4. Risk Management Strategies

Day Trading Risk Management Strategies

Don’t ride by the seat of your pants!

The success of your day trading activities will be purely a function of your ability to manage risk. Whether you are planning to use a discretionary strategy or one that is purely systematic, the key to your success will be a business plan that will make money.

The most efficient way to start the process is to determine how much money you are willing to risk.

Creating a Plan

You need to think about day trading as a business. You need to have a clear idea of how much investment capital you plan to allocate to your day trading activities, before you start. This could change over time, but you need to start somewhere.

Day trading should be one of several diversified investment strategies you allocate from your portfolio. Additionally, the funds that you use for day trading should be discretionary and not for essentials such as food and shelter.

Once you have allocated capital to your day trading activities, you can then try to determine if you will use one, or multiple trading strategies to make money.