Home > Money Management > MONEY MANAGEMENT TIP #4: BET EVENLY – ONE OR TWO CHIPS AT A TIME!

MONEY MANAGEMENT TIP #4: BET EVENLY – ONE OR TWO CHIPS AT A TIME!

November 7th, 2011

BET EVENLY – ONE OR TWO CHIPS AT A TIME: Don’t plunge into the market with large uneven bets right from the start. Get your feet wet by taking initial positions in your selected stock choices and then add to those positions if underlying market indicators dictate. Stay balanced and avoid the sudden emotional pull of the market, which will cause you to make unwise decisions at precisely the most inopportune times.

From the preceding example, choose a round number like $10,000 to put at risk in your trading account. Now break that amount into 10 equal size “betting” units or a “chip size” of $500. At a Las Vegas Craps table, this is like a guy with $200 in his wallet who buys in with a hundred dollar bill and asks for a stack of twenty $5 red chips. He has defined the amount of money to play with, the amount of money in reserve, and the dollar value of each betting unit. This important exercise helps an investor develop the disciplined money management mindset that is necessary to play the stock market game under control.

For example, finding the exact bottom of the market and the absolute lowest price for the stock you want to buy are nearly impossible tasks to accomplish on a consistent basis. Resist the temptation to be “perfect” by entering the market gradually and evenly. This tactic will keep you disciplined in your actions and humble in your attitude towards timely buying.

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Note: It is therefore important that you determine the amount of your “$5” red chip bet. I like to round off this number to the closest hundred or thousand dollar. Then I use this amount to determine how many shares of a particular stock I can buy. For me personally, I then like to determine the closest “round lot” I can then buy with that approximate amount of money. Hence, my $5 bet would eventually boil down to something like “100 shares of QQQ.” So when I am presented with a timely buying opportunity by my market indicators, I simply take a pilot position of 100 shares of QQQ without much mental strain.

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