DAY TRADING

Preserving Trading Capital

The real goal in money management for day trading is quite simple: Preserve Your Day Trading Capital.  Remember, you can no longer trade when your trading capital is depleted.  Learn to mitigate risk and you will be back to trade another day.

Share size reduction is just one of the many risk management tools needed to succeed.  As a trader, determine how much you are willing and able to lose.  Understand that trading is about risk, and risk is about capital exposure.  Know in advance how much each trade will risk.

The table below is a simple guide that may give you ideas on how best to preserve your trading capital.

Trading ProfitsDevelop a simple set of rules that dictate taking profits early in trades. When a trade reaches your target, simply exit and move on! Focus on techniques to generate consistent, modest profits ad not on hitting the big one.
Withdrawing ProfitsCreate a systematic approach for withdrawing profits from your trading account. Based on your account size, withdraw on a regular basis, (every x days, weekly, monthly) a percentage of your profits.
Margin CallsCreate an insurance policy approach that will assist with foreseen events that impact your trading, and as a result have clear defined reasons for why you are adding more funds to your account.

Stay organized with your thoughts on how you want to preserve your capital.  The table below is an example of a trader’s plans on what to do in General, with future Profits, and with potential Losses.

GeneralProfitsLosses
Develop methodology to determine the share size for each trade.As a trade is executed, a Z initial stop loss must be established based on XXX and nevere decreased.Never trade stocks that have an average daily volume of less than X shares.
For Options, never purchase more than X contracts in any position.Until trading habits are consistent, small trading profits will be taken until further notice. Attempting to hit homeruns will continue to lead to strikeouts and failure.The maximum loss per trade on stocks shall not exceed Y% of the total working capital.
Ue XYZ strategy to enter all positions with maximum of Y contracts on initial entry.Must contribute Z% of all profits to the insurance fund for catastrophic losses.Once a trade reaches Z% of the profit target, move the initial stop immediately to breakeven.

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