgment must be really good for you to apply. If not, you can lose heavily with just a few trades.
By reading here, you have partly understood and grasped how to manage capital in Olymp Trade. Please check your trading strategy. What is the right capital management for your strategy? Fulfilling this means you have taken 2 out of 3 steps to reach your goal: Making money steadily in Olymp Trade.