Monday May 20, 2013 19:11
Money Management – The Key to Success in Online Investment
Posted by Matteo Bruno as Money Management
In this article I will explain why proper money management planning should be the most important part of your investment preparation. If you have never implemented money management in your investing/trading, read the 5 basic principles described in this article and learn how to use your capital properly in your financial activity.
What is money management?
Money management is 80 percent of the investment plan and the most important aspect in online investment, trading the forex market or investing in hyip – high yield investment programs (the remaining percentage are used for implementing a system/method).
Why is money management so important?
I can’t emphasize enough the importance of using money management in any financial endeavor. When it comes to the bottom line, it is the only mathematically proven way for leveraging your money and achieving your goals in the quickest way.
For a proper money management you will need to include these 5 principles:
1. It controls the amount of money you will invest each time, based solely on the account equity curve (your profits/losses over time). You must not use money management to generate buy and sell signals.
2. It takes into account both risk and reward factors. Know your risk potential at any time; don’t “close one eye”. It’s easy to think only about what would be your profits.
3. It takes into consideration the value of the entire account. Your capital is the most important thing (you can’t invest with $0). Don’t let few minor losses destroy your entire capital and force you to make hundreds percentage in profit just to retrieve your principal.
4. It discounts all factors that cannot be mathematically proven or formulate. Your thoughts and emotions can’t be implemented in proper money management plan/formula.
5. It formula should give you one outcome for an each set of variables, without any guesswork.
Proper money management wouldn’t work if you don’t already have positive expectations from the system/method you apply in your investment. No matter what, even if you have the best money management plan, there isn’t any money management formula that will mathematically turn a losing situation into a winning one.
You must understand that leveraging your money with money management can turn a relatively mediocre investments/trading situation into a dynamic moneymaker. If you have already started investing without money management formula, it is time to reorganize and re-plan your strategy from here on.
Proper money management can be used on any leveraged situation; it doesn’t matter whether you invest in the stock market, hyip or any other market that generate profits from investment. So, if you haven’t started your online investment activity, you may be tempted to “make it by yourself” or use “trading system” solely; Please don’t, money management isn’t an after the fact tool.
How you apply these principles to your online investments? It depends on several factors, such as, do you consider yourself conservative or aggressive, what are your financial goals as an investor, and the most important, your tolerance for risk.
Finally, money management is the most important tool used by the professional investors and millionaires. With this tool, combined with good system/method, you can control your risk and your profit potential.
Proper money management is the key that separate the successful investors from the crowd.