Money Management Tips Part III Using Cash, Diversifying & Hedging Risk
By Ultimate Trading
You Must Follow Good Money Management Tips To Succeed
All money management tips are meant to protect your capital and
profits from unnecessary risk. But locking in your profits and
taking small losses guard individual trades. The
tips covered in this article offer a wider-ranging protection,
and give you more security in markets that are choppy and perhaps
One of the first money management tips you should consider doing
when a market seems unsteady or overbought is to lighten up your
positions and go mostly to cash. This is particularly true if you
are using margin. Whenever a market is about to turn its always
safest to have cash. Severe market volatility is unpredictable and
difficult to trade in, its better to simply stay away from it.
Diversification is also another one of our very important money
management tips. Putting all of your money into positions that carry
the same types of risk are not good money management tips. Instead,
find trades with different risk levels and risk factors so that if
one sector experiences a sudden downturn, only a portion of your
account will be affected.
There are other money management tips to hedge your risk, and you
may want to consider learning about some of these money management
tips. For example, if you're playing a stock that you believe will
go up but could instead go down, try to find a weaker stock that
should generally go in the same direction as the first stock and
short the second one. That way, if the primary stock goes down,
you'll profit from your short, which is likely to fall faster
because it's weaker. If the primary stock doesn't fall, the
secondary stock is also not likely to rise as fast for the same
Many common money management tips involve options. Two more examples
of money management tips are straddles and strangles. A straddle is
an options play where both a call and a put are purchased. The call
and put have the same strike price, the same expiration month, and
the same underlying stock or index. A strangle is another options
play where both a call and a put are purchased. In these money
management tips, the call and put have different strike prices
(usually both out of the money), but have the same expiration month
and the same underlying stock or index. Hedging is a form of
insurance, so it will cost you a bit by decreasing the profits you
make on a play. But there are times when insurance is well worth the
However, there are traders who routinely fail to use most safe
trading and money management tips. These traders should ask
themselves why they're engaging in this dangerous and self-defeating
behaviour. There is almost always a psychological motivation for
something that doesn't otherwise make sense.
Risky behaviour is often a form of escapism or a substitute for
something more meaningful in a person's life. If you seem to resist
using proper money management tips or often "forget" to make a plan
or set stops, take a look at your own motivations. Better to figure
it out now, deal with it, and prosper than to lose all your money
because you didn't know what you were really trying to do. Removing
any barriers that exist to your practise of
tips will enable you to reap all the benefits that trading has
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Money Management Tips