Number of trades you take in a day/week
A common pitfall of day trading is using investing risk profiles when day trading. If investing risk profiles will say never risk more than X percent of your account on a trade (and they mean longer swing) day traders, or short term swing traders will adopt that mentality, but for a day trade. The trouble with this is that if you have 100,000 dollars, and you would risk 1% on an investment trade (or longer swing), that represents a risk of $1000. That also means the money that you would use for that trade is unusable for several weeks to months as the trade plays out. If instead you use that same risk on a day trade, and then you take 5, 10 or 30 day trades in any given week, the exact same money that is only risking $1000 dollars over several weeks to months, is now being used to risk $5000 to $10000 dollars of your account in only one week! Pre-set your risk for day trades based on the number of trades you take in a week, and based on weekly goals, rather than using systems based for long term swing traders as a short-term trader.
Pre-set share calculator
It takes practice and a quick head in math to get used to how many shares you can buy at any given point to represent the risk profile you want. When quickly making trades, and when prices move so drastically we forget how many shares we can now buy appropriately as we have seen in the market - it is good to have a system in place where you can quickly identify your share profile - meaning the number of shares you can buy that stays within your risk profile based on the stop of your trade. If you trade one ticker often, or tickers within a certain price point (and you can do this for several tickers) set up a quick excel spreadsheet which determines based on how far the stop is, how many shares you can buy to keep your risk in the manageable range. Have a few options for each price point (100 dollar stock, have risks for .30 cent stop loss, .50 cent, 1.00 etc), then depending on market conditions, volatility, and length of trade, you can quickly determine your appropriate size position.
Time you intend to be in a trade
The money you use in a trade can be used over and over in scalping or be designated for a longer swing. This can change how much risk you associate with that money on one trade, depending on what time it will be in it. One might feel comfortable risking a given amount over 2 weeks, but not over 10 minutes. So given the time the trade should or could take to play out can help set your risk scales.
Scale your risk based on setup
Not every trade has to have the same risk. You don’t have to have a set dollar amount for every trade, you can also set scaling risk profiles based on how likely you are to get stopped out, how much planning you put into the trade, how strong of a setup it is etc.
Go to a percent-only based system
Once you do the calculations to figure out dollar risk as a percent of your account, or as a level of what you are comfortable risking on a trade, then switch your dollar P&L to a percent only based P&L. Especially at the beginning, and for smaller account players, this will help you separate what you deem as “good” vs. “bad”. You might minimize the dollar amount you make on a trade much faster than you minimize the percent. If I see that I made 8% on a trade where my intended move was 8%, it will be much easier to stick to the trade than if the position was small and I only made X dollars. It will trick your mind to start thinking in terms of percent gains, and that will lead to compounding. Same if you see you’re down 2% on a trade, it will seem easier to stop out, than if you’re looking at a dollar amount you are down. Assuming you accepted the risk amount before you took the trade, this can help you stop out once you are in a losing position rather than letting it see more red.
