Risk Management – The Successful Trading Guide

What Is Risk Management?

Risk Management is an essential part of a trader’s daily life. Without following risk management, active online traders risk the potential of losing all profit gained in a simple 1 or 2 trades.
By following a daily and monthly routine, you will establish secure trading habits and develop yourself into a highly lucrative professional.
I have developed a routine that I follow every month, and without a doubt am highly successful by following this plan.
So let me share it with you!

 

 

#1 Daily Ritual – Trading Journal

By being a SlickTrade Member, you are given access to your own Trading Journal
I took the time to create this for everyone, so that you may all be successful and keep daily, monthly and yearly reports
Everything is automated to make your life easier. All you need to do is fill out the information
You will find this to be very helpful… especially around the lovely tax season!
Use your journal daily…I can’t stress this enough
*** Please Note *** – The version given in the member’s area is for Excel. If you do not have Excel installed on your computer, then you may download Open Office for free at OpenOffice.org
Let me show you an example of how I use the journal

Trading Journal – Testing & Tracking

Let’s start with the first tab of the journal – Testing & Tracking
This is a section that you may or may not use often
I created this to keep track of results of strategies you want to test
These can be other strategies you have purchased, or ideas you have when you see specific patterns occurring on a regular basis

Trading Journal – Yearly Report

The second tab of the trading journal is Yearly Report
This is an automated section that keeps track of your monthly results as you trade throughout the year
It makes it much easier to have an overall track record to refer to, without having to spend time calculating your yearly results

Trading Journal – Monthly Reports

The remainder of the tabs of the trading journal are the monthly reports
Everyone will more than likely use these sections differently, and feel free to change the name of each column, to better fit your needs.
I personally like to fill out the currency tab, a simple yes or no if it won or not, and the time under the daily tab
Under the Monthly Report, I like to enter my account balance at the beginning of each day, the account balance at the end of the day, and the # of wins vs losses

#2 Daily Ritual – Staying Consistent

One very important factor that many online trading newbies do not understand, is that staying consistent is one of the absolute most important rituals to be successful.
When starting out, we seem to get into this mentality of I need to make money, make money, make money! What you need to rearrange in your thought process, is that you WILL have losses.
To be prepared for these losses, you must be consistent. I have said multiple times now…but trust me, I have been burnt bad for not staying consistent…so let me say it again… stay consistent!
What I mean by this, is first of all..make a plan and stick to it. Let me give you an example.
Let’s say I have $5,000 in my account and the month of March is right around the corner. I would first write down a daily goal of $500 profit per day. At 5 trading days per week, you are looking to achieve $2500 per week or $10,000 per month.
This is a very doable goal and I will explain this more in depth. But first you need to decide how much you are going to risk to make this profit weekly/monthly, and what rules you are going to follow.
Let’s say you decide to risk 5 contracts per trade (if using the Nadex platform)

So, let’s recap… You want to make a profit of $500 per day/ $2500 per week/ $10,000 per month. Your plan for the month of March is to take 5 contracts per trade.
At 5 contracts per trade, with a risk of $60 to make $40. The profit per winning trade would be $200. The loss per losing trade would equal $300.
If you took 3 winning trades per day then you would be over your daily goal of $500, but remember…there will be losses. So, I need to stress the point that you need to consistently take only 5 contracts per trade for the entire month. Just because you have a few 100% winning days, does not mean that will continue to happen. Do not bump up your contract amount.
Remember to always look at the long term…not the daily.
So, let’s say that for the first week of March, you took 5 trades per day equaling a total of 25 trades for the week. 6 of those trades lost and 19 won – a 76% win rate.
This would leave you with $3800 in wins – $1800 in losses = $2000 profit for the week…Pretty close to the income you were looking for weekly, even with a low win rate

Let’s say that the remaining 3 weeks result in the following:
Week 2 – 20 wins – 5 losses = 80% win rate
Profit equaling $2500

Week 3 – 22 wins – 3 losses = 88% win rate
Profit equaling $3500

Week 4 – 19 wins – 6 losses = 76% win rate
Profit equaling $2000

Your original goal was to make $500 per day/ $2500 per week or $10,000 for the month of March

By simply staying consistent, taking the same number of contracts at the same risk, you ended the month of March with:
80 wins and 20 losses
A win rate of 80% overall and a profit of…..

$10,000
Your original goal was met, even with losses and by simply staying consistent

#3 Daily Ritual – Emotion

Another key factor when trading is keeping emotion out of your trading. This is NOT easy. It is something that I still struggle with on a daily basis.

Some things I have found to help me daily with emotion are:

Do not rush into trading
The market will always be there…do not think you need to rush into a trade every time you see an opportunity. Know what risk you want and if it is not available at that time, then set a WO or Working Order. If it fills, it fills, if it doesn’t, it doesn’t. Be patient and wait for the next opportunity.

Keep good posture
Always remember to keep good posture. While working at home, we sometimes forget this simple task. We sit in bed and bend over..hunching our backs not letting enough oxygen get into our lungs.
Setup a little standing station or sit up with good posture while at the computer
Shoulders back, head up!
I like to throw in some stretching as well at my standing station

Meditation
I found that taking the time to meditate can really help me to relax, focus and stick to my daily rituals. Try it out!

Working out
Get your body moving, you don’t have to go to a gym…have fun in the comfort of your own home. I personally enjoy lifting some hand weights, doing situps, pushups, jumping jacks and more while by the computer.
Have fun while doing it! We like to do Richard Simmons at our home – We call it Simmons and Salads! Do some Richard and follow with a nice shower and salad 😉

Eating healthy
Add some fruits and veggies to your diet. Make sure you are not over indulging. I like to say… each meal should have 3 or more colors to it 

Drinking water
Keeping your body hydrated is very important
60% of our bodies consist of water
Water can boost your energy levels
When dehydrated, our concentration levels are reduced

Don’t stare at the charts all day
They aren’t going anywhere… Set your Working Orders, Stop Losses, and Take Profits
Walk away for a bit and do some stretching or fun activity.

When you experience a loss
Know that you will be just fine, if you stick to the plan you have enforced for yourself. You will not win every time and some days you may be in an overall loss, but again…look at the long term…I can’t stress this enough. Give those markets the Chuck Norris kick…Everything is going to be ok!

#4 Daily Ritual – Stay Focused & Stick To Your Plan

By staying focused daily and sticking to your monthly plan, you see yourself transform into a very profitable trader before you know it.
Stay positive and follow your plan to a T

Recap

Risk Management is an essential part of a trader’s daily life. Without following risk management, active online traders risk the potential of losing all profit gained in a simple 1 or 2 trades.
By following a daily and monthly routine, you will establish secure trading habits and develop yourself into a highly lucrative professional.
Daily Ritual #1 – Keep track with your trading journal
Daily Ritual #2 – Stay Consistent with the plan of attack you create
Daily Ritual #3 – Do not let emotion take you over
Daily Ritual #4 – Stay focused and follow your monthly plan to a T

That’s it!
Now implement these rituals into your daily trading and watch yourself transform into a successful experienced trader!