Money Management Strategy

One of the most crucial aspects of a trading strategy is the money management for day trading portion.

In addition to trade identification, confirmation and transaction timing, you need to answer a few questions to get started:

  1. What is your maximum drawdown – at what point will your strategy have failed and you pull the plug to stop losing more.  20%, 30%, etc..
  2. What is your maximum risk per trade.  1%, 2%, etc
  3. What is your daily loss exit strategy?  If you lose 4% you’re out, etc.
  4. What is your weekly loss exit strategy? Monthly?
  5. For each $1 risked, how much is the minimum you can realistically expect to make for a trade to be worth it.  I like $2 for each $1.  The winning % of your strategy directly dictates this.  I win 70%, and win $2 for ever $1 I risk.

A lot of traders will have multiple strategies for each market condition, or to take advantage of period events (news trading, fed announcements, etc). I work with only four:

  1. Directional market strategy (when prices are moving in a trend)
  2. Range market strategy (when prices are trapped in a narrow level)
  3. Volatility strategy (when vol is high I sell options, or when it is low i’ll use a debit spread on the VIX to protect my portfolio from a potential surge, etc)
  4. Futures day trading (looking to scalp 10 points daily on ES (SPX) futures for $250 to $1,000 daily profit) (I have one for SPX and another for oil)

Now it’s your turn to get started with your very own money management strategy.  Don’t over think this, just start jotting down some numbers, thoughts, diagrams, whatever it takes to get your thoughts out on paper.

By now, your day trading money management exercise may have generated a few sentences or pages filled with scribbles and ideas.

Now we want to organize them into three sections:

  1. Implement
  2. Test
  3. Park


The implement section is the strategy details you will immediately implement in your live trading plan.  I would probably only recommend this step for the well informed trader who has already researched the idea they plan to implement.

The test section will contain the day trading money management ideas you find intriguing enough to research further and test in your demo trading account. Once you obtain enough results that support a positive impact then you can move it to the first section and implement it into your live routine.

The parking spot are ideas that are cool to explore, but only if you have more time, as they are not critical to your trading currently.  These ideas are parked for a reason, we don’t need them now, but may be worthwhile exploring later on.


Now that you have your money management ideas, and also categorized by importance, it’s time to get to work!

Managing your risk exposure through effective day trading money management is the single most crucial skill of professional traders.

As I always like to say, “amateurs anticipate returns, professionals practice day trading money management to manage risk.”


Good luck and good trading!


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The information contained in this presentation is solely for educational purposes, and does not constitute investment advice.  The risk of trading in securities markets can be substantial.  You should carefully consider  if engaging in such activity is suitable to your own financial situation.  TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.