About this site
Learn about investing in financial markets. I am trying to add new articles, information about inves...Learn more
Tags - money management investing money
I’m very aware I have talked about this topic before as well. But I feel this is something that really needs to be talked about more than once, from different angles and then peferrably repeated every once in a while. I believe this is both neccessary to you as it is to me in order to become a successful trader.
There are certain points which you and me both should follow at all times.
- Limit your losses!!! This is possibly the most important thing to remember EVER. Before entering the trade, make sure that should the deal go bad you wouldn’t lose more than you are ready to lose (for me it most likely won’t be above 10% of my capital, though possibly just couple of % per deal). And once you’ve set your limit, do not, I repeat DO NOT change your stop losses. More often than not you will only lose more this way. And if you’re still a beginning trader, then there’s NO EXCEPTIONS to this rule.
- Don’t say NO to new money! If your trade has gone in the desired direction, don’t be in a hurry to exit the trade (note that I’ll discuss a bit different aproach to this idea soon - greed). Of course, we can’t just wait the price to go up only to see it goes far too down again making us take a loss instead of small profit. Rather, once we see the price has gone up and we get a signal that we should probably get out, as a first thing, instead of exiting the trade, just raise your stop loss just below the current trading area. It’s never too much to win, as long as you keep your stop losses so that you wouldn’t lose much of your already earned money. But of course, this point here is questionable and I’ll come back to it soon.
- Diversify your portfolio. You shouldn’t put too much money on ANY one trade, 10% IS sufficient and in addition to bringing you enough profit it will also keep your losses at the minimum level. If you don’t follow this rule then ...even if you are capable of making good trades, by putting 25-100% of your capital to any one trade, this brings your emotions into play and like I have mentioned in my previous posts, emotions are not good in this business. This is again something that one of my next posts will disagree with.
- Risks and profits. How much money are you willing to risk in order to make $1 profit? If your answer is 1:2, think again – this means that you are ready to risk $2 in order to make $1. This sounds really stupid, doesn’t it? So instead, keep this ratio something like 2:1 or 3:1 – for every dollar you risk you are expecting $2-$3 in return.
- Trading in the direction of a trend is more often than not more profitable than trading against the trend in hopes that the trend will reverse. Here are exceptions of course, especially if you are knowledgable enough to actually notice trend reversal signals and are able to make use of them.
- Never try to decrease your losses by making the same trade over and over again in hopes that eventually the market will go in your direction and you will hopefully end up with profit or 0 point. A losing trade is a losing trade and should not be repeated.
- Losing money is good! Read this point with caution. If your loss management sucks then don’t read it at all, go on! If you have implemented a good loss management system for yourself – meaning that you never lose more than you can afford to lose or you never lose so much that you will become emotional, then losing money IS good. Losing trades teach you as much as winning trade does, possibly more. Why did you lose? Find the reason and you’re a lot smarter. And that’s only good, isn’t it? Losing Is Good! (except if about all of your trades are going bad...then, don’t try to learn anything from it, first stop for a month and read a lot of books and then start analysing what went wrong).
- No emotions, just analysis! Don’t make a trade due to your gut feelings. Don’t even think about it. If you make a trade, you better have a really good reason for it (something OTHER than you just HOPE to make money...)
- One day – 10 losing trades, definite NO NO! In addition to setting the amount of $$$ or % you are ready to lose a day, also set limit to the number of losing trades you can make. If that number is achieved, stop, as if you make too many losing trades in a row, you’re getting emotional again and that’s no good.
- Don’t trade other’s signals. Don’t trust others. Do I need to say more? Learn about it all yourself and don’t count on buying or selling suggestions of others.
Now what? Digg it | Add to My Yahoo | Add to Google Reader | Add to Del.ICIO
Comments (0) / Link to this topic - http://www.learning-to-invest.com/
» Volatility is your friend
» Tips from successful day traders, Part 3
» Tips from successful day traders, Part 2
» Tips from successful day traders, Part 1
» Make money not debt
» Make money not debt
» No skills? Free online trading school is there to help you
» End of month and need a loan?
» M&T e-Money Market
» 5 Traits of Highly Effective Financiers
» Great forex product reviews
» It's all about money management
» What is going to happen next?
» Brutally honest analysis of yesterday
» USD at its lowest levels of 2 years
» Testing time, Day 3
» Testing time, Day 2 UPDATE
» Testing time, Day 2
» Testing time, Day 1
» My own trading plan
» Technical indicators - Aroon, ATR, CMO, ADX
» Creating a trading plan
» Results of the trading competitions and next week
» Trading rules - something new to think about
» Forex strategies: Short term strategy
» The game of probabilities
» What can you learn from poker?
» Elliot wave - guidelines for wave framework
» Introduction Elliot Wave Principle & Fibonacci ratios
» What does Straddle mean?
» Forex platform review: Easy Forex
» How to find and confirm a trend?
» Different look into trading and life in general
» Introduction to Swing Trading
» Introduction to 1-2-3 Trading Method
» More trading rules
» Candlesticks – the importance of Gaps
» Sakata’s Method / method of Munehisa Honma
» Money Management
» Candlestick Continuation Patterns
» Forex and intermarket analysis
» Candlestick Reversal Patterns III
» Forex strategies: The Sidus Method (EUR/GBP and EUR/USD)
» Forex strategies: Big Ben Strategy (GBP/USD)
» Foreign Exchange: Carry Trades
» Candlestick Reversal Patterns II
» Candlestick Reversal Patterns I
» Introduction to Japanese Candlestick Charting
» MACD histogram
» The Three Moving Average system
» Technical indicators: Williams %R indicator
» Technical indicators: Parabolic SAR (Stop & Reverse)
» Common sense trading rules (Michael Jenkins)
» Geometry for predicting market behaviour (Michael Jenkins)
» Emotional vs rational trading
» Competition: First Day’s thoughts
» Trading competition, 4 weeks
» Bollinger bands
» Relative strengh indicator - RSI
» Introduction to Intermaket analysis III - global markets
» Introduction to Intermaket analysis II – related markets
» Learn to do your maths
» Introduction to intermarket analysis
» Introduction to technical indicators II
» Introduction to Technical indicators I
» Recognizing chart patterns II
» Recognizing chart patterns I
» More on volume & OBV
» Introduction to charts
» Learning from winnings AND losses
» What are sideways movements?
» Importance of volume
» Introduction to Dow’s Market trends
» Bull Market and bear market
» Who is Charles Dow and why should you know him?
» Stock background search
» Introduction to stock options
» Forex - pips, spread, margin, leverage
» Basic introduction to Forex trading
» What is Pattern Day Trading
» Signs a company is going bankrupt
» How to analyse stocks and forex?
» Which online trading platform to choose?
» How do I set my financial goals
» Investing basics - think before you act
» Learning to invest