FROMDo you know why athletes such as Pelé, Eddy Merckx, Usain Bolt and Serena Williams have broken world records in their discipline? In order to achieve their outstanding results, they imposed on themselves a lifestyle and rules that they respected. The same is true in the financial markets. Without rules and rigor, your investment choices will not meet your expectations.
Identify your emotions and the emotions of the markets
Watch a 3 minute video from a youtuber to learn all about the financial markets, hesitate to invest because you imagine you are doomed to lose everything, be on the lookout for the adrenaline that your first successful trading gave… All these behaviors exist. and are normal.
Indeed, every investor makes a choice based on their emotions and beliefs. However, it is necessary to strive to beware of this, the risk of some investors may be, especially when they begin to pay more attention to profits than losses, or vice versa.
Is it worth buying this value? How much should I invest in this position? What risk can I take? These are the questions a trader asks every day. But every day the answer may be different, although the tools and elements of analysis have not changed. But there is one difference: your emotions.
Money management is precisely about identifying behavior in financial markets, in particular through biases, and also about helping you choose management rules that will not change depending on mood, in order to optimize financial gain.
Never go against the trend
Your decisions should take into account not only the expectation of your emotions, the biases induced, but also your experience in the markets. Events in your personal life or your mood may influence your choice. First of all, it is necessary to take into account the moods present in the markets. And it’s not easy at all. To measure the nervousness present in the markets, the United States has the VIX (Volatility Index). A high level indicates a significant presence of anxiety or stress in the market. You can expect sharp moves up and down without reference to market trends.
But in the world of finance, VIX is far from the only analytical tool for predicting market developments. Japanese candlesticks or moving averages also provide additional reading and insight into market analysis. These tools allow you to identify trend reversal periods, apply and adapt your trading strategy.
What money management to take?
Everyone is free to set the rules of governance he wants. They are based on your personal situation, your appetite for the financial markets, your good knowledge of yourself or your work goals.
To help you install them, we will share these few points with you:
- learn how turbos work before you start trading, test your way of trading to identify your emotions and channel them in the right direction.
- be aware of the risks involved and invest only if you accept and control them
- close a position when it has reached the expected profit or maximum loss threshold
- set the maximum loss threshold in percentage, not in real value, using stop loss or knockout (deactivation barrier)
- set intermediate income goals
- diversify your positions to limit and distribute risk
- tailor the leverage effect, chosen according to your ability to bear losses, as well as according to the type of trading you want to set up: scalping, intraday trading, swing trading, etc.
Lastly, re-evaluate your money management and your rules according to the results achieved over a given period or budget. Beware of moments when you are demotivated or overexcited by your achievements, these are the moments when it is useful to discuss and sometimes retreat from the situation. Remember to stay up to date with market news with analysts and finally learn from what has happened to make the right choices to check or adjust your money management on future trades.