While trading in stocks, you need to be watchful of every action to be a successful trader. The traders must not only implement the indicators and oscillators for the study of the market but also look after the two very crucial key factors of stock trading. These key elements are risk management and wealth/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.
When traders want to manage money correctly and efficiently in stock trading they have to give priority to money management strategy keeping some questions in mind. Those are what is a risk: reward ratio? How many open trades can be handled at a time? Money management can be used in an offensive and profitable manner. In general, there are two styles to follow money management. Either a trader can take numerous small stops and attempt to produce profits from the small number of large appealing/winning trades, or vice versa a trader can choose to go for many small gains and take rare but hefty stops.
The first method can make many small illustrations of mental soreness, but it produces few major moments of happiness. On the other side of the moon, the second strategy generates many small cases of happiness but experiences few large case mental soreness, which will be over won by those small cases of happiness. With this broad-stop advance, it is not strange to lose a week or even a month’s value of profits in one or two trades.
Risk Management is another crucial element in stock trading. The risk management can be explained by the following group of words. The practice of identifying potential risk in advance, analyzing it before itself and then applying the precautionary steps in order to reduce or diminish the risk is called the risk management. When a person makes a savings pronouncement or decision, he/she depicts himself/herself to a number of financial risks. The unit of risks depends on the type of financial instruments. The financial risks might be in the form of high price rise, volatility in markets, recession, bankruptcy, and much more.
Therefore, in sequence to reduce and manage risks, money managers or traders put into practice risk management. Not giving suitable importance to risk management but making investment decisions wisely might cause disaster in times of financial turmoil in a financial system. Different stages of threats come with different types of asset classes.