Keys to Successful Day Trading.Part7

Keys to Successful Day Trading
By Toni Hansen and Brandon Fredrickson
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5. Being a Great Money Manager
Great traders are also great risk managers. They respect the risks they are taking and on each trade they risk a small amount of capital. Usually this is 1/4% to 1% per position (and no more than 2%). The idea is that you can't trade tomorrow if you blow out today and if you can't trade you won't be a great trader now will you? Great traders protect their accounts. It's their baby. Each position is so small they don't really give a damn what happens with it. It's just a nick... win, lose, or draw. So, if they have a 200K account and are risking 1/4% on each trade, that means if they take a stop they are out $500. That's a very small amount of money compared to the account. It doesn't matter too much if they take a stop. One or even a series of stops won't be the end of their career.
Now, not all traders have this large of an account, but the basic principal is the same no matter what size of account you have. Mathematically speaking, 2% is the most you can risk and still be able to survive the strings of stops that can and often will occur on occasion. So if you have a 25K account and you risk 2%, you can also risk $500 a trade. Once your account is larger, however, it is advisable to risk less and with experience, you can also learn which types of situations can allow for greater risk compared to others.