Day Trading Money Management + Levels & Reports for 8.7.2014

Hello Traders,

For 2014 I would like to wish all of you discipline and patience in your trading!

A word or two about day-trading and money management…..

Trading futures and even more so, day-trading futures has grown significantly over the last few years, as seen by the increase in daily volume on some of the more popular electronic markets. (The Mini SP had 3,575,702 contracts traded on February 27^th! Yes, that is 3.575 MILLION contracts….)

New traders as well as more experienced traders often wonder and search for the “holy grail” and the answer is different for each trader. Many factors influence what may be a good route for one trader versus a better alternative for another. Experience, risk tolerance, the person’s schedule, financial situation along with other factors will greatly influence what is a suitable trading method for one trader or another.

One COMMON solution different traders can implement when it comes to day-trading is what I call: “Treat your daily Profit/Loss as you would treat an open trade” and allow me to expand:

As brokers we have seen different traders survive in this business, making progress and even getting to the point of consistently finding their set ups, however their main downfall is that “one bad day” where they may give up recent gains, lose a large percentage of their account or even lose their whole account.

A practical solution for eliminating those disastrous days and giving you a better chance for survival is using “stop losses, trailing stop losses and daily stop limits” for every given trading day.

Let’s assume for hypothetical purposes that trader A is day-trading with $10,000 of risk capital. Part of her preparation for trading should be an understanding of her trading style, how active she is, how much on average does she risk per trade and other factors to help her calculate what her DAILY LOSS LIMIT should be. If you as a trader can be discipline enough to set your own daily loss limit and on days when you have reached your daily loss limit, simply stop trading for that day, you will give yourself better odds in surviving the day-trading arena and preventing days where you may loss a big portion of your account. Surviving to trade another day is a crucial element when it comes to day-trading.

The next step, now that we have decided on what our “daily stop loss” should be is to decide at what level of profit do you trigger “BREAKEVEN MONEY MANAGEMENT”? By that I refer to a level of daily profit that you have achieved as a trader and at that point should trigger the concept of “I am up $X amount and if for what ever reason the rest of my trading for today is not doing well and my daily profit/loss is back to zero, I should call it a day”.

Moving on you should also decide on a certain profit target (higher than your “breakeven  point” ). That level of profit, when and if achieved during the trading day should trigger a corresponding “TRAILING STOP”.  For example, let’s assume the trader A is now up $1,000 during the trading day and after doing her homework, she has decided that if she is ever up a $1,000 during the trading day, her trailing stop is $500. That means that she will continue to trade as long as she does not give up more than $500 from her intraday gains. By implementing this technique a trader allows himself to continue trading as long as he or she does not give up too much of their profit for that day.

Last but not least is the element of “PROFIT TARGET”. There are a few schools of thought when it comes to “daily profit target”. Some say that if a trader is “hot” he/she should continue trading in order to maximize the potential for that day. I disagree. In my opinion setting a DAILY PROFIT TARGET based on your account size and other factors discussed previously will assist you better in the long run. In this example if trader A decided that her daily profit target is $2,000 and on any given day she has reached that profit, that should trigger a feeling of satisfaction and achievement and at that point trader A would close open positions, enjoy her good trading day and call it day.

It is my opinion that a trader will fair better in the long term by initiating these concepts I borrowed from trading system design. Getting to the point of working with these suggestions require one to analyze themselves as a trader, understand basic concepts of money management and have the SELF DISCIPLINE to execute his or hers trading plan.

Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Past performance is not indicative to future results.

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This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading.