Money Management in the RSI Zone

Wednesday, 23rd December 2015 10:11 - by Moosh

As I have mentioned many times, I don’t buy large quantities of shares and I want to see a company hit the RSI Zone first before I even begin to consider it...but once a company enters the RSI Zone, how do I manage my money?

Obviously, I cost-average a holding – I assign an amount of capital to a company, for example, £2000, then I split it up into 10 tranches of £200, and then I follow these simple rules, providing I am happy with the fundamentals of the company at the time of the buy:

-          Buy an initial tranche once the company is in the RSI Zone

-          Buy further tranches if the price drops 10% or more from the initial tranche BUT making sure that I am only buying ONCE A WEEK to avoid overtrading.

-          NEVER buy into a rising price – just see how far the price goes up with however much capital was invested

The rules aren’t that difficult are they? What it means is that rather than buying, for example, £2000 all in one go and then putting a stop loss on it to preserve capital (which is the common way of investing), I am preserving capital by not buying as much in the first place but I always have the option of buying further tranches if the price drops further (as can happen in the RSI Zone). I am an investor and I understand that I should be willing to hold until an uptrend appears. By splitting the capital into tranches while the price is oversold means that buyers during this period will be buying and holding to provide support before the main rise appears. It also means that buyers who split an assigned amount of capital into many tranches are unlikely to be panic selling or becoming jittery because this money management technique would mean that they then become sideliners following an initial tranche, waiting for any further dips in price according to the rules above, providing the fundamentals hold up on any future weakness.

Clearly, the assigned amount can be anything you want it to be – large or small, and the number of tranches can vary too – these are things which YOU can control, so why not take control of them? YOU have the power to do that, so don’t let the market control you. Try something different.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.