Like any business or like your personal financial life, proper money management is very important if you want to last longer in this profession or if you want to even prosper. An unmonitored expenses will eventually put you into bankruptcy.
Your money management techniques alone can ruin you. If you put all of your money into one poorly chosen stock, you will lose everything. Of course this is an extreme example but the point is proven: misallocation of your capital can spell certain disaster.
On the opposite side of the picture, good money management skills can help you to maximize your profits. By properly diversifying your portfolio you can minimize the effects of your bad stock choices and multiply the benefits of the good choices. No one will ever pick the right stocks 100 percent of the time, although this should not stop you from trying. This type of safety net is not only a good idea, it should be the centerpiece of your trading strategy. You will want to structure your trading so that your degree of risk is always minimized while your growth is maximized. Of course some traders are riskier than others, but there are always ways to reduce that degree of risk.
Here are some other money management do's and do not's to be aware of:
- Do not chase your losses
- Do pick a number you can stand to lose during a given month.
- Do not subscribe to a set system.
- Do handle each trade separately
- Do take slippage into account.
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