The secret to trading the stock market successfully
Many new traders are so eager to start trading, they forget to sort out the money management side of things.
But by neglecting this, they're unlikely to do well trading.
So how should you manage your money when you trade?
Let's take a closer look…
Why money management is so important when you trade
is a vital aspect of trading the stock market as the risks are higher than investing. This is because, thanks to gearing, you’re effectively borrowing money to trade.
You can lose more than you put down on a trade. And large losses mean you won’t be trading for very long.
Use the following rules to manage your money…
Money management rule #1: Use stop losses
Stop losses are a vital part of controlling your risk and your money in the market. You can also adjust them to protect your profits if a trade is moving in your favour.
Stick to trading the most liquid shares and assets. This gives you a higher chance of you trade being closed out at your stop loss. But there is always the chance your trade can gap through your stop loss, giving you a bigger loss.
Money management rule #2: Look after your money in your trading account
You need to try your best to keep and grow your balance in your trading account. The easiest way to do this is to follow the next two rules…
Money management rule #3: Stick to position sizing
Never risk more than 2% to 3% of your capital on one trade. You can use stop losses to help prevent this happening with all of your trades.
Money management rule #4: Move your stop loss to preserve profits
As well as protecting you against the down side, you also need to move your stop loss up when your trade performs. You need to keep an eye on your trade and inch the stop loss up to lock in profits you make.
This means if your trade takes a turn for the worse, you should hopefully breakeven or make a smaller profit than you initially wanted.
So there you have it. The secret to trading the stock market successfully.
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