Money Management

Money  Managememnt

 

 

Money Management

RISK REWARD

 

THE DEFINITION OF RISK REWARD IS HOW MUCH ONE IS WILLING TO RISK TO EARN SOMETHING.  I.E., A TRADER IS WILLING TO LOSE .25 POINT TO EARN A .50 POINT.

 

LISTED BELOW ARE VARIOUS WAYS TO CONTROL RISK WITHIN A POSITION:

 

1.         TIMING INTO POSITIONS (BUYING DIPS AND SHORTING BOUNCES)

 

2.         ADEQUATE SHARE SIZE – 1/2 SHARES, 3/4 SHARES, FULL SHARES

 

3.         IDENTIFYING RELATIVE STRENGTH AND WEAKNESS

 

4.         ADDING MORE SHARES APPROPRIATELY TO YOUR BEST POSITIONS IT IS RECOMMENDED

 

5.         TRADE STOCKS WITH VOLUME

 

6.         SEE THE BIG PICTURE – WHAT ARE THE MARKET CONDITIONS?

 

7.         SET REALISTIC PROFIT GOALS AND STOP LOSSES  AND STICK TO THEM

 

8.         KNOW WHERE THE STOCK IS COMING FROM – DON’T CHASE

 

9.         WHEN DOWN ON THE DAY OR JUST NOT TRADING WELL GET SMALLER

 

ACCEPTING LOSSES

 

IT IS EXTREMELY IMPORTANT TO ACCEPT YOUR LOSS AND MOVE ON.  TOO OFTEN TRADERS AMPLIFY THEIR LOSSES BECAUSE THEY ARE IGNORING THE FACT THAT THEY’RE IN A BAD TRADE AND WON’T GET OUT.

 

I.E.      TRADER BUYS XYZ AT 45.50

            STOCK TRADES DOWN TO 45

            REGARDLESS OF ITS PRICE ACTION, VOLUME, MARKET CONDITIONS

            AND GROUP SUPPORT, A TRADER WILL PUT IN AN OFFER AT 45.25

 

IN THIS EXAMPLE, THE TRADER IS ONLY WILLING TO LOSE A .25  POINT (THUS A .25 POINT REWARD FOR STAYING IN POSITION DOWN .50 POINT).  ALL TOO OFTEN THIS HALF POINT LOSER BECOMES A .75 LOSER OR MORE.  INSTEAD OF HITTING THE BID AND TAKING THE HALF POINT LOSER THE RISK GREATLY INCREASES.

 

NOW, WHEN A TRADER IS STUCK IN A BAD POSITION AND THE STOCK FINALLY BOUNCES, TRADERS OFTEN FAIL TO USE THIS OPPORTUNITY TO GET OUT.  INSTEAD, THE TRADER HOPES AND PRAYS THAT THE STOCK CONTINUES TO GO IN THEIR FAVOR AND BEFORE YOU KNOW IT, THE TRADER IS DOWN .75 OR MORE.

 

 

 

 

 

 

Noah Hochman

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