Risk Rule 2: Daily Max Loss and Max Loss Per Trader
Transcript:
…Hello traders. It is time for another. Risk rule. So last week we talked about the first risk rule of knowing when not to trade… So let's say you passed all of that… You're in the right place. You're not on vacation. You are right mentally You didn't just have a fight with your wife. There's no orthodontist or dentist appointments today. Your spouse's left The house is just you at the computer. You woke up early this morning after a great night's sleep, you're energetic and you're excited to trade. You've marked your levels. If you're a member of my group, go to the trading floor and see if I posted any charts with some levels that I think need to be on your chart. Um, You are prepared. To trade. Okay So how do we know when to stop… While you're trading. Well we're going to talk about the obvious one today is about your losses. Okay So once again we are risk first. Traders. So before you even started your trading this week or before you've even started trading one of the decisions you need to have made is what is going to be my max loss. This is critical This is the risk rule we're talking about today. No exactly how much you're willing to lose on every trade. And your max loss per day. Stick to it. Take your loss like a man and be the best loser you've ever known. And then you'll see a link there that says leverage matrix. I have a video on the lever to metrics on my channel or go to my website and you'll see it there as well… So the first decision is how much am I willing to lose? You could do it in a month. And then how much am I willing to lose in a week? And as a day trader the most important one is how much am I willing to lose today before I make the decision? To close my Dom shut down my computer and be done for the day. Take my acceptable loss that does not tilt me. And walk away. Because I'm going to tell you you're all energized You're all in this passion… But if you walk away from the computer, And you go do your grocery shopping. You take your kids to the park. You go for a long walk. You will calm down. And you will be able to take your small loss and walk away. If you cannot walk away from the chart the chart owns you… I want you to be able to walk away from the chart. You want a little exercise. One day your first trade is a loser. Shut down your computer shut down your Dom and walk away and say I am taking that loss today. I am going to do it. For the discipline. Of doing it. The market's going to be here tomorrow. Take that little loss. Walk a way. I want you to go through those feelings that you're going to have to combat. When the lard when the losses are larger and the emotions are greater… So tomorrow next day you trade. If your first trades a loser stop. Take that loss walk away. Prove to yourself and you can do it prove that you are in control, not the gambling casino called. Trading… Okay… So what's your max loss. For the week. And you can divide that out. However you want There's Monday Tuesday Wednesday Thursday Friday. Which days do you trade Bess? Do you trade better in the morning The afternoon? Do you trade better on Monday and Wednesday than you do Thursday Friday? You could spread out that money however you want. I even suggest that perhaps if you trade better on Monday and Wednesday, put a larger portion of that loss. On those days. And stick to it… You might say Hey I don't trade the PM sessions at all I'm only am only, I only trade Monday and Tuesday because that's when I'm the freshest and the best And I ignore the rest of the week. Do it however you want but it doesn't have to be the same amount every day. That's what I'm trying to get at. So 500 bucks does not mean I'm at $1,500 for the week Does not mean you got to do $300 a day. That's not what that means. So spread it out. I would tend to, I tend to trade best on Mondays and Wednesdays For some reason that tends to be my best days. So maybe I could put more of the stop loss. On those two days and much smaller on Friday where I do much worst where I only want the loss on Friday to be so small and boom I'm done. I'm not going to allow Fridays to hurt me. So you can scale those by day and by sessions… Okay Now let's get down to let's say you were going to do $500 max loss per day. Okay. So that could be five trades in a row You can say you know what If I do five max trades in a row, I'm done I'm out. You might say if I'd lose two. In a row… As a safety valve I'm out. Decide how you want to do it but let's just stick with the example $500 max loss loss per day. You're willing to lose five trades in a row Lesser your first five trades Just go bad… That would be a hundred dollars Max loss portrayed as simple math would reveal… Yes it's $5 per point. So if you portrayed one contract you could use a 20 point stop-loss. I recommend you do that but we're doing this for math. If you traded two contracts you could use a 10 point stop loss. If you trade at three contracts you could use a six point stop-loss. So now we went from how much we're willing to lose for the week. And we have really dialed it in to how we are going to trade today. How we're going to manage our risks today. We know how many contracts we can trade We know what sort of