Is Holding Cash a Bad Idea?

Absolutely not, in fact there are times when holding cash is probably the smartest thing you can do.  I know no one likes to hear it, but sometimes you have to stay out of the market at least for a little while.

Here are a few reasons why it is important to hold cash when times are uncertain.

1.       Save Your Money for the big moves.

You can save your money for when the stock market starts trending again. If you are trading a volatile market and your positions are not going in your favor it is ok to step aside and let things work themselves out before entering the market again. 

2.       Save your confidence.

Trading is an emotional thing you need all the confidence you can get to let you follow your rules and stay in the market.  If you are trading through the tough times it may be hard to keep trading and to keep feeling like you have the right idea.  Save your confidence and hold cash.

3.       It prevents you from revenge trading.

If you are having a hard time profiting during these markets it can be tough.  But the last thing you want to do is to start revenge trading or trading with the idea that you have to get into a trade that works out for you to break even.  This is very dangerous because often times you can put yourself in a position where you are taking on more risk then you should be in order to make back what you lost earlier.

4.       You can still trade a little.

Holding cash doesn’t mean that you stop trading altogether.  You can always decide to trade only a small portion of your portfolio.  This way you can get used to volatile markets and see if you can even make some good money during it.  If you can well of course you probably want to put more money into it.

For more on revenge trading visit http://www.stocks-simplified.com/Revenge_Trading.html