What is Money Management?
Management of money is an important parameter for any type of trading activity and is the prime moving force for an effective trading mechanism. How to manage the total capital resources you have is one of the most pertinent questions and one of the most recognizable dimensions in trading – both offline and online trading. After all, the management of financial resources calls for an efficient way of handling your funds and diverting a set portion of the capital resources into profitable channels.
Thus it is essential that you integrate your total workable solutions in such a manner that your fund resources are completely utilized in an optimum manner. However, is money management the only factor that counts in online trading? Well, the answer is no – it is an important parameter but it is not the only one.
Significance of mind management:
In online trading, the host of available options are numerous and so are the chances of gainful investment. Unlike offline or physical trading, where the bulk of efforts, energy and time is consumed in activities like form filling, paperwork, documentation, certification etc., online trading offers a quick fix to all these hassles. The procedure is overtly simplified and easily accessible by any potential investor or trader.
Online trading comes with a world of options that can make you wander ceaselessly owing to the numerous and varied benefits that they offer. This is why mind management and prioritizing your specific set goals and plan of action becomes more significant.
Where should you Focus on?
There are many skills that are required to trade successfully in the financial market. One should have the ability to evaluate the market & determine the direction of the stock trend. But neither of these technical skills is as important as the trader’s mindset. Still in a dilemma & wondering what exactly should be your area of focus while trading online. Whom should you give priority to – Your Mind or Your Money?
Having control over one’s emotions, instant decision making, discipline is the major components of what we call as trading psychology. Fear and Greed are two main emotions that should be noticed and kept under one’s check and control while trading.
Emotions simply cannot come your way while making decisions. Traders often think fast & make quick decisions. You must know to dart out your stocks at short notice. The presence of mind plays a vital role in making this decision. To book a profit or loss you need to stick to the decisions you make for your trading plans.
However, mentioned below is exactly the reason why mind management is so important in online trading.
Key Areas:
- Never let your mind wander
- Haste makes waste
- Never act on instinct
- Focus on your corpus
- Have a thought out back up plan
Further analysis:
Due to the inherent ease of trading and bulk of available choices in online trading, you often find yourself during various attractive and lucrative options and may not always know where to invest your funds. The options are mind-boggling and if you go by each available option, then it becomes very difficult to choose. This is why you must know how to choose, when to choose and what to choose. Following points synthesize the importance of mind management, as compared with money management in online trading:
- Never let your mind wander:
In the field of online trading, some options may seem lucrative than the rest at first glance. You may be tempted by the seemingly perfect benefits and seamless processing etc.
However, it is important to understand that adverts rarely list out the entire truth. Therefore, it is important to go by the data credibility and back upmarket research before actually investing.
- Haste makes waste:
Time is of the essence and just as too much delay can impede your growth, acting without much research or acting in haste can also waste your funds. The idea is to act in a balanced frame of mind.
In online trading, it is very essential that you weigh your options, give due thought to what your broker says and then match the available results with your specific requirements.
- Never act on instinct:
Market understanding comes with trade experience and to have the experience, you need to establish yourself. Always take decisions being mindfully aware of what the forecasts and projections say and avoid buying or selling of stock just because you “feel” like it.
Your actions must be rooted in pure logic and backed up with credible information.
- Focus on your corpus:
Instead of jumping to any conclusion first hand without much knowledge or awareness about the kind of results that may come in, the key is to invest more time in securing a major portion of your corpus.
The surplus is what must be circulated or used for diversification. The main portion of the corpus is meant to be kept as reserve and secure.
- Have a thought out back up plan:
In the world of trading, there is no guaranteed huge profit and due to its very nature, there are many factors that weigh in. This is why excessively relying on the primary plan rigidly may backfire.
Therefore, it is essential to have a secondary back up plan which acts as a cushion in the event of any unexpected loss on a trade deal.
Comparing your options, when done with crystal clear focus assumes great potential as a tool for knowing where to put your money. Not only does this help you remain unbiased towards irrelevant trading options, but you also get the benefit of data-backed market research which makes forecasting much easier. This is because when you exactly know where your options fit in, you will avoid any unnecessary weighing of other options. This will eventually help you amass credible data about your suitable requirements and will help you build a suitable and stable financial base over a period of time.
