#4: Have tight risk parameters
Here’s a fact:
A trader’s primary purpose is not to be a money generator but to be a consistent risk manager.
Before you go offense, you must first master defense.
So, what are these “risk parameters,” you may ask?
Here’s what I’m going to share with you in this section:
- Maximum risk per trade
- Maximum risk per day
- Maximum risk per week
- Maximum risk per month
Let me explain…
Maximum risk per trade
Determining how much you can potentially lose before entering a trade is the most important here on the list.
Ideally, you’d want to be risking 0.25% to 1% risk per trade intraday trading.
Maximum risk per day (daily stop)
What makes intraday trading different from other styles is determining when to hit the brakes for the day to come back for tomorrow.
So when you’ve lost 4% to 6% of your capital for the day.
Stop trading and review your trading journal, and come back the next day.
Maximum risk per week (weekly stop)
If you’ve reached this third layer of defense, you now need to look at your trading journal and ask yourself:
“Am I consistent, yet I kept on losing?”
If you find that you kept losing despite your consistency, your current setup does not work on the current market condition.
Therefore you must adjust your trading parameters or adopt a different trading setup and stop trading for the week.
Nonetheless, I suggest you stop trading for the week once you’ve hit a 10% loss on your portfolio then trade again next week.
Maximum risk per month (monthly stop)
The final layer of defense on your intraday trading portfolio is by having a maximum risk per month.
At this point, you now need to ask yourself:
“Am I having a hard time executing my trades?”
“Do I keep on breaking my rules?”
If so, this means that you need to make tweaks to your trading routine.
So I highly suggest you stop trading for a month once you’ve reached a 20% loss on your portfolio.
Intraday trading can produce good rewards but can also bring significant short-term risks as well.
That’s why we have multiple “brakes” in place to keep your business afloat during rough times for as long as possible.
It’s not sexy but it’s necessary.
Again, I want to credit Barry Burns as I have learned this concept from his book Trend Trading for Dummies.
What a guide, am I right?
I know there’s a lot of things to cover on your end.
So as your reward reaching this far, I’ve made this free checklist just for you:
With that said, let’s do a quick recap…
- To increase your odds of becoming successful at intraday trading, you must first be consistent in trading the higher timeframe
- Your intraday trading portfolio should always be less than your higher timeframe portfolio
- Not only you must have a trading routine and schedule in place, but also ensure that it’s compatible with your lifestyle and does not hinder daily responsibilities
- Intraday trading can yield great rewards but at the same time can produce considerable risks in a short amount of time—that’s why having a daily, weekly, and monthly stop is necessary
At this point…
Intraday trading can be an “intimate” subject because everyone wants to engage in intraday trading (or at least at one point in time).
But I want to hear your thoughts.
Do you think intraday trading is for you?
How many of these checklists have you already nailed down?
Let me know in the comments section below!