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Day Trading: How To Minimize Risk

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DAY TRADING: HOW TO MINIMIZE YOUR RISK

The risk of Day Trading is not breaking news. One of the best ways to minimize Day Trading Risk is to use stop-loss orders. For long positions, you can use a stop loss order to make sure your loss on certain stocks is not greater than a set number.

Let’s look at an example:

You have 20 shares at 20$ a piece and you are only willing to lose 2$ per share. This means you will place a stop loss at 18$. This way, if your stock plummets to 5$ a share you are not risking a loss of 15$ per share.

A good strategy to limit Losses when day trading is to set a physical stop-loss order, but to also set a mental stop-loss. The physical stop loss is going to physically limit how much you can lose. Your mental stop-loss will put you in a spot where you can immediately exit your position if you trade makes a turn.
 We also recommend setting an amount that you are willing to risk each day. This will minimize your risk for big losses in a single days time. Setting this limit for yourself will help you trade with a clear mind.

If you feel your chosen strategy lines up with your risk limit, then you should begin trying it out. Trying your strategy with paper trade is a great way to feel more confident. Analyze your paper trades and make notes on where you feel your were profitable and where your expectations were either met or not quite met.

The next step will be using a demo trade account that using real market information. Give yourself some time to work with movement in these demo accounts before moving on.

Make sure while practicing, that you are doing your homework. Look at historical charts, making note on where your stop loss would be hit or where your target would be hit. If after research and trial runs you feel your account has been profitable, then it is time to move forward.

If you find you have lost capitol, then change your strategy and try again. Do not start a new strategy on a real account. Be patient and do it right. This will minimize your losses.