managing risk as a day trader (money management)

[Damian01]

I trade positions risking 2% of my capital. I work it out by looking at my entry and stop, I then divide 2% of my capital by the difference between my entry price and stop which gives me my quantity of stock to go long or short. Essentially this means that if I have $100K I risk 2k per trade.

For the day traders out there, how do you quantify how much stock you will pick up? I have been day trading by just looking at the risk but not the size of my position in terms of money management i.e. I buy 30,000 share of a stock and risk 3c to try and make 6c. I don’t have a method for quantifying how much stock I buy; I just do it on gut feel.

Any advice or thoughts would be much appreciated.

Cheers,
Damo

 

[tomorton]

Good question, coming at this from another angle.

I would not suggest you ever have maximum available capital in the market. Just occasionally something will happen that will move the whole market and trigger all stops on all your positions in the same direction simultaneously. These 'black swan' events are uncommon but do occur.

That's bad enough but there are records of stops set by almost any method you care to mention that have been breached but not triggered, potentially extending your risk without limit.

Of course, the simple problem of logistics - managing multiple simultaneous positions - can cause an overload that allows one position to get out of control and go critical. You have to be able to sleep when you're not trading.

 

[everyonerich]

tell us whats your reason for entry.. otherwise you still trading like the rest of 90% loser..

 

[Damian01]

breakout from previous highs i.e. FMG today broke $4.75 and then smashed up to $5.00 from a $4.60 close yesterday. i buy the break and sell into the action!

 

[Damian01]

FMG high was broken today, which was held for about 15months, so massive build up.

 

[Damian01]

CBA about to break $56.24. Its close. that kind of thing.

 

[everyonerich]

FMG high was broken today, which was held for about 15months, so massive build up.

i thought youre day trading? i dont trade stock btw

and u didnt mention if market turns around wheres your stop.

 

[timsk]

Hi Damian,
Welcome to the site!
Take a look at the contributions listed under Money Management in the articles section - accessed via the red button in the main panel at the top of the page. This article: Position Sizing as an Approach to Risk Management by Trader333 addresses the specific topic you mention.
Enjoy!
Tim.

 

[blancspa]

Hi
any good books or other materials on money management for trend followers?