An important aspect that most traders miss; find out here!
Most of the novice traders and retail participants take positions without thinking of the aftermath.
Most of the novice traders and retail participants take positions without thinking of the aftermath. No matter how good or bad the trading setup is, most of the intraday players and positional traders end up losing money to brokers by way of high brokerage, excessive trading, revenge trading, etc. So, let’s know what separates profitable traders from the rest of the traders. The answer is money management!
So, what exactly is money management?
Money management refers to managing trading capital effectively, minimising losses, maximising gains, and also, growing trading money. Some confuse money management with risk management and this is not entirely true. Money management doesn’t belong to your trading setup, but to your money-making psychology. It majorly focusses on protecting your trading capital and generating good profits through your trades.
Money management focusses on the risk-to-reward ratio, which determines the overall profit at the end of the month. Another important thing that money management looks after is - position sizing. It lets you minimise unwanted risks and keeps running profit inflow.
During times of turmoil, money management rescues you from maximum losses and gets you out quickly. The month of February, so far, has been quite eventful & tough for traders with bad global cues as well as unforeseen events, interest hikes, and uncertainty about the Budget. Most likely, the month of March is expected to be the same. With five state elections and the February interest rate hike decision coming up along with geopolitical tensions keeping the global markets at bay, the market is not likely to see any positive performance. During this time, money management shall come to the rescue and protect traders from excessive losses.
Money management in a nutshell
Money management is crucial for traders’ trading capital as well as long-term trading goals. If you don’t manage your money carefully, you won’t have money for trading soon. Money management can prove to be a game-changer in the long run if applied effectively. So, now the questions arise:
Do you want to grow your capital? Do you want to trade for a long time? Do you want to be financially independent? If yes, money management is the ultimate way of achieving these goals!
We, at DSIJ, share such informative content in our educative mindshares with an aim to help the novice as well as experienced traders to get acquainted with such useful tools and concepts! We have a wide range of traders’ and investors’ products that have proved useful to our clients in the long run.