4. Risk Management Strategies

Discretionary Day Trading Strategies

If you plan to use discretion, you should map out your risk management before you place your trade. While it’s not imperative that you use the same risk to reward formula on every trade, it can be helpful to stick to a routine.

How to Measure Risk

Risk is the amount of money that you could lose on a trade. It is not the realized loss but instead what could be the realized loss. The best way to measure loss is to predetermine how much you are willing to lose.

Before you place your trade, you want to have a clear idea of where you will exit the trade with both a stop loss level and a take profit level.

Just by going through this process you will limit your risk. Traders that avoid formulating a plan, will face unexpected situations and will not have a plan on how to deal with it. Your risk should be predicated on your strategy returns.

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