THE MOST IMPORTANT ISSUE IS THIS!
In the world of finance, money management has become a strategically important element, especially for a trader engaged in buy-sell (trading) transactions. Money management is directly related to a trader's ability to manage risk, maximize trading opportunities, and generally create a sustainable trading strategy.
Importance of Money Management:
For a trader, money management is a fundamental component of trading activities because it enables effective management of financial risk. There is always a degree of risk in investment activities, and this risk can quickly deplete a trader's trading capital if not well managed. On the other hand, effective money management can help a trader optimize both risk and return (Chen, 2021). Specifically, money management means the trader's ability to protect and best utilize their trading capital. This includes determining how capital will be allocated to limit potential losses and maximize investment returns. Effective money management is directly related to the trader's ability to understand and manage the financial risks they face (Thune, 2020).
What Should Be Done:
Creating Risk Management Strategies: Traders need to create risk management strategies that determine how much capital will be risked in each trade. A general rule is to risk a certain percentage of the total capital - usually between 1% and 3% - for each trade.
Diversification: Another way to reduce risk is diversification. Traders can manage risk by distributing their capital across different asset classes, sectors, and geographies (Chen, 2021).
Disciplined Trading: Another important aspect of money management is disciplined trading. This includes adhering strictly to established risk management strategies. Traders must resist the urge to make emotional decisions and get rich quickly (Thune, 2020).
Education and Research: It is important for traders to receive regular education and conduct research on market trends and dynamics. This can help them create and implement effective money management strategies.
References:
Chen, J. (2021). Money Management. Investopedia. https://www.investopedia.com/terms/m/moneymanagement.asp
Thune, R. (2020). The Importance of Money Management in Trading. The Balance. https://www.thebalance.com/the-importance-of-money-management-in-trading-1031023
ŞIKLAR, İ. (2004). Financial economy. Anadolu University.
Çakan, S. (2017). Use of Dynamic Binary Buy / Sell Investment Strategy in Investment Decisions: An Application in BIST (Doctoral dissertation, Anadolu University (Turkey)).