Money Management Rules Day Trading

[maxinger]

Let's say you are day trading things like ES YM NQ gold, crude oil, Eur, Gbp ......
and your trading account is > $10k.


and you are sufficiently proficient to trade around 2 to 3 lots per futures.

How many futures and how many lots total you can trade
at any one time depends on your margin requirement.
You may want to limit your max margin to say $10k.


For each lot, limit your max loss to around $120 per lot.

For each day, once you hit maximum loss of $500, it is GAME OVER.
for that day.
Go reflect yourself, and get ready for next day.

 

[Overnight]

...

For each day, once you hit maximum loss of $500, it is GAME OVER.
for that day.
Go reflect yourself, and get ready for next day.

It sux to reflect on that idea when that $500 loss can happen with one lot in seconds these days. Oh, $120 per lot. That is millisecond shit now. My bad.

 

[qlai]

Methinks different people define that term differently. I know I do.

I define drawdown as open loss(max adverse excursion). So how do you have max realized loss and not max open loss? If I have max realized loss set at $1000, how can I allow the position go $1500 against me and make sure it does not exceed $1000 by the end of the day/session?

 

[maxinger]

It sux to reflect on that idea when that $500 loss can happen with one lot in seconds these days. Oh, $120 per lot. That is millisecond shit now. My bad.

similarly target profit of > $1000 can happen with one lot in seconds these days.

 

[Howard]

similarly target profit of > $1000 can happen with one lot in seconds these days.

Do you use a daily target profit?

Ideally, I think one simply trades the entire session on maximum leverage taking every good signal, but if one is not yet a master trader I think a daily target profit isn't a bad idea. Or at least scaling down dramatically after a certain amount of profits is made.

My trading while not completely discretionary does require brain power and manual intervention. I think that after a few hours of trading one might not be as sharp as earlier in the day. Another reason to stop/reduce trading later in the day?

 

[tiddlywinks]

I define drawdown as open loss(max adverse excursion). So how do you have max realized loss and not max open loss? If I have max realized loss set at $1000, how can I allow the position go $1500 against me and make sure it does not exceed $1000 by the end of the day/session?

IMO, that is a correct definition and example of MAE, a.k.a drawdown, a.k.a. open/unrealized loss.

I think the confusion arose from within the question and the context in which it was asked.
We are talking about day-trading. Not swinging, not portfolio management. Day-trading, and in my case, flat end-of-day. The question was... Do you have a maximum daily drawdown rule? In brief, I replied NO, but daily max loss does apply.

Each trade is different, and has different parameters. What is common is that no one trade, in theory, is going to cause extreme loss, unless my catastrophic hard stop is in play... That hard stop put on per-trade, is based on NET realized loss upto that point in the day, not set it forget it style, and equates to the maximum realized loss FOR THE DAY. On a per trade basis, there is no way my structure-stop (MAE for this trade), mental or hard, comes anywhere near, unless a string of consecutive realized losses resulting in NET loss for the day has already occurred, or a true catastrophic event. A (tradable) structure for me does not include multiple dozens or hundreds of tics of wiggle room, but to say there is a specific maximum acceptable drawdown per trade would not be correct.

Hopefully, that clears up my answer.

 

[qlai]

Hopefully, that clears up my answer.

Clears it very well, thank you for elaborating!

 

[volpri]

Conversely, what if you are down, say, 10 points per contract on a total of 5 contracts? You would need to gain 50 points to break even for the day, excluding commissions for simplicity.

The downside of that is you are out of the game. Period.

Thoughts? Comments?

Not if you reverse and double up or triple up or cuadruple up. If you hit it right soon out of the hole and in some good bucks! But if you misread the market again after doubling up you best make haste and exit faster than speedy gonzales.

I usually test my psychological readiness and sharpness to read the market for the day very early in the session by taking a few sim trades first before going live with $$$. I find there are days I am on a roll and can read and play the market well. Other days I struggle abit. By testing the waters first on a sim I get some idea of how sharp I am for the day. Sim the emini...Es..Ym..Nq each offer me around + 10 fairly good trading opportunities per day losing a few trades by sim trading first is not an issue.

It is like warming up before the race starts. Some would disagree but seems works fairly well for me. On days i am not so sharp i can focus on high probability... less reward ....trades.

 

[Howard]

Monroe Trout's Risk Management Rules:

a) Risk/lose no more than 1,5 % of total equity on a single trade

b) Maximum daily loss of 4 %

c) Maximum loss of 10 % per month

- - -

For my account at 15K, this means:

a) 225 USD -> 4,5 ES points per 1 contract; 2,25 ES points per 2 contracts

b) 600 USD -> 12,00 ES points per 1 contract; 6,00 ES points per 2 contracts

c) 1500 USD -> 30,00 ES poinst per 1 contract; 15 ES points per 2 contracts

 

[ironchef]

Monroe Trout's Risk Management Rules:

a) Risk/lose no more than 1,5 % of total equity on a single trade

b) Maximum daily loss of 4 %

c) Maximum loss of 10 % per month

Ed Thorp's rule:

1. Determine the actual expectancy of your strategy.

2. From that, calculate your Kelly.

3. Trade fractional Kelly (for him < 1/2 Kelly, perhaps 1/4) to minimize "risk of ruin" instead of maximize gain.