Money management is a key skill for any day trader. According to Mark Roemer Oakland, your technical skills will bring you crashing down in the stock market if you aren’t good with your money. Here are a few money management tips that may help you out:
Tips & Tricks
- Max Dollar Stop-Loss isn’t optional – Despite being aware of it, a lot of day traders lack the discipline to execute it. You should be wary of that one lurker that is the first domino to a set of catastrophes that flushes out your account. It’s easier to administer max dollar stop loss when you choose a platform that has it as an integrated feature. That helps you to avoid that exceptional anomaly and stay on the right path. If you don’t exercise this discipline you would fall into a trap that may be unrecoverable. Keep the max dollar amount within two to three times your daily average profits and adjust the max loss as the accuracy rate drops.
- Hunt down trades with a sturdy risk to reward ratio – Before going all out on a trade, it’s important to assess the stop-loss of the trade against potential profits. It’s ideal to keep your reward to risk ratio close to 3:1 or even higher. However, don’t forget to account for probability. If you are a precision scalper, this will affect you a lot. For instance, if reward and risks are equal, yet the probability of hitting the reward first is above 70 percent, then it may be a great trade for you. You need to be disciplined enough to get away with small profits so that you don’t have to bear a stop-loss.
- Averaging down shouldn’t be in the itinerary – Scaling to a predetermined position is completely different compared to averaging down on a loss that you didn’t predict. When your average is down from a weak position without any plan, you may bust your account. In this situation, your decision is influenced by hope and desperation instead of calculations and logic. Even if you come out of such a situation with a profit, it creates a very horrifying precedent that you should double down when in danger. That road will eventually take you to your doom. Hence, consider taking the stop-loss instead of averaging down.
- Take a break – A day trader needs to be calculative and should be capable of making sound judgments whenever he or she is setting up a trade. To maintain your acute reactions, you need to stay fresh by taking a break from time to time. You need to bring the mental fuel gauge back to position so that you can be at your best when you get back in front of the monitor. Moreover, breaks are vital after a big win or loss so that you can flush away the hormones from your system and prevent them from affecting your decision.
Mark Roemer Oakland suggests that as a day trader you should take these tips into account to maximize profits and minimize risks.