stop-losses we can look. We know when we're done for the day. It's very clear in black and white and then you have to follow the rules. I'm not at the computer to slap your hand off the mouse and turn off your computer. You. Have to manage yourself pretend you're the pit boss standing over yourself watching new trade… Yank yourself off the trade desk. Walk away Get away, calm down. Take the small loss, take the acceptable loss and move on. So if you know that at $300 max loss for the day you tilt. Well you should never have a $500 max loss number. No you let's not get close to the number that makes you go crazy. So a $500 makes you go crazy… And you're going to start doubling and tripling your leverage just to get back to even when your max loss should probably be $200. If 500 makes you go crazy your max loss should probably be 200. That way you don't come close to the 500 where you start being stupid. You have to protect yourself from yourself… Okay let's dig a little deeper. So let's say you were going to do the $500 max loss per day, where you could scale your risk. Hey when I'm freshest and I'm the best and I'm going to be patient and wait for the absolute best setup. Maybe you allow yourself a larger…stop-loss…and then if you lose that you dial it down then you dial it down Then you dial it down. As the example here. So the first loss you could say Hey 200 bucks. That's going to allow me to leverage bigger. I'm going to be able to do more contracts or I'm going to be able to do a bigger stop… I'm freshest. I'm seeing the charts Great. I'm gonna allow that first trade to carry more of the risk. And then with each loss I'm going to trade smaller… I'm going to trade smaller. Till I get back to my $500. So let's walk through an example. Frustrates max loss you lose 200 bucks… Your system says the next trade I can only risk a one 50. You have to stay at that risk level. Until you get back to even. When you get back to eat when you have now earned the right to go back to the first Los leverage. Okay. Let's say you lose the first two trades You're now at the third loss where you can risk $100 per trade. You have to stay at that risk profile until you have made back everything and gotten to zero. Then you can return to the first level of risk. Or you just close the Dom. And move on. When there's a better day because they're easier days and there are easier traits… So. What's your max loss per week. What's your max loss per day Make sure that max loss is way under your tilt number. You can also scale your leverage based off your best trading days. Make the leverage smallest on your worst day for me is Friday… You can scale your leverage based off first trade versus second trade versus third trade. So let's say you do the first trade and you have $200 max loss. It touches your level Bounce does beautiful… You make money, you can still stay at the $200. First loss number… Okay. You don't have to scale down. You can always scaled helm by the way, but you can stick there at that first leverage amount. But when you lose it is a smart. Plan to leverage down. You could make a rule that says okay, when I have a loss, I immediately go to the lowest leverage trade. Immediately. For the next trade. So let's say you lost $200 on your first trade. Well the next one I'm going to do 50. If I make money I can now go to the second loss leverage because that's where I should be. You have to stay there until you get back to breakeven. And then you can restore yourself to the first loss leverage. There's many ways you can work this, but I love the concept of de-leveraging after a loss, not staying with the same leverage and certainly. Not going bigger when you're emotional and probably upset about the loss. It's smartest D leverage till you get back to break even go back to the first trade leverage… Okay So first rule knowing when not to trade… Second rule is once you're trading How do when should I stop? We're not talking about profits here We're talking about just one. Area which is…the loss. Because I'm all about risk mitigation. First. If we can have a high probability system and we're good at containing our risk you will be successful over time… What's your max loss per day. How are you going to. Scale that… And how are you going to scale that over the week? Are certain days better than other days. So Monday on best on freshest. I do really well on Mondays… So that day I could front-load my risk for the week. What if I had a $1,500 number for the week and I put a thousand on Monday… That's okay. That's typically historically my data and I have very detailed data. I know when I trade best… That doesn't mean I'm going to take that loss. It just means I trading so good. I'm willing to allow myself to have higher leverage. During the times I trade best… Might be something for you to consider. Of course none of this is investment advice This is just one trader talking to another trader about risk. How much are you willing to lose today… How much are you willing to lose per trade And how can you scale those numbers It doesn't have to be an exact thing exactly the same. Every single trade. In my humble opinion… Okay, thank you for listening And I hope you take this into consideration and add it to your trade plan…
…Hello traders. It is time for another. Risk rule. So last week we talked about the first risk rule of knowing when not to trade… So let's say you passed all of that… You're in the right place. You're not on vacation. You are right mentally You didn't just have a fight with your wife. There's no orthodontist or dentist appointments today. Your spouse's left The house is just you at the computer. You woke up early this morning after a great night's sleep, you're energetic and you're excited to trade. You've marked your levels. If you're a member of my group, go to the trading floor and see if I posted any charts with some levels that I think need to be on your chart. Um, You are prepared. To trade. Okay So how do we know when to stop… While you're trading. Well we're going to talk about the obvious one today is about your losses. Okay So once again we are risk first. Traders. So before you even started your trading this week or before you've even started trading one of the decisions you need to have made is what is going to be my max loss. This is critical This is the risk rule we're talking about today. No exactly how much you're willing to lose on every trade. And your max loss per day. Stick to it. Take your loss like a man and be the best loser you've ever known. And then you'll see a link there that says leverage matrix. I have a video on the lever to metrics on my channel or go to my website and you'll see it there as well… So the first decision is how much am I willing to lose? You could do it in a month. And then how much am I willing to lose in a week? And as a day trader the most important one is how much am I willing to lose today before I make the decision? To close my Dom shut down my computer and be done for the day. Take my acceptable loss that does not tilt me. And walk away. Because I'm going to tell you you're all energized You're all in this passion… But if you walk away from the computer, And you go do your grocery shopping. You take your kids to the park. You go for a long walk. You will calm down. And you will be able to take your small loss and walk away. If you cannot walk away from the chart the chart owns you… I want you to be able to walk away from the chart. You want a little exercise. One day your first trade is a loser. Shut down your computer shut down your Dom and walk away and say I am taking that loss today. I am going to do it. For the discipline. Of doing it. The market's going to be here tomorrow. Take that little loss. Walk a way. I want you to go through those feelings that you're going to have to combat. When the lard when the losses are larger and the emotions are greater… So tomorrow next day you trade. If your first trades a loser stop. Take that loss walk away. Prove to yourself and you can do it prove that you are in control, not the gambling casino called. Trading… Okay… So what's your max loss. For the week. And you can divide that out. However you want There's Monday Tuesday Wednesday Thursday Friday. Which days do you trade Bess? Do you trade better in the morning The afternoon? Do you trade better on Monday and Wednesday than you do Thursday Friday? You could spread out that money however you want. I even suggest that perhaps if you trade better on Monday and Wednesday, put a larger portion of that loss. On those days. And stick to it… You might say Hey I don't trade the PM sessions at all I'm only am only, I only trade Monday and Tuesday because that's when I'm the freshest and the best And I ignore the rest of the week. Do it however you want but it doesn't have to be the same amount every day. That's what I'm trying to get at. So 500 bucks does not mean I'm at $1,500 for the week Does not mean you got to do $300 a day. That's not what that means. So spread it out. I would tend to, I tend to trade best on Mondays and Wednesdays For some reason that tends to be my best days. So maybe I could put more of the stop loss. On those two days and much smaller on Friday where I do much worst where I only want the loss on Friday to be so small and boom I'm done. I'm not going to allow Fridays to hurt me. So you can scale those by day and by sessions… Okay Now let's get down to let's say you were going to do $500 max loss per day. Okay. So that could be five trades in a row You can say you know what If I do five max trades in a row, I'm done I'm out. You might say if I'd lose two. In a row… As a safety valve I'm out. Decide how you want to do it but let's just stick with the example $500 max loss loss per day. You're willing to lose five trades in a row Lesser your first five trades Just go bad… That would be a hundred dollars Max loss portrayed as simple math would reveal… Yes it's $5 per point. So if you portrayed one contract you could use a 20 point stop-loss. I recommend you do that but we're doing this for math. If you traded two contracts you could use a 10 point stop loss. If you trade at three contracts you could use a six point stop-loss. So now we went from how much we're willing to lose for the week. And we have really dialed it in to how we are going to trade today. How we're going to manage our risks today. We know how many contracts we can trade We know what sort of stop-losses we can look. We know when we're done for the