We hear all the time.
Risk management is the foundation in day trading.
If you don’t manage your risk you’ll never
be profitable, especially if you have a small
But not a lot of people actually know how
to apply this concept.
So to address this highly requested topic,
today I’ll be going over a simple systematic
approach to risk management by using this
And demonstrate how to actually apply it to
control risk when day trading.
If you have a small account, or a bigger account
but are struggling with volatile swings of
small wins but huge losses, you’re gonna
want to watch this video.
I’ve spent a lot of time putting this excel
sheet together and I’ll be giving it out
as well in this video.
So Do me a favor before we move on, destroy
that like button for me.
Let’s be real here, in day trading you can’t
say with 100% certainty that a stock is going
to go up or down in your favor at any given
Therefore, you can never truly control how
much profit you make.
But, You can definitely control how much you
So it makes sense to make the only thing you
have control constant in this game where there
are so many variables.
And this control is your Max risk.
So lets take a look at this sexy excel spreadsheet
Lets say I have a $10,000 account.
Gross exposure is the percentage out of that
10k Im willing to put into each trade.
This is NOT the max loss ok?
We’ll get to that in just a little bit.
Now you should never put the 100% entire account
into each trade.
That’s just playing with fire.
You never put all your eggs in one basket.
And thats how people blow up.
In my opinion, I would only play 10-30% of
the account as gross exposure.
10% being conservative, so I would be throwing
only 1000 into each trade.
And 30% being aggressive.
So Im putting 3000 into each trade.
And out of that 3000 gross exposure, I suggest
to risk only 3% as max loss.
So i play aggressive and put 3000 into each
trade, my max loss is 90.
If i play conservative, the max loss is 30.
Of course you can play around with the percentage
you are willing to lose.
But you should always aim to be risking 1
to make 3.
Meaning if I’m risking 3% of my gross exposure
per trade, I want to potentially be able to
make 9% return out of that exposure.
So in this case, my max loss per trade is
90, and profit target is 270.
This is per trade.
Now, having this metric in place doesn’t
mean you only stop out if your PnL is negative
But that just means if you’re wrong, the
maximum you’re allowed to lose is $90.
And same goes for profit target.
It doesn’t mean you’ll always make 270.
But the set ups you do decide to enter to
long or short, need to potentially give you
270, when you are risking 90.
We’ll come back to explain this risk reward
concept in detail in jsut a little bit.
And I know these are not exciting numbers.
But this is per trade, small wins like this
adds up trust me.
That brings us to the topic of small accounts.
really when you are starting out and have
a small account of 5000, and using 30% exp,
you should be aiming for base hits of small
100 wins and slowly build it up.
While you’re doing that, your goal should
not be trading to make profit.
You should be trading to gain consistency
with base hits.
Let me repeat this.
Don’t aim for home runs.
Small gains of 100 add up.
And if you lose, you lose small, 45.
That’s not the end of the world.
If you only have a small account of 5000.
You can’t afford to risk the entire account
and take huge losses like 150.
So if you lose twice in one day, you are down
300 loss for a small 5000 account.
This number, max loss.
Is the only thing you can control in day trading.
You can only control your set loss.
And stare at this number.
Look at this number.
Can you realistically take that loss without
Which is 3% of your gross exposure of 1500.
yeah I think most people can take a 45 loss.
But look at what happens when you risk a much
bigger percentage of your 5000 account.
The max loss is now 150.
Be honest with yourself.
Can you cut that trade without emotions when
you are down 150 and walk away?
And if you lose twice in one day, 300?
The last thing you want to be doing is being
emotional knowing that you are down 150 and
cannot cut the loser even though you know
Then you hold on to your position without
cutting your loss and become a bag holder.
9 out of 10 times, that 150 loss ends up being
500, or worse, 1000.
And thats how people blow up their accounts.
By not accepting the initial risk and cut
the small loser and just hold and hope until
the small loss becomes too big.
And I’m speaking from my personal experience
99% of the time when you cant cut your loser,
is because you are risking too much.
Your max loss per trade needs to be a figure
that you are very comfortable cutting when
you are wrong.
This max loss number is different for everyone.
I can take that max loss of 150 without being
attached to my trade or being emotional.
No problem but i cannot take this 2500.
By the way, I’m doing a special giveaway
in this video, ill tell you the exact details
So you’re not gona waant to miss this.
So you need to play around with your gross
exposure % and mx loss % to get that number
you are comfortable with.
If its 150 per trade.
Great, stick with it for every single trade.
I think that’s too much to risk with a 5000
account but you might be emotionally ok with
If 150 is too much, then risk less.
Maybe risk only 75.
To truly be emotionally detached from your
PNL is to accept your max loss.
You need to accept that you might lose 75
while you try to make 225.
And that’s why we call it risk reward, not
A lot of times people with a small account
they are trying to use their entire account
of 5000 to make 450.
So they want that reward of 450.
But they’re not ready to accept the risk
I think thats the wrong way to do it.
And that’s why you see gurus posting videos
and profits of stuff like how to make 1000
in 5 minutes with a small account.
