Learn money management and increase your money with easy steps, Follow.

 Welcome to a new article from Us4invest Exclusive News. Money management is an English term that refers to the art of managing one's capital while limiting possible risks. It can also be defined as the process of budgeting, saving, investing, spending, and controlling the use of capital by an individual or group. Welcome to anew article from us4invest 

money management

What is money management?

• Money management, considered as a complementary approach to technical analysis, is an essential concept that a trader must master before opening a position on the stock market and manage the psychology of the markets more calmly, in the same way as the concept linked to the psychology of the trader. Unfortunately, this concept is often neglected by beginners who pay more attention to earnings.

Money management is often used by online trading and finance professionals to assess the ability to manage your earnings and your investment to avoid taking risks beyond your trading strategy.

Money management strategies

• There is no single money management strategy. Each trader must develop his own strategy according to his personality, his financial objectives as well as the risk-taking he considers acceptable. For this, he must ask himself questions such as should I buy this value? How much should I invest in this position? or how to calculate my maximum authorized loss?

A known money management strategy, simple but effective, is to set a precise loss limit without touching your basic capital so as not to lose control of the situation.

The rules of Money Management

While there are several strategies, here are some money management rules that the trader must follow:

Take the time to learn and develop a trading plan: you must know how to control your emotions and impose security rules that will prevent you from losing your capital in a few positions.

Accept and control the risks: trading often exposes you to the vagaries of stock markets and the risk of capital loss. You must therefore be able to close a position even at a loss to respect your money management.

Set yourself a maximum loss threshold: a good trader must learn to set a maximum percentage loss limit that he must respect every day. This reasonable threshold must be realistic so as not to affect your trading psychology.

Diversify and adapt the size of your positions: diversification will allow you to reduce the risks in open positions. This requires an adequate calculation to avoid excessive risk-taking.

Apply the concepts of risk management: a set of techniques to optimize your trading to obtain the best profit and limit the risk. Risk management refers to the use of certain trading tools such as stop-loss.

Advantages and disadvantages of money management

In the context of money management, the concept of maximum loss is expressed as a percentage of capital. It allows the trader to protect the latter by establishing a loss threshold. The great paradox of money management is that the greater the available capital, the easier and more effective money management will be. But if the trader makes small bets, he will find it difficult to apply the rules of money management and will be penalized as a result of his operations. Since the trader will not be able to reduce the size of his positions, he will have no other choice but to bring his stops closer together so as not to risk a large amount on his trades.

Thus, to limit the effects of this paradox, the trader must often relax the mathematical constraints of his money management strategy to achieve more interesting gains.

Without money management, trading like all other financial investments can be very risky. The key to the success of your trading strategy is closely linked to respecting your money management plan. You must practice opening and closing positions according to your trading strategy until it becomes a kind of automatism.