what should be money management rules for the day trading ?

[vinodkiyer]

stoploss buy =(BuyPrice-(BuyPrice*(Percentage Stoploss/100)));
lotSize = (riskAmount/(BuyPrice-stoploss buy)));
and vice versa for sell
percentage stoploss is the percentage of price change against u that u are willing to take.
riskamount is the amount of money u are willing to lose per trade and u get the quantity to trade (lotSize) if u fix these parameters. and then STICK TO IT.
IDEAL MONEY MANAGEMENT SAYS RISK TO REWARD MUST BE 1:2 OR MORE

 

[mave_rick]

Hi Ali,
Sorry to hear you've gone through a losing streak, but good to hear you are looking into the cause to make progress.

I'm not daytrading but would also be interested in the answer, as I'm sure margin and leverage would come into it.

I have heard that trading is 70% psychology, 20% money management and 10% how you trade. If you are 'guessing' that the problem is money management you may be missing a more important reason.

Suggest that you review previous trades, successes and losing streak and see what you did or how you thought differently. Perhaps over trading, guessing, not having firm plan, not following plan etc etc.

What do you think you did wrong money management wise?

Hope this is of some help at least until some money management tips from the experts. All the best,

I believe money management is more important than psychology..... this is because if you have pre-determined stop-loss or keep your stop-loss to specific amount..... your trading psychology will be anyway better....

I may be wrong..... but this is what I experienced..... if I have predetermined amount of stop-loss.... then I buy only those number of shares which if it hits my stop loss will only result on that specific amount of loss..... This way I can ride the trend till it lasts or till End-of-Day... whichever is earlier.

Previously, I used to think more about how much money I can make instead of how much money I can afford to lose....

Just doing this basic arithmetic of stop-loss atleast my trading psychology has improved a lot....

I am sure there are others who have a completely different view than mine and may be more valid...... as I am just a novice trader still learning the tricks of the trade...... More inputs from other experienced member of this forum will certainly help us a lot.....

 

[AW10]

stoploss buy =(BuyPrice-(BuyPrice*(Percentage Stoploss/100)));
lotSize = (riskAmount/(BuyPrice-stoploss buy)));
and vice versa for sell
percentage stoploss is the percentage of price change against u that u are willing to take.
riskamount is the amount of money u are willing to lose per trade and u get the quantity to trade (lotSize) if u fix these parameters. and then STICK TO IT.
IDEAL MONEY MANAGEMENT SAYS RISK TO REWARD MUST BE 1:2 OR MORE

I prefer not to use % of buy price as stoploss criteria cause in my view, market cares least about our %.
But it does respect the swing points where equation of buyer/seller has changed in recent past and price has taken U-turn from those levels. Quite easy to identify those levels on chart.

Ofcourse, we need to use small filter amount to hide your stops from market operators.

This is how my calculation goes
Buy price = 85, Last time price turned from 79.6, so lets say I decide my stoploss at 78.9.
And amount I am willing to risk on a trade = 100 Rs.
Number of stocks that I shd buy = 100 / (85-78.9) = 100/6.1 = 16 stocks. (round off to lower number)

Regarding reward risk ratio, what u are mentioning is correct. but it is a matter of personal choice. If i have a high winning % system then this 2:1 ratio is not important.
(say 80% winners, giving average return of 5 pts) and 20% loosers with average loss of 8 points.
Over a period of time my return equation will be 0.8 * 5 - 0.2*8 = +2.4 points That means even with 5/8 = 0.6 :1 reward risk ratio i.e. I can still make money.
Ofcourse, we got to test our rules and let test result speaks these numbers loud and clear..

Happy Trading

 

[hedayat79]

To AW10
Hi,
Hope u r fine.
I am also a new trader, and i am also suffering from money management, i thanks a lot to your useful tips. Hope it will work out in future. I would like to hear more from u. Thanks again.

 

[AW10]

Thanks Hedayat,
Good to know that u found my posts useful.
If you can just stick to what I have mentioned in my 3/4 posts in this thread and what Smart_Trade has mentioned.. you will be far ahead of all new traders in next 1 yrs time.

I have mentioned earlier but repeating myself, In trading bussiness, we have 4 outcomes
1) Small profit
2) big profit
3) small loss
4) BIG LOSS

as long as we can tame 4th point, remaining 3 will ensure that our equity curve goes upward. It needs ruthless control on our emotion.. and thats' what trading is all about.
discipline, control on emotions and flawless execution.

(you can find many posts from me scattered all over traderji in various threads. But if you have any specific issue, feel free to post).

Happy Trading

 

[Ali_001]

hi friends,
I started this thread to know money managment rulses from big b's of this gruop some of the membars. thanks for every one who replyed to this thread.

Now i want to share few bits of my m/m rules. i used to trade with.
i started day trading with 1000 Rs that's rigth just 1000 rupees i wanted to master the day trading and then increis the accounbt size.
my bugget of 100 per weak 50 rupees per day in any weak or any day if my los limit is hit i just stoped trading or just whatched market and traded in my mind that too with a stop loss for whol day or week.

Ok thats it for the day i am wating for the replay from sineors

warm regards
Ali

 

[NOMINDTR]

Ali,

Good thing you experiment with small account size.

I don't know whether I am addressing your question exactly or not, at times, when my system does not give a concrete signal of buy or sell, I use to choose one based on the size of risk. If I would find my stop for long is less than for short, I would go long.

I do this at rare occasions. I would love to stress the point that, keep in mind that you have to survive. Easy trades would come in your way. You say you had made 500 out of Rs 1000. That must be a great trade. Pushing yourself to that mark will prevent you from taking them easily.

And I don't think a rigid plan will work. But you can have a rigid strategy. Market and our mind changes every day so the methods of money management too. Ask yourself what do you think that would best suit you. No more no less.

Few common examples.

1. Stopping trading at first Stop hits
2. Allowing only certain percentage of loss in every trade and for each day
3. Trading only great trending markets, avoiding choppy markets
4. Do only easy trades and don't challenge

I have listed few that comes to my mind

Happy Trading

 

[Ali_001]

hi gsalvadi
Thanks for you replay. but as i said earliar one point i earned 500 rupees on my 1000 rupees account but that dosent meen that i earned that much in one trade i earned it in 2 weeks of trading then my loosing streak started.

i am waiting for more replays from siniors

warm regards

Ali

 

[Ali_001]

hi there
Today i want to share one more thing and want to know whethar it was wrigth or wrong to do this.

I HAD A BGGET OF 10% LOSS PER MONTH. it meens i was ready to loss 10% of capital and wanted to make atlist 40% per month.

is it practical to have a goel of 40% earning in a month and putting 10% of capital at risk for it ?

seniors please give us your inputs on this matter

warm regards

Ali

 

[anuragmunjal]

hi Ali
on paper the strategy of risking 10% fr a reward of 40% is very good. assuming that u loose 50% of times and gain 50% of times. u will make a cool packet.but the only catch here is r u sure that when u gain, u would be able 2 make 40%. what if the mkt moves 5% -10% in ur favour & then come back or stays there.
let us take an eg. ill flip a coin in the morning and heads Ill buy a particular share and tails Ill sell that same share on the open. now I say that ill take a 2% loss and a 5% profit. assuming I am right 50% of times, on paper ill make money. but can I be sure that on my profitable days, the stock moves up by 5%.It may go up to 3%, then come back . there can be many different scenarios here.
hence whatever ur methdology is, if u are sure that ur profitable months would yield 40%then definately go ahead, even if 3 out of 12 months u r profitable, u will come out a net winner. if not, then think again.

regards
Anurag