There are a number of day trading risk management strategies that we teach our traders at HFTrading. Three such trading strategies use the same options for entry, and shoot for the same targets, but offer traders different ways of getting there. These strategies are:
1) Better than Break Even, 2) Trade the Position to the Riskless, and 3) Hybrid Trade Management. Each have the goal of piecing out a position at extensions or to run the position to the technical target. Before they reach their target, these day trading strategies have the same options when it comes to share sizing, as traders can:
- Take a marker lot before committing to a larger stake.
- Take a half size lot and do one by down if a better price point develops.
- Take a full size entry.
The difference between these day trading risk management techniques lies in the rules traders execute them by. For the Better than Break Even strategy, traders can move past their entry at T1, or one unit of risk in their direction. Many traders using this strategy wait for a new pivot in their direction before placing a stop. The Better than Break Even philosophy suggests that traders do not need to add; traders are trying to run their entire position. If a trader books a profit, they can add back to their original position as long as it’s managed as a new trade.
Trade the Position to the Riskless offers a different way to manage risk. At T1, or one unit of risk in their direction, traders using this technique should sell/cover half their position and leave the stop at its original price. Traders can replace sold shares on new opportunities while continuing to keep the stop in the same place. This strategy allows traders to book realised profits, while continuing to carry the position.
Combining elements from both these day trading risk management techniques is referred to as Hybrid Trade Management. At T1, or one unit of risk in their direction, traders using this technique should sell/cover half their position, but move past their entry. Traders can then replace sold shares on new opportunities, but treat each add as a new trade.
HFTrading recommends that all traders test out each of these day trading risk management techniques as they develop the style that works best for them.