In this third and final instalment into the brief exploration into my momentum journey. I will discuss the ideas of money management and how I use the insights in Stockopedia to keep me disciplined.
If you wish to read part 1 again where I discussed why I have incorporated momentum as part of my overall strategy please click here.
If you wish to re-read part 2 where I discuss how I apply technical analysis and what indicators I use please click here
Money Management
When I first heard this concept I thought it had something to do with portfolio construction and weightings. But in fact in the world of technical analysis the concept of Money Management incorporates a number of elements including position sizing, risk allocation and ultimately when to sell.
Any mug can pick stocks. That's why tip sheets are prolific and opinions as common as noses - everyone has got one. But the reality is that it's only the disciplined few that can actually manage money, and it's often where most investors fail.
Hence why, in my opinion, Money Management is crucial and an important concept to grasp before embarking on a momentum or technical analysis strategy.
Author note: It's why I love Stockopedia so much. Because it delivers quantitative insights without bias, making it so much easier to develop a strategy that is both manageable and replicable.
At its core I believe Money Management gives us the ability to continue to invest regardless of losing trades or a series of losing trades. What we want to avoid at all cost is a terminal loss of capital which removes us from the game altogether.
Markets get nasty, I know. I have lived it a few times now and I can definitely vouch for the idea that they are not fun. Especially now that my life circumstances had changed (refer to Episode 1 of my momentum journey to learn more)
I want to have an idea of what the maximum damage will be in a big correction. I want to ensure that any loss is only a small part of my capital, meaning that it would require an almost impossible amount of losing trades to deplete my capital to a point where I can’t continue anymore.
As I have mentioned before, markets go up and they go down. However…
