4. Risk Management Strategies

Here is the Math

Let’s assume that you plan to execute 9-trades per day, across all the securities that you will day trade. If you win more than you lose, you can afford to win the same amount that you lose to have a successful strategy ((5-winners*$100 = $500) – (4-losers*$100 = $400) = $100).

Alternatively, if you lose more than you win on the same 9-trades you will need to win more than you lose on each trade to be successful ((4-winners * $200 = $800) – (5-losers * $150 = $750).

You can use this strategy to form a reward versus risk ratio. This will allow you to determine if your plan will be successful over time. If your risk management plan does not produce a strategy that will be financially successful, then you need to modify the plan until you have one that works.

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