By Darrell Martin
When traders first start out day trading, it can seem like a mountain leap to go from trading one contract to trading five to ten contracts. Obviously, you need more capital in your account to sustain drawdowns, but then it also may seem like a completely different level of trading.
In actuality, it is much simpler than it seems. Again the obvious: You must have an adequate amount of capital in your account or your emotions will keep you on a roller coaster ride. If you’re trying to trade over five standard lot size future contracts with only $20,000, you will be extremely uncomfortable, sweating bullets probably. If, on the other hand, you start with one contract, build capital and gradually trade more contracts as you go, you will also be building confidence in your system, strategy and yourself to know day trading works and you’re capable.
No matter how experienced the trader, emotions can come into play at any time making it difficult to pull the trigger, not move your stops back further, or not overtrade, and the list can go on. Any successful long term experienced trader will say, you must understand and follow risk management. There is no perfect system, strategy, or Holy Grail; so if you want longevity, the key is risk management. However, a solid strategy used together with risk management while following a good trading plan, over time can build your account and make for boring emotionless trading. Using the five percent rule for risk management is one way you can protect your profits and build up your account.
Keep Your Five Percent- Don’t Give It Back
With the five percent rule, once you are up five percent of your account value, you don’t trade anymore. You protect those profits, thereby letting your account grow. If however, you close up seven percent, then you can risk the extra two percent and trade with that amount, but leave the five percent alone and not risk giving it back.
It’s all about risk management and position sizing on risk, based on available risk capital. Darrell Martin’s journey included a few blown out accounts before he believed survival was more important than being rich. Once you get kicked enough, you say this hurts and start to use profit risk management and then magically things start working. This was boring for Martin when it was Washington’s being made, but then it was Jefferson’s, then Benjamin’s, etc. and yes, it is still boring. If trading is not boring, you’re not focused on survival and probably not profiting in live or you won’t be for too long.
Recently, an established trader, Parker Stephen King, summed it up when he realized he was totally bored waiting for setups and analyzing the same charts day after day. He got scared. He thought he was losing his passion for trading. Turns out, it was quite the opposite! He finally started getting some degree of consistency. He said he has taken the turn from daydreaming to day trading.
For more on risk management, visit the 17,000+ member Apex Investing forum built with the vision of real traders helping traders at www.apexinvesting.com. There you can find free education on how to trade futures, forex and CFDs, as well as Nadex binaries and spreads. Nadex is a US based CFTC regulated exchange and can be traded from 48 different countries.