Day Trading With Maximum 1% to 2% Of Your Account Size
We have all heard of the day trading risk rule where we do not want to trade with more than 2% of our account size. That means that a 10,000 dollar day trading account can make individual trades of up to 100$ risk per trade.
Why is this day trading rule so prevalent among successful traders?
The one simple reason this strategy works for day traders is that we will all have losing trades and losing streaks. There will always be times, even if we do everything right, where we have multiple losing trades. Therefore this trading strategy works two fold.
- It prevents your account from being drawn down too quickly on successive losing trades
- Only losing 1% to 2% of your account size on a trade is less mentally taxing.
- It standardizes your trade sizes allowing you to improve on trade entry alone.
What kind of day traders use this strategy?
Not all traders use the limit of a 2% loss on each trade. There are 1000’s of different day trading strategies, but this one day trading risk rule is common among many strategies because it works.
When a day trader is forming a new strategy, risk per trade is one of the most important factors. This determines how many losing trades in a row the trader can sustain, and how hard it is to come back from trading losses.
2% seems like a very small number to risk on a trade. It is only 200$ when you have a 10,000$ account. This amount is kept small because that also makes gaining the 200$ back an easier task. If you had risked 500$ on one trade, then to earn that money back would require a even bigger win than before. Trading works best, for most strategies, if you can have a consistent up trend in your account size. Preventing spike movements in your account balance is the safest way to trade.
Day trading risk rule account size:
This rule can be used for nearly any account size. No matter if you are trading on a 1k account all the way to a 100k account. This trading strategy will help you maintain your account balance and grow it.
Another benefit is that your trade sizes are consistent, and often overlooked aspect of trading. When you risk a maximum of 2% per trade, this keeps your individual trades at a consistent amount. You will not be changing the trade size for every trade. Many day traders change their position sizing and targets without even realizing that this can effect the strategy they are using. Therefore using the max risk per trade rule will help standardize their trading, and allow them to improve consistently.