First, learn how to lose...
Keep your losses small and let your winners run...
Always honor your stop!
Don't enter a trade without knowing EXACTLY where your stop is.
Ask "how much can I lose in this trade?" before you even think about how much you can make.
Always protect your down side.
Our #1 job as Day Traders is to manage our risk.
You're going to be wrong A LOT, get over it!
There are hundreds of ways to say basically the same thing about Risk Management when it comes to Day Trading. Early in my Day Trading career, I said each one of them about a hundred times to myself. Today I repeat them countless times to the traders we're coaching.
This week I was searching for a way to get through to a trader who is just spinning his wheels. He's not losing money but he's really not making money either. He'll have three winning trades but then a SINGLE losing trade will wipe out ALL the gains from those three winners. Obviously he's completely frustrated by this. Why is this happening to him over and over?
It's easy to just fault him for not following the rules bullet pointed above. He wasn't honoring his stops, so he was constantly losing more money than he was originally risking on the trade. His average losing trade was about 40% HIGHER than his average winning trade. Identifying the problem(s) is easy, that's just math.
What we didn't understand is the WHY behind all this. WHY is he not honoring his stops? Maybe it's an execution issue? Can he get out of the trades quickly enough when they turn against him? Is he afraid of admitting he's wrong? So he's just going to hold and hope. Maybe he's just too stubborn and doesn't like to lose? He stated his wife would agree with the last two...
The reasons WHY behind not managing risk properly are different from person to person. But every trader who is struggling with this needs to dig deep and figure it out. You're never going to fix this or any problem if you don't understand WHY the problem is happening in the first place.
The reason(s) why the problem is happening in the first place can vary, but one thing is constant: If you can't manage your risk day in and day out on EVERY single trade, you'll continue to struggle at being consistently profitable. PERIOD.
Want to be a successful Day Trader?
Want to be consistently profitable and make a living by Day Trading?
Learn how to lose. Just like in life, if you're a poor loser, you'll never be a winner. Same thing for Day Trading.
All Day Traders have losing trades every day. Learn to lose like a winner and you'll be consistently profitable.
Need help with your risk management? Need help figuring out "the WHY"? Reach out.