thanks guys, its been very helpful to read all of the suggestion made here. I did cut my size (trading 100 shares only, going for the opportunities with risk/reward of 1:3) and its been working for me.
THank you!
THank you!
risk management for day trading
- Thread starter Gladiator4444
- Start date
if you traded and only risked 5% of your total capital in each trade and had a strategy as good as a coin flipping (50/50) provided you took twice bigger than you risked then this would be the out come of your 100 trades
Capital (£) 10000
Risk (%) 0.05
Winning Prob.(%) 50
Reward factor 2
Commission (£) 15
Winning Trades No. 54
Final Return 162,143
Drawdown 9,842
Peak Gain 170,677
Capital (£) 10000
Risk (%) 0.05
Winning Prob.(%) 50
Reward factor 2
Commission (£) 15
Winning Trades No. 54
Final Return 162,143
Drawdown 9,842
Peak Gain 170,677
This is one outcome of 100 trades, selectively handpicked from a strategy that yields an expectation of minus £1,500, which are the commissions of course.
Hopefully you have the emini S&P futures (ESU3) and emini Nasdaq futures (NQU3) for your daytrading. Your posted times of entries and exit is definitely a scalper's time frame so having the futures is important. Overlay a 10, 20, and 200 period simple moving average on the eminis and use them as support/resistance lines. I am quite surprised how important the 200 period MA is as a S/R level.
Also, when you're entering a trade, think about the fear and greed (also known as premium or discount) during the past 30 mins or less. With experience, this will give you an instinctual indication of risk/reward. Buy discount and sell premium. If you're chasing momentum on a spike up, think about everyone else that is getting in at the same price as you are. If you're buying a .25 spike up on a $60 stock, how much higher do you expect OTHERS to pay up for it? If you think that most people will keep buying until it's .30 cents up before they say it went up too high, too fast, then your entry at .25 up is going to get you in trouble. You and everyone else who bought along side you will see it peak at .30 and think, "oh damn, it's turning, better get out," so the greed of making a good trade turns quickly to fear.
The greatest scalps are made when you short a stock that has a huge volume spike on a big price move up and you see the volume start to slow down. That means the mania of all the suckers buying in are done and no one is left to buy higher to push the price up. You now have a mass of people long at a premium looking back down. If you can short it near the end of the buying mania, you'll make a tidy profit.
Attached is a chart of the SPY and how I sold premium today. It wasn't the best entry because it's hard to sell the absolute top but I still made money on it. = )
2:48pm Short Sell 100 SPY 99.05
-Volume here died down from the buying craze 6 mins before that so I entered.
2:48pm Short Sell 100 SPY 99.10
Saw the price stablize and volume dry up so I wanted an extra 100 shares.
2:52pm Short Sell 100 SPY 99.20
Another spike up on heavy volume told me that it was the last ditch effort push.
SPY moved up $.70 in 14-16mins. This to me was premium.
Was about to cover all 300 SPY at 3:10pm at 98.92 but got greedy. The volume sell off at 3:10pm was fear for sure, but I thought there would be even more volume to sell. It was not the case. With an average short price of 99.12 I waited it out until it double bottomed down at 98.92 when I got out all 300 shares.
I should of flipped it and went long, but oh well, I'm still learning myself! = )
DNAJ65000
Also, when you're entering a trade, think about the fear and greed (also known as premium or discount) during the past 30 mins or less. With experience, this will give you an instinctual indication of risk/reward. Buy discount and sell premium. If you're chasing momentum on a spike up, think about everyone else that is getting in at the same price as you are. If you're buying a .25 spike up on a $60 stock, how much higher do you expect OTHERS to pay up for it? If you think that most people will keep buying until it's .30 cents up before they say it went up too high, too fast, then your entry at .25 up is going to get you in trouble. You and everyone else who bought along side you will see it peak at .30 and think, "oh damn, it's turning, better get out," so the greed of making a good trade turns quickly to fear.
The greatest scalps are made when you short a stock that has a huge volume spike on a big price move up and you see the volume start to slow down. That means the mania of all the suckers buying in are done and no one is left to buy higher to push the price up. You now have a mass of people long at a premium looking back down. If you can short it near the end of the buying mania, you'll make a tidy profit.
Attached is a chart of the SPY and how I sold premium today. It wasn't the best entry because it's hard to sell the absolute top but I still made money on it. = )
2:48pm Short Sell 100 SPY 99.05
-Volume here died down from the buying craze 6 mins before that so I entered.
2:48pm Short Sell 100 SPY 99.10
Saw the price stablize and volume dry up so I wanted an extra 100 shares.
2:52pm Short Sell 100 SPY 99.20
Another spike up on heavy volume told me that it was the last ditch effort push.
SPY moved up $.70 in 14-16mins. This to me was premium.
Was about to cover all 300 SPY at 3:10pm at 98.92 but got greedy. The volume sell off at 3:10pm was fear for sure, but I thought there would be even more volume to sell. It was not the case. With an average short price of 99.12 I waited it out until it double bottomed down at 98.92 when I got out all 300 shares.
I should of flipped it and went long, but oh well, I'm still learning myself! = )
DNAJ65000
Really ? 
At least you understand THE problem of this game 
At least you understand THE problem of this game Of course it is .. I can't post all the possible outcomes . I however have used Monte carlo simulation technique to randomly find the worse case scenario of a wins and losses.. Other outcomes could yield to much better return as follow
Capital (£) 10000
Risk (%) 0.05
Winning Prob.(%) 50
Reward factor 2
Commission (£) 15
Winning Trades No. 55
Final Return 187,745
Drawdown 9,914
Peak Gain 187,745
Just see if the wins are increased to 55 trades , the growth will be 187.745
All in all if you take profit twice more than your stoploss you be LONG TERM WINNER...ie after 100 trades your capital will increase reasonably well.. YOU WONT BE A LOSER.....
this is the out come of 41 wins only out of 100 ( donot forget we have a 50/50 system)
Capital (£) 10000
Risk (%) 0.05
Winning Prob.(%) 50
Reward factor 2
Commission (£) 15
Winning Trades No. 41
Final Return 24,110
Drawdown 9,418
Peak Gain 28,121
As you can see you have still doubled your capital..
MATH DONT LIE
This was the whole objective of the above post to show that one has to at least let his wins to run by a factor of two even if he has a poor rating strategy ..
It depends on what you call money mamanegement and edge - many traders use edge to mean entries but for me, mm is part of my edge.
On the other hand, the word skill is very important here - in many ways trading is a skill sport, like golf or racquetball.
Now, I wish someone had told me the following, a few years ago (but, who was listening?)
1. Study the best books (e.g., Alex Elder's Trading For a Living, etc) and take the best trading courses until you have a detailed plan on what exactly you are going to do, when, why, how, etc;
2. Use a simulator until you have 10-15 consecutive positive days;
3. Start trading for real with 100 share lots of medium/low priced stocks - grow from there on the basis of either a fixed fraction or a fixed ratio mm method;
4. Watch what you stand to lose twice as hard as what you stand to gain - managing your risk and respecting your stoploss triggers is key;
5. At all times, minimize your fixed and variable costs while insisting on high quality tools and execution (e.g., go with TS and/or IB, etc).
Hope this helps