Trading Basics: Evolution of a Trader

THE MONEY MANAGEMENT MATRIX

Peter Nilsson (December 2006) discussed the “Money Management Matrix.” Table 2.5 shows my version of the matrix. This is oriented not to the buy-and-hold crowd, but to the other types of traders. It does apply to the core portfolio and will help buy-and-holders time the market for better results.

Table 2.5 Money Management Matrix for Long Positions

Stock and market up: If the stock or market is making higher peaks and higher valleys, or if your favorite moving average (such as a 150 day/30 week moving average) is sloping up, then the stock/market is trending higher.

If you smile most days after looking at the value of your portfolio, or cannot wait to check how much money you made in the markets each day, then the trend is likely upward.

Stock and market sideways: A sideways trend means the stock is moving horizontally, with a moving average showing flat or nearly flat slope (shorter moving averages might look like the nasty edge of a hacksaw blade held horizontal).

Stock and market down: Down trends mean lower peaks and lower valleys and declining moving averages. If your hands curl into fists and your teeth clench after reviewing your portfolio most days, or if you lose interest in checking the stock market, then the trend is likely lower.

• Determine when to buy, sell, or hold by the stock and market trends.

The following discussion explores each of ...