You might have read in my previous articles that money management and risk management plays an important role in minimizing the risk involved in the trading. In order to increase the profitability of the traders, money management is done. Being a trader you must not just simply invest, instead you should invest smartly by implementing following money management techniques.
Before you know about the money management techniques, read what is money management? Money Management is a crucial element in the financial market in times of volatility. Every good stock trading strategy includes the factor of money management, which can be explained by following a cluster of words. The process of funding, cutback, endowing, investment, spending the cash usage of an individual is called Money management. The money management can be done by the traders itself but in a better or in a professional way technical analysts can manage the wealth. Investment decisions are generally made for large collections of funds, they are mutual funds or pension plans. In our daily routine, each one of us practices some kind of wealth management. In this article, some of the important and frequently used money management techniques are discussed.
Pyramiding or Averaging Up
This is proper money management technique used for controlling risks. Here pyramiding means the growing up the size of winning the position. Each add-on has a higher size. If the technical analysts evaluate sizes on the basis of total stocks, traders may utilize profits in order to add to the position.
This technique is well known to boost the productivity of the traders and investors. However, the strategy is meant to exploit the trend. The traders must have enough capital to go through the series of averaging up pyramiding. Thus, traders can stay in the market for the long period. The main aim of the technique is to boost the profit factor.
Another technique used by the technical analysts is averaging down. This technique is also known as “throwing good money after bad”. This technique is opposite of the technique described above, Averaging up.
This technique is made up by increasing the size of the position when the stock is in negative region.
This investing strategy works almost in the same manner as the cost averaging strategy. The only difference between the cost averaging strategy and value averaging is that the fixed amount spent in position. The value average strategy invests a certain amount in order to fulfil a targeted value. The traders can buy the limited amount of currency or stocks over a time through systematic investment strategy.
Thus, traders can successfully trade by implementing these money management strategies.