Money Management: The Most Important Aspect of Day Trading

If you expect to make it in the trading business then you need to keep your eye on how much you are risking per trade. I don't care how great your day trading system is if you don't control your risk then your days as a trader are numbered. Instead of worrying about how much you stand to make on that next trade you need worrying about how much you stand to lose if it goes south. By focusing on what you stand to lose on each trade you will ensure that you never end up in a situation in which you have let greed force you to risk too much on a single trade and put your capital at risk.

In order to combat that you need to have a trading system that has defined levels of risk per trade. Most traders will tell you to keep your risk between 2-3% per trade which seems to work for most traders, but there are some that keep their risk per trade even lower, as low as 0.5% per trade. For these traders the low returns are worth it to ensure that even if they suffer a horrible losing streak they will be able to continue trading. You have to find the risk level that works for you, the level at which you will be able to trade objectively and not be so afraid of losing that it causes you to make mistakes.