Let’s start by saying: You can’t be afraid to take a loss. The investors that are the most successful in the stock market are the people who are willing to lose money.
Having a strategy and/or a specific philosophy is an excellent starting point to investing but it won’t mean a thing if you can’t manage your money. As I have said a million times: without cash, you can’t invest.
Most investors spend far too much time trying to figure out the exact pivot point or perfect entry strategy and too little time on money management. The most important aspect to investing is cutting your losses, 90% of the battle is won by protecting your capital, regardless of the strategy.
Most successful money managers only make money 50-55% of time. This means that successful individual investors are going to be wrong about half the time. Since this is the case, you better be ready to accept your losses and cut them while they are small. By cutting losses quickly and allowing your winners to ride the up-trend, you will consistently finish the year with black ink.
Here are some methods that can help you with money management:
Set a predetermined stop loss (you must know where to cut the loss before it happens “this will help control emotions when the time comes).” A 7-10% stop loss insurance policy is best. Tighten the stop loss range in down markets and loosen the range in strong bull markets.
Establish smaller positions if your account has had a recent losing streak (the losses may be telling you important information such as a critical turning point, it may be time to sell and get out).
If you think you are wrong or if the market is moving against you, cut your position in half “this is the best insurance policy on Wall Street.”
If you cut your position in half two times, you will be left with only 25% of the original position “the remaining stock is no longer a big deal as your risk is very low.”
If you sell out of a trade prematurely based on a minor correction, you can always reestablish the position again.
Initial position sizing plays a big part in money management “don’t take on too big of a position relative to your portfolio size. Novice investors should never use their entire account on one trade no matter how small the account
Know when you would like to get out of a position after a considerable profit has been made. Signs of topping could be a climax run, a spinning top or higher highs on lower volume.
Finally, cut any trade that doesn’t act the way you originally analyzed it to act.
With these guidelines, you will be well on your way to solid money management skills that will help you profit in year in and year out. Always remember, you are going to take-on losing trades at least half of the time. This is a tough concept to accept for most novice investors but it a fact. If you don’t cut losses, you won’t beinvesting for very long as you will run out of cash and the desire to continue to invest.
The Indian markets rallied on Monday, buoyed by positive Asian cues on optimism that European leaders will be able to contain the region’s debt crisis. Ahead of a second summit on Wednesday, European Union leaders have neared an agreement on bank recapitalization and leveraging their regional rescue fund, reports suggest.
Across Asia, Hong Kong’s Hang Seng index is pacing gains with a 4 percent rally, while the benchmark indexes in South Korea, Taiwan and Australia are rising around 3 percent each.
CRUDE: Buy call on crude. We would recommend a buy the crude MCX November at around Rs 4,330-4,350 with a stop loss of around RS 4,280 and targets of around Rs 4,430-4,440 for the intra-day strategy.
GOLD: It is moving in a very narrow range of Rs 27,000 – Rs 27,500 and is hovering around Rs 26,500, so selling gold at Rs 27,000 would be a good idea. Even though gold has a long term uptrend since it is stuck in a side base move selling at Rs 27,500 for intraday trade for day or two would be the strategy.
SILVER: A buy call on Silver. Buy Silver December contract on MCX at Rs 53,000 with a stop loss of Rs 52,600 for a target of Rs 54,100.
ZINC: Go long in zinc at Rs 90.20 with stop loss below Rs 88.50. One can expect prices to move up and test levels of Rs 92-92.50 during intra-day trading.
A global consultant will authenticate Reliance Industries’ (RIL) $1.52-billion proposal to produce about 10 million standard cubic metres per day of gas from four satellite discoveries in its D6 block and also verify operator’s argument that gas prices should be raised above the existing level of $4.20 per unit to make the project viable. The decision would further delay the project that is awaiting government approval since 2009. The oil ministry has asked its technical arm, the Directorate General of Hydrocarbon (DGH), to appoint a global consultant to validate RIL’s optimum field development plan. The government is treading cautiously as RIL has demanded raising sale price of gas to make the project viable. But Reliance has not suggested at what price the project would be commercially viable. DGH has been directed to find the price at which the project would be viable.