By Forex Mansion
Managing your account along with your strategy and your risk parameters are the key components to becoming a successful day trader. The balance of power between your personal rules and if or how they make mathematical sense for your strategy is key. Above all else, once you have ironed out your rules your account will eventually hit ZERO if you violate them. This does not mean that you cannot change a rule to improve your strategy. It does not mean that you cannot change your entire strategy altogether. What it does mean is that you must be disciplined and stick to every rule that you have currently given yourself based on your strategy and style. Let us analyze this further. If for example you earn $1000 on an average positive trading day you cannot lose $10,000 on an average losing day to make it a mathematically viable strategy, even if you have an ratio of 90% up days to only 10% down days. It simply does not work. Along those same lines you also cannot earn an average of $1000 daily versus a $500 average on losing day if you are only making money 30% of your trading days.
So what does work? You must play with the numbers. An example of a realistic package for a winning strategy is for someone to be averaging 65% to 75% wining trading days and to have your average positive day at the very least be enough to equal your average losing day. So for example if there are 20 days in the average trading month and you average 70% up days to down days you will have 14 up days and 6 down days. If you are making or losing $1000 per day then you will have a total of $14,000 for the monthly up days versus a $6000 total for your down days given you a monthly net result of +$8000.
In addition it is key that your day trading discipline is coupled with the proper implementation of your RISK PARAMETERS. The risk parameters that you set up for yourself must keep in mind the amount you need to risk daily in order for your strategy to work versus the % you are willing to risk daily from your actual account. If for example you put $50,000 into a trading account and your trading house wants to give you 100 to 1 in leverage, DO NOT put a smile on your face and take it. The reason is that if for example you want to keep your maximum daily risk to your account to a manageable 4% ($2000) of the actual cash in your account, it will be extremely difficult to control if you are actually trading with $5,000,000 of open positions.
Almost everyone who stays in the trading business long enough figures out how to make money. Believe it or not this does not make for a successful trader. A successful trader is someone who has LEARNED HOW TO LOSE MONEY. This successful trader has learned to take a loss and move on. He or she has learned how to take a loss on a specific trade or a specific day or even a specific week while keeping things in perspective and looking at the bigger picture. The successful trader is looking at the bigger picture on how to rack up positive MONTHS while building up their account equity.
For additional information about day trading and forex trading, check out http://www.tradersnarrative.com. You can go to this site for a list of prop firms around the globe and ask or answer any type of trading questions that you may have. Remember discipline and consistency are your keys to trading success!
About the Author
This article discusses tips on day trading by helping you better understand managing risk. Daytrading.org is your comprehensive guide to learning how to make money day trading at home.
