Know these Forex Charts. Learn this 10 minute a day Swing Trading Strategy that is highly profitable. Learn to reduce risk to zero and triple your profits safely with these FREE Flexible Forex Day Trading Videos! In day trading, the most important thing is risk management. Surprisingly, many people jump into day trading without giving much thought to risk management. Manage your risk first, rewards will come later.
Day trading requires long term commitment. You have to be persistent. You need to improve continously. That’s why risk management is important. If you do not preserve your capital, you will not be able to survive long in this game and you will be unable to reap the real profits.
So how do you start with risk management in day trading? Treat day trading as a business. Make a good business plan with proper targets. Risk management should be an important part of this business plan. Now risk management may require a number of different control levels like managing your account balance.Making sure, it does not fall below a certain level. Than you need to learn how to manage losses in each trade. Your business plan should be long term. You should think about yourself as a long term player.
You need to determine what is the acceptable level ofr risk that you can take. To make it more clear, you see I may be comfortable with one level of risk but you may not be comfortable with that level of risk. You may have a different level of risk that makes you comfortable. This level of risk is the amount of money in your account that you can afford to lose without losing your sleep or getting emotionally disturbed. Knowing this number what can call your,”Tilt Number”, is very important. With this tilt number in your mind, you can trade safely. If you reach this number in a trading day,stop trading. Something has gone wrong. Is it your trading strategy? Is it your trading style? Whatever. try to figure it out first. Only then you should restart your day trading.
Another rule that you can follow is,” Three Strikes and you are out.” What this means is that if you lose three trades in a row, stop trading. Re-evaluate your trading strategies and style and only trade after a thorough analysis of what went wrong and how you are going to correct it.
Always calculate your Risk to Reward Ratio before you enter in a trade. Do not trade if the Risk to Reward Ratio is more than 1:3. What this means is that you have a chance of winning 3 trades against losing 1 with this Risk to Reward Ratio. Any thing more than this should be considered as too risky.
Learn the use of Stop Loss. Never ever trade without a stop loss order in place. Manage each trade. If the markets are unpredicatable or you have difficulty understanding the market mood, don’t trade!