Keys to Personal Money Management – An Introduction

Provided By Ultimate Trading Systems

Six Rules For Successful Personal Money Management

Everyone knows that markets are risky, and that there is no crystal ball that will let you predict a market’s movements perfectly, that’s where personal money management comes in. Many traders will be looking for opportunities to make a profit, but good traders will also realize that sometime, somewhere, a market correction is going to occur. Since they don’t want to endanger their capital, they will be prepared for this correction and use personal money management.

They may even be able to profit from it, if they have good systems in place. Without these kinds of systems, and without personal money management, a trader can easily loose their capital to a market swing.

Personal money management rules are the way to protect your capital and your profits. Even the most unexpected downturns in the market can be dealt with by developing your personal money management rules carefully, and paying close attention to these six personal money management keys. These keys are important issues you must consider if you want to manage your trades safely and effectively: I’ll introduce the concepts now and go into them in more detail in the following articles.

The first personal money management key is to lock in your profits. One of the most common and frustrating mistakes that traders make is failing to safeguard their profits. Your trade may be showing a nice profit, but it's only “virtual” money until you do something to ensure that it's yours to keep.

The second personal money management key is to take small losses and make big gains. It might seem self-evident, but many traders don’t like to take small losses, believing mistakenly that they will recoup their losses eventually. But if you aren’t willing take small losses, you’ll eventually lose money. Keeping losses small keeps your capital intact so that when a trade does become profitable, you can make big gains.

The next personal money management key is to use margin with caution. Margin is a powerful tool that can really increase your profit, if it is used correctly. However, the fact that margin lets you make much more profit on successful trades also means you can lose much more on unsuccessful trades.

Another personal money management key that you must remember to go to cash every time the market nears its top. When the market is about to turn, cash is the safest alternative. This will allow you to stay away from market volatility that makes it difficult to trade and can potentially devastate your accounts.

Another key way to protect you accounts is to diversify your portfolio by finding trades with different risk levels in different sectors. Then, if one sector experiences a sudden downturn, only a portion of your account will be affected. Along with diversifying your portfolio, hedge your risk. 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 cost

If you use these six personal money management keys consistently and incorporated them into your personal money management plan, you will drastically improve your trading performance. But remember, your personal money management plan should be in place before you ever buy the stock. After you're in the position, it's too easy to get panicked by market actions or carried away by high expectations. If you have no personal money management plan, you will make mistakes. With a plan, you will be able to act calmly and rationally, and make many successful trades.
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