WITHDo you know why athletes like Pele, Eddie Merck, Usain Bolt and Serena Williams broke world records in their discipline? To achieve their extraordinary performances, they imposed on themselves a way of life and rules that they respected. The same goes for the financial markets. Without rules and rigor, your investment choices will not meet your expectations.
Identify your emotions and the emotions of the markets
Watching a 3-minute video from YouTuber to learn all about financial markets, hesitating to invest, because you imagine that you will definitely lose everything in search of adrenaline, which provided the first successful trade … All these behaviors exist and are normal.
In fact, every investor makes a choice based on their emotions and beliefs. However, you need to try to protect yourself from this, the risk of certain investors may be that, especially when they start, pay more attention to profits than losses, or vice versa.
Is it worth buying this price? How much should I invest in this position? What risk can I bear? The trader asks them these questions every day. But every day the answer may be different, even if the tools and elements of analysis have not changed. But there is one difference: your emotions.
Money management is about determining the behavior in the financial markets, in particular through prejudice, as well as helping you choose management rules that will not change according to the mood, in order to optimize financial returns.
Never go against the trend
Your decisions need to take into account not only the expectations of your emotions caused by prejudice, but also your experience in the markets. Events in your personal life or mood can influence your choice. First of all, it is necessary to take into account the mood in the markets. And that’s all, but not easy. To measure nervousness in the markets of the United States, there is an index: VIX (volatility index). A high level indicates a significant presence of anxiety or stress in the market. You can expect sharp movements up and down without correlating with market trends.
But in the world of finance VIX is not the only analytical tool for forecasting market developments. Japanese candlesticks or moving averages also provide additional reading and understanding of market analysis. These tools allow you to determine the periods of trend reversal, apply and adapt your trading strategy.
What money management to accept?
Everyone is free to set the management rules he wants. They are based on your personal situation, your appetite for financial markets, a good awareness of yourself or your goals.
To help you install them, we share with you these few points:
- learn how turbo works before you start trading, check your trading method to determine your emotions to guide them
- be aware of the risks you take and invest only if you accept and control them
- reduce the position when it has reached the expected profit or maximum loss threshold
- set the maximum loss threshold as a percentage, not in real value, using a stop loss or knockout (deactivation barrier)
- set intermediate earnings
- diversify your positions to limit and spread risks
- adapt the selected leverage effect according to your ability to bear losses, as well as according to the type of trade you want to adjust: scalping, day trading, swing trading, etc.
Last points: re-evaluate your money management and your rules according to the results obtained for a certain period or budget. Beware of moments when you are demotivated or overly excited about your achievements, these are moments when it is useful to discuss and sometimes retreat from the situation. Remember to keep abreast of market news with analysts and finally learn from what happened to make the right choice to confirm or adjust money management on future transactions.