Monday, April 25, 2011

Two for one money management

Here is a specific money management method that helps maximise profits and reduce risk.

1. Identify one 'unit' of the intrument that you trade. Suppose you trade 400 Nifty, then 1 unit = 400. If you trade 500 shares of ICICI Bank, then 1 unit = 500.

2. Enter all trades with a well defined stoploss.

3. Once you have a profit which is equal to the stop loss, then exit half of your position, which means, exit half unit.

4. Move the stop loss for the remaining half to breakeven. This means the stop loss for the remaining half should be your entry price.

5. Now, you have a 'free' trade on the remaining half unit. Keep a trailing stop to maximise profit on this half.

1 comment:

SWEETY said...

and finally don't forget to factor in **brokerage+taxes** - it might be a small one or negligible per trade... but not ignorable...

One cannot say there are in break-even without offsetting these costs.

love you all..