Fixed Fraction Model

The geometric growth of the mind is possible to apply the monetary management model of fixed fraction when the profits reach a certain amount that reflects in an increased size of operations, i.e., the geometric growth occurs when the profits are reinvested and the size of the operation is increasing. Once the bill becomes a certain size, this model allows money management to make withdrawals from a percentage of capital regularly without affecting the efficiency of the trading strategy.

To take an example to see the difference between arithmetic growth obtained with the model of fixed lot and the geometric growth obtained with the Fixed Fractional model. If we perform two operations and each grown our own 10%, at closing would have a 120% growth in arithmetic (100 +10 +10). However, in the geometric growth, it would get 121% in the second operation because 10% is about the opening balance plus 10% obtained in the first operation. This is the effect of compounding. We must fully understand the concept of geometric growth in understanding other monetary management models to be discussed later.

Suppose you have an account with $10,000, have average earnings of 20 pips and start operating on 1 lot. Now you begin to operate with 2 lots. Now it takes less time to reach the next level would be the use of 3 lots when they reach $30,000. You see, with increasing size of operations is increasingly changing the size of operation and this leads to an increasingly rapid growth of the net value of the account. However, every time you increase the size of the operation also increases the net risk, i.e., the dollar amount is risky. Although the percentage is fixed, not the net amount, and this usually affects more stress and psychological burden for the trader. As the account balance increases, the ups and downs are more pronounced and you can see more volatility in the net.

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