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When Should You Stop Trading For The Day?

Author

Alex Butterfield
November 23, 2023

RISK MANAGEMENT
When Should You Stop Trading For The Day?

Question: “I tend to risk about $50 per trade. Sometimes I’m up $500+ on the day and I’m not sure if I should stop, and walk away with the money, or continue with the momentum. The same thing goes for losing days. When do I call it quits for the day and walk away.” 

Great question! Everyone tends to have differing opinions on this but I’ll give you my two cents.  

Firstly here’s a framework you can follow…

General Rules

1. Never enter a trade without a plan (TP,SL)

2. Once you are in a trade stick to the plan

3. Its ok to be wrong its not about being right its about making money

4. Be patient do not act on FOMO

5. Do not chase the market

6. Let your winners run and cut your losses short


Now these risk management rules have been absolutely CRUCIAL to me. I suggest you follow them as though your life depends on it. 


Risk and Money Management

  1. Do not increase the standard trade size before you double the account.

  2. The maximum amount you are allowed to lose in a day is $XXX.

  3. The maximum amount you are allowed to lose on any single trade is $XXX.

  4.  The maximum number of losing trades in a row you are allowed to have in a day before you stop trading is three.

  5. The maximum number of losing trades you are allowed to have in a day before you stop trading is five. (You may have had a win or two between losses, but there is a time to stop trading.) The maximum number of losing trades in the same direction you are allowed to take in a day before you stop trading is two.

  6.  if you are up $XXX on a single trade, you will put a profit floor of $XXX underneath the current price to protect a portion of those profits.

  7. If you are up $XXX on a single trade, you will take the money and close out the trade.

  8.  If you are up $XXX for the day, you will take the rest of the day off, stay away from the trading screens, and do something you enjoy doing other than trading

  9. If you are up $XXX for the month, you will put a profit floor of $XXX underneath the month's profits to protect a portion of those profits. 

  10. If you are up $XXX for the month, you will take the rest of the month off, stay away from the trading screens, and do something you enjoy doing other than trading! (Take a vacation, sleep late, read books, or do something else fun.

Anything labeled $XXX is for you to decide. I suggest you pick something and stick to it. 

Have a question you’d like me to answer? Send it here!

STOIC QUOTE OF THE DAY

"We suffer more often in imagination than in reality."

- Seneca
REDDIT QUESTION OF THE DAY
Reality Check

I have a working strategy with a win rate around 60%. But whenever I spot the set up I get too excited and enter a very large, overleveraged position without stop loss. Then I freak out when the price slightly moves in the opposite direction, and rush to exit the trade with no loss. If I'm lucky I exit the trade but sometimes I exit with a huge loss. Then the price continues to do its thing and moves toward my tp while I'm no longer in the game. The amount of pain is extraordinary when I see how easily i lost a good trade.

This may sound very foolish and easily avoidable but I keep repeating the same mistake. I don't know why. I no longer trust myself and know on the inside that this is going to happen again. I now understand how gamblers go broke. This is very scary.

Please help me fix this. I know everyone keeps saying manage your risk but seasoned traders know it's easier said than done. I do manage my risk 90% of the time but I still make the said mistake again and again, which wipes out all the profit i make.

Ok so this is going to sound harsh but the reality is there’s no magic pill answer to this question.

Most people struggle with this kind of self control in multiple ways in their life. Think alcoholics, gambling addicts, weightloss, etc.

Being able to identify you have a problem is a good step, the reality however is…

No one is coming to save you
& there’s no magic pill that’s going to solve this.

As my dad used to say…

“there’s not much you can do when someone continuously hit themselves in the head with a hammer. They’ll complain their head hurts, but at the end of the day they just need to stop swinging the hammer against their head.”

Obviously this user came looking for a solution. But the answer is you have to just ACTUALLY do the thing you know you should be doing.

Stop complaining, stop making excuses, and just do it.

Regards,

Alex Butterfield
Founder & CEO, TraderEdge

PS. Wanna learn how TraderEdge can RADICALLY change your Trading?
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