How To Manage Risk As a Day Trader

About 90 of traders loss 90 percent of their capital within 90 days, so goes a famous quote from brokers. They do not fail because they lack profitable setups.

They fail because they cannot manage their losses. Protecting capital is the cornerstone of trading.

Always endavor to set your risk at one percent per trade and a maximum of 2 percent.

During times of sustained drawdowns(loss making streak), halve your risk until you start making money. That could mean cutting your risk from 1 percent to about 0.5 percent or 0.25 percent.

Do not over trade, take a max of three trades a day under normal circumstances.

Only trade high probability set ups, less is more. Avoid the temptation to trade every day.

Euphoria trading

Do not trade after losing two trades in a row and watch out for euphoria trading after a winning streak. Take a break during a losing streak or go on vacation.

Do not set money goals, they create unnecessary pressure that leads to subpar setups and eventually drawdowns.

Cut losses, do not wait for losses to accumulate, when the market is printing bearish candles, cut and walk do not wait for the market to hit your stop loss. Avoid moving your stop loss to accommodate more losses.

Track

Track, analyse and journal your trades. Analyse your winning percentage and risk reward ratio.

Accept to be wrong and recognize the lose by cutting loss making trades, do not be stubborn. If the trade is going against you, it means you are wrong, stop saying it can go higher. Take profits on winning trades, lock-in the 20, 30, 50 percent as the market avails it to you.

When you are having dramatic events in your life, do not trade.

Rules

We have to be rigid in our rules and flexible in our expectations. By rules I mean, not putting in money without a setup or pattern, not over trading, sticking to your risk ratio. Expectations mean the money we expect to make from the markets.

Perhaps one of the most important but overlooked aspects of trading is emotional capital. Being mentally stable can make the whole difference. Traders who are frustrated or going through issues that affect their mental state can make heavy losses. Avoid trading when you are under pressure or having emotional unease.