My first experience in the stock market was quite brief. I had a small capital but I wanted to earn a lot. So to win a lot, you have to bet a lot. So it didn’t take long before I found myself with very little money. We will give you simple but everything on how to manage your stock market.
At that time, I made an “excellent” decision: “I try everything for everything”! Result: big disappointment, I had just emptied my account … It was only afterwards, when I delved a little deeper into the subject, that I discovered how to manage my portfolio on the stock market.
It is undoubtedly one of the capital points which makes that a trader can be profitable or not in the long term! Let me explain how it works.
how to manage your portfolio on the stock market
What does “manage your portfolio on the stock market” mean?
Let’s get straight to the heart of the matter. When you start doing a bit of trading, you are going to use some capital. If you open a position, you will make sure that the maximum amount you will lose, in case the price does not go the way you thought, does not exceed 2% maximum of your total capital.
The ideal when you open a position is to use between 0.5% and 2% of your portfolio. So if, for example, your capital is 1000 €, you can only stake 20 € maximum per position.
Why is it so important?
In trading, you don’t win 100% of the time. A good trader can have a ratio of 70% of winning trades. This means that 30% of traders are losers. It is common to have several losses that follow. With good management of your portfolio, you can cash in losses that follow one another. Only in this way can you be profitable over the long term.
It should be noted that the target gain by investing, for example, 1% of its capital, will not necessarily be 1%. Depending on your trading style, you may have a ratio of 1.5 or 2 or more. This means that when you risk 1% of your capital with a ratio of 2, your gain if the position is winning, will be 2% of your capital.
A good trader is, therefore, someone who earns more than he loses and more frequently.
How to invest only X% of its capital?
Let me introduce you to your best friend in trading: “ STOP-LOSS ”!
The Stop Loss is a level, which you define, which must correspond to the amount which you accept to lose if the position is losing, as we saw above. When your money decreases and exceeds the Stop Loss threshold, the position is automatically closed. Stop Loss, therefore, protects your capital. You should never trade without it!
Before opening a position, you must calculate your Stop Loss. Depending on the asset you trade this one will not be worth the same number of pips. Did I lose you? Don’t worry, I’ll explain it all to you later😉.
Managing your portfolio on the stock market is one of the most important things to know if you want to be profitable over the long term. You must limit the amount you invest in the positions you open.
To do this, you will always need to use a Stop Loss that will be adapted to the asset you trade and the amount you commit to the position. I will end this article with a simple but meaningful sentence: It is essential to protect your capital!
I invite you to ask me your questions in the comments. I will answer it with great pleasure.
Thank you for reading this article!