Before starting investing you need to put on paper couple of very basic but at the same time very important things. Firstly – how much money do you have for investing? What is the initial sum you can afford to put into market? How much could you add to your investing portfolio every month? Whether we have a lot or just a little money – when we take a deep look at our money management we can pretty much always see that there is some money that could be used to put into your investing portfolio instead of just spending it for something else. When talking about me...then if the motivation is right, I could easily put 50% of my monthly revenues into my investing portfolio – this pretty much means that my current money management sucks – I just spend too much!
Secondly – how much are you ready to lose? Before even thinking about possible ROI ( return on investment ) you need to think about how much you’re willing to lose without feeling your face going green. And depending on the green-face level you need to take risks – no more, no less.
Thirdly – what kind of ROI you are looking for? Are you looking for a certain amount of money or are you looking for an increase of certain % of your money within a certain time?
Fourthly – are you physically and mentally capable to stick to your plan? If you have had 6 losing trades within a day and by the book (according to your trading plan) you can’t lose any more today. What do you do now? Do you see a definitely winning stock and still make a buy...only to see a decrease in your portfolio again...or are you able to stick to your plan and call it a day? There’s two reasons why you SHOULD call it a day and start again the next day. Firstly – your plan was set and in order to become a winning trader you need to stick to your plan. Secondly – poker players probably know this term better than others – if you have a long losing streak there’s a great possibility that you will go on tilt. And if you’re on tilt you start making stupid decisions, you’re not thinking anymore, you’re depressed and this way you will now only lose money.
