Stocks & Commodities V. 27:9 (22-24): Manage Your Money, Or Someone Else Will by Ray Johns

Manage Your Money, Or Someone Else Will by Ray Johns

You can stop that from happening, and here’s how.

Many traders, especially those new to the markets, tend to overlook a simple yet important premise when it comes to their trading: specifically, that the cornerstone of long-term profitability in the market revolves around successful money management. It may sound simple, but oftentimes, not enough emphasis is placed on the importance of proper money management. In fact, the management of your money (that is, taking steps to reduce risks and allocate funds) is so critical to success that it may be more important than making a profit in the market.

PRESERVE CAPITAL

The preservation of capital should be of paramount importance to any trader, and if you don’t think so, just ask anyone who has ever blown out while learning to daytrade. Many new traders (as well as investors) view making a profit as the main objective when they begin to speculate in equities, options, or currencies. However, this can be a dangerous mistake. Anytime you place making a profit ahead of protecting your core trading capital, the focus on money management and risk reduction starts to fall by the wayside.

HOW I LEARNED TO MANAGE TRADING CAPITAL

I learned the importance of money management not as a result of daytrading, but from learning how to play blackjack. Many traders eventually find their way to Las Vegas, either to enjoy what the city has to offer and/or the similarities that playing the stock market and gambling share. Learning to count cards can be helpful, since there are many parallels with daytrading — especially when it comes to money management.