That looks hot and sexy and that sells.
So with an entire 5000 account you are trying
to make 20% from that entire account of 5000,
which is 1000.
But the guru is not telling you what the risk
In this scenario then your risk is 20% divided
You’re risking 6.66% of 5000, Your risk
So that’s the flip side to the title “how
to making 1000 in 5 min with a small account”t.
is how to risk losing 333 to make 1000 in
But that title doesn’t sound as attractive
now does it?
Yes you need to have 3 to 1 risk reward.
People say that, you know it.
But most people are not putting that into
All the marketing for day trading make it
seem like you’re in the business to make
money, but really the right way to think about
Is that you’re in the business, to control
Realistically most beginners are not comfortable
So how about risking 45 to make 135?
That’s still the same risk reward ratio as
the guru who was risking 333 to make 1000.
Its the same concept.
Except he is ok with risking 333, of course
he is, hes collecting 10k a month from DVD’s.
Why would he have a problem risking 333 to
make a 1000.
So you need to customize your max loss according
to your own account size, exposure, and your
emotional comfort with risk.
That’s the key to cutting your losses and
managing your risk.
So now that we’ve established setting a
max risk per trade according to your account
Lets take a look at how to actually apply
So lets say I have a small account of 5000.
And im comfortable using 30% which is 1500
And I’m risking 45 per trade to make 135.
3 to 1 risk reward.
These are the share sizes I can take.
So on the right column is the maximum share
size you can take with your gross exposure.
And the max stop loss per share.
And the target.
Let me show you how to use this.
Let’s say I know I have a good probability
of success shorting a second day gap up like
Now if my short entry is at this bear flag
on the third ten min candle.
Let say my desired entry is 10.
So according to this spread sheet.
Maximum share size is 150 shares for a 10
my max risk is 30 cents, with the potential
to make 90 cents.
Seeing how extended KPTI is on the daily.
I think it at least has room down to previous
day’s breakout level at 8.60.
So theres definitely a potential to make more
than 90 cents.
But, according to my gap up short strategy,
i need to be able to risk the opening highs.
So i need to risk this high at 10.50.
That’s too much for my share size.
So thats when I go to custom shares and lower
If i take 100 shares, i need to risk 45 cents.
Thats not enough, but if i do 90.
Then yes i can risk 50 cents.
But if im risking 50 cents.
I want to potentially be able to make 1.50.
Can KPTI give me that.
Well it has room from 10 now down to 8.50.
And in some cases we’ve seen gap ups like
KPTI sells off the entire gain back down to
So yes, it can definitely give me 1.50 reward
if I risk 50 cents.
This is how you control your risk by keeping
that max loss constant, and still allowing
your position to breath.
So let’s say im short at 10 but the stock
bounces to 10.26 here, im not scared and shaken
I know this is within my risk.
My max loss is 10.50.
And even if that gets hit i only lose 45.
And thats a max loss i can accept.
And very important, once you actually enter
You should be setting hard stop at your risk
Hard stops, no excuses.
I used to use mental stops on my scale in
positions, but that led to a big loss.
So i really recommend hard stops only.
Of course it doesn’t mean you hold your short
position all the way down to 8.50.
You need to be paying yourself along the way.
Because who knows, maybe KPTI just bounces
off 9 dollars and doesnt go lower.
Thats why you need to pay yourself.
Again, you cannot control how much u make.
Whats important is that The set up could have
given me a potential 1.50 reward after I’ve
accepted that there could a 50 cent risk.
But how do you know about where the risk and
reward should be set?
Well that comes with chart reading skills
and technical analysis.
And I have a video on charting out support
and resistance lines.
Learning about all these strategies and technical
analysis will give you the set ups.
But truly apply risk management, and is what
will make you profitable in the long run.
This excel spreadsheet will be emailed out
to the people who’ve signed up to my mailing
If you haven’t signed up, make sure you do
with the link below.
You’ll also get an updated trading journal
as well along with this risk management spreadsheet.
Now giveaway time as promised.
I’m giving away one free trading consulting
If you’re struggling with strategies, sizing,
consistency, or controlling your emotions
This consulting session can be very beneficial
And help you work through those problems.
It is usually an extra paid service I do when
I have time.
But I never promote it, because it’s not the
focus of this channel and I’ve just been
offering it to people who emailed me to seek
out this extra service.
But im giving one session away for free today.
And if you guys like this idea, maybe ill
do more giveaways like this in the future.
To enter this giveaway, first of all make
sure you are subscribed and smashed that like
button for me.
And comment down below, what is your biggest
struggle with day trading?
What do you think your strengths are and what
issues do you need to work on?
And to give yourself extra brownie points
in this giveaway.
Scroll down to see what other traders problems
are and reply to their comments with your
suggestions to help them fix those issues.
I’ve been answering questions and helping
out everyone who comments but Im sure everyone
would appreciate a second opinion.
I want this channel to be a safe place for
people to share ideas and constructive feedback.
And I’ll pick a winner from the comments
So please help each other out.
Like some of you said, we are all humbled