day. It's very clear in black and white and then you have to follow the rules. I'm not at the computer to slap your hand off the mouse and turn off your computer. You. Have to manage yourself pretend you're the pit boss standing over yourself watching new trade… Yank yourself off the trade desk. Walk away Get away, calm down. Take the small loss, take the acceptable loss and move on. So if you know that at $300 max loss for the day you tilt. Well you should never have a $500 max loss number. No you let's not get close to the number that makes you go crazy. So a $500 makes you go crazy… And you're going to start doubling and tripling your leverage just to get back to even when your max loss should probably be $200. If 500 makes you go crazy your max loss should probably be 200. That way you don't come close to the 500 where you start being stupid. You have to protect yourself from yourself… Okay let's dig a little deeper. So let's say you were going to do the $500 max loss per day, where you could scale your risk. Hey when I'm freshest and I'm the best and I'm going to be patient and wait for the absolute best setup. Maybe you allow yourself a larger…stop-loss…and then if you lose that you dial it down then you dial it down Then you dial it down. As the example here. So the first loss you could say Hey 200 bucks. That's going to allow me to leverage bigger. I'm going to be able to do more contracts or I'm going to be able to do a bigger stop… I'm freshest. I'm seeing the charts Great. I'm gonna allow that first trade to carry more of the risk. And then with each loss I'm going to trade smaller… I'm going to trade smaller. Till I get back to my $500. So let's walk through an example. Frustrates max loss you lose 200 bucks… Your system says the next trade I can only risk a one 50. You have to stay at that risk level. Until you get back to even. When you get back to eat when you have now earned the right to go back to the first Los leverage. Okay. Let's say you lose the first two trades You're now at the third loss where you can risk $100 per trade. You have to stay at that risk profile until you have made back everything and gotten to zero. Then you can return to the first level of risk. Or you just close the Dom. And move on. When there's a better day because they're easier days and there are easier traits… So. What's your max loss per week. What's your max loss per day Make sure that max loss is way under your tilt number. You can also scale your leverage based off your best trading days. Make the leverage smallest on your worst day for me is Friday… You can scale your leverage based off first trade versus second trade versus third trade. So let's say you do the first trade and you have $200 max loss. It touches your level Bounce does beautiful… You make money, you can still stay at the $200. First loss number… Okay. You don't have to scale down. You can always scaled helm by the way, but you can stick there at that first leverage amount. But when you lose it is a smart. Plan to leverage down. You could make a rule that says okay, when I have a loss, I immediately go to the lowest leverage trade. Immediately. For the next trade. So let's say you lost $200 on your first trade. Well the next one I'm going to do 50. If I make money I can now go to the second loss leverage because that's where I should be. You have to stay there until you get back to breakeven. And then you can restore yourself to the first loss leverage. There's many ways you can work this, but I love the concept of de-leveraging after a loss, not staying with the same leverage and certainly. Not going bigger when you're emotional and probably upset about the loss. It's smartest D leverage till you get back to break even go back to the first trade leverage… Okay So first rule knowing when not to trade… Second rule is once you're trading How do when should I stop? We're not talking about profits here We're talking about just one. Area which is…the loss. Because I'm all about risk mitigation. First. If we can have a high probability system and we're good at containing our risk you will be successful over time… What's your max loss per day. How are you going to. Scale that… And how are you going to scale that over the week? Are certain days better than other days. So Monday on best on freshest. I do really well on Mondays… So that day I could front-load my risk for the week. What if I had a $1,500 number for the week and I put a thousand on Monday… That's okay. That's typically historically my data and I have very detailed data. I know when I trade best… That doesn't mean I'm going to take that loss. It just means I trading so good. I'm willing to allow myself to have higher leverage. During the times I trade best… Might be something for you to consider. Of course none of this is investment advice This is just one trader talking to another trader about risk. How much are you willing to lose today… How much are you willing to lose per trade And how can you scale those numbers It doesn't have to be an exact thing exactly the same. Every single trade. In my humble opinion… Okay, thank you for listening And I hope you take this into consideration and add it to your trade plan…
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