4 Money Management Tips For Day Traders

By December 9, 2016Trader Tips
4 Money Management Tips for Day Traders

Have you ever been tempted to trade more money than you actually have, because you think your winning streak will go on forever? Have you ever thought that you could offset yesterday’s losses with the quick buck that you’ll make today? Have you ever ditched your trading tactics and ignored your well-thought out stops, because a certain stock looked mouthwateringly good?

We guess that you’ve at least thought about doing one of those things in the day trading business.

Whether you are new to trading or a seasoned trader, your money management skills are as important to your success as your trading strategy and your mindset.

That’s why we are summing up for you these 4 most important money management tips to help you keep and grow your day trading account.

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#1 Live Within Your Means

Our message for you here is this: Keep your day trading account safe, by trying to be a successful trader rather than just looking successful. Buy the things that you can afford and don’t launch yourself into an extravagant lifestyle, unless you have the extra money to keep up with it. It’s fine to dream that one day you’ll own the lovely Maserati you saw the other day.  You could!  You will! But, to get there, you’ll need to hone your trading strategy so that you’ll become the successful trader who will one day be able to afford one.  And, that day may not be too far off, if you have the discipline to manage the capital that you have today.

Set your sights on all of the things that you want to possess or all of the insanely expensive stuff that you want to do.  In fact, we recommend making a list of these things.  But, earn them (instead of borrowing to “buy” them).  It feels great!  Let your goals be multi-tiered and work first to grow your trading profits and let EVERY goal be your ultimate drive. If you need some tips on putting money aside for your trading account, check out STT’s tips to save up!


#2 Trade Only With Money That You Can Afford To Lose  

That sounds like something someone would say to a poker player!  But, it’s sound advice, no matter who you are.  No one goes into day trading thinking they’ll lose (but EVERY successful trader has lost, and lost big.  And, if you are ever going to learn the trading tradecraft, you will too).

I don’t think we’ve ever heard of a successful trader who hasn’t lost. You should just be ready to lost money—which is why we’re stressing how important it is to only trade with money that you can afford to lose.

  • Don’t trade with your rent money.
  • Don’t trade with your baby’s food money.   
  • Don’t take out a costly cash advance from your credit cards to restore a lost trading account balance and don’t borrow to trade money that’s not yours and that you can lose outright.

Prepare yourself for losses.  It’s an inevitability. 

But, overall, if you work hard to perfect your craft and learn from these losses, you will come out on top in the end.  Once you know how much money you can really afford to lose on trading without betting your mortgage payment, you’ll know that you can get by, even if a trade goes sideways. This will boost your feeling of financial security and strip you of negative emotions, such as fear and anxiety, that naturally would come with trading with critical funds.


#3 Stick to Your Stop Loss    

This will protect the money in your trading account from disappearing into thin air with one large trade gone wrong. If you’ve set your limit at $1,000, don’t wait until you hit it—exit losing trades before that. That stop loss is not just some imaginary number pulled from the sky, it is the protection that you need, so that you won’t wipe out your entire day trading account with one impulsive, irrational trade. Stick to your stop loss and don’t be fooled by the greedy and arrogant, “Oh, I’ll borrow $1,000 to cover those losses” thoughts lurking somewhere in the darker parts of your mind.

Trading with money that you actually have and knowing that you’ll still live to trade another day, even if you lose, are the first steps to growing your trading account with more confidence and profitable trades, one at a time.


#4 Take a Profit   

It’s important to set goals.  But, goals are only as good as your own stick-to-itiveness. One important goal should be to make fixed withdrawals (pre-planned, of course) after you reach some predetermined milestones.  You can think of this as your trader’s “salary.” Your goal could be to take out a fixed amount every time your trading account exceeds a certain dollar figure or a percentage of your winnings on a bi-weekly, monthly or bi-monthly basis. 

And, don’t be afraid to change those goals, as you find what best works for you—just don’t forgo your goals and take out money that you hadn’t planned on.

This strategy is multi-faceted.  First, this keeps you rolling along in cash, sparing yourself the greater temptation of draining your account (or accounts) dry on some impulsive purchase.  Second, withdrawing a certain amount of cash on a regular basis is motivating, particularly if it is tied to some level of earnings (the harder I work/the better I trade, the more cash I get).  Third, taking out some amount of cash keeps you from what is sure to be a really bad trade at some point, possibly wiping out all of the profits that you’ve made up to that point—this can catch you off guard and can be very demotivating—unless you’ve taken steps to cushion the blow, by allowing yourself to use some of the profits up until that point.

We’d bet that there is not a single trader out there that has a perfect string of all successful trades.  Your goal is not to be perfect, but to win more often than you lose and to enjoy the money that you make

With some goal setting as well as some discipline, you should be able to manage the money that you have to grow your trading account, as well as your personal bank account.


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