Establish a Money Management Plan

Establish a Money Management Plan

Just as an investment strategy needs to be learned and maintained with disci­pline, money management in an investment account needs to be planned. The establishment of a successful investment strategy involves identifying signals and patterns that are going to be successful. Once that strategy is put in place, an investor becomes more comfortable because entry and exit strategies have been thought out. Thar same comfort should also be extended to how funds are allocated. The function of a successful investment strategy is one that pro­duces profits and does not overburden an individual’s time constraints. Addi­tionally, the allocation of funds should not be such that it causes tossing and turning at night.

Having too many positions will involve extensive analytical time. Fortu­nately, not very extensive when utilizing candlestick scans. Not having enough positions could involve too much possibility of one position greatly hurting the portfolio. An optimal number of positions for a portfolio should range between 6 positions and 14 positions, depending upon the size of a portfolio. Commod­ity accounts and futures accounts will have different position numbers. The main purpose of establishing a comfortable position number is important. The exposure of each individual position should be small enough as to not severely hurt returns if something drastically bad occurred in a particular position. On the other hand, the number of positions should not be so great as to require extensive analysis for when to get out of positions. Additionally, the size of the position should be significant enough to warrant attention every day or every time an analysis is made.

Once the number of positions has been established as a comfortable num­ber for the investor, the size of those positions should be an equal dollar amount. That produces the element of a ‘unit.’ Each time an analysis is done, it is to evaluate whether that ‘unit’ is going to be a positive factor or a negative factor to the overall performance of the portfolio. The component of being an emo­tionally derived decision is dramatically reduced.