Learn how to master day trading by downloading two of Trading EveryDay’s FREE products: Tools of the Trade eBook and a Trading Plan Planner. Dedicated to helping people become profitable traders, Leroy Rushing, a professional day trader, trading coach, and author, is the CEO of Trading EveryDay, a distinguished provider of educational trading products and services.
The maximum position-size strategies are catered to traders who desire to make a living rather than grow their capital. Once a trader has sufficient capital, the result is taking positions that are equal in size to further the odds advantage.
How to decide a maximum position size
Whether scalping, day trading, or investing, professional traders set a maximum position size to determine how much they will be trading and keep it standard for each trade. Developing a trading plan around a maximum position size is much easier, as all trades will be uniform and produce around the same results when used in the same strategy.
Your trading style may impact how much you are willing to trade with each position. Short term traders usually favor very high trading amounts, sometimes 1000 shares to make each tick on a stock chart worth $10. A change in a share price by $.50 represents a $500 gain. That’s a nice return for the day trader living on his or her trading account.
Why limit yourself
The best way to grow capital is to slowly scale up your trading. When in the capital building stage, a trader might prefer to trade 500 shares at a time, then step it up to 750 in a few months, and then to 1000 in a few more months. This allows the odds to work out in your favor over the long term and keeps profits and losses stable. By alternating your maximum position frequently, you might find that your losers are very few, but are large losses that wipe away all profits.
Consistency is the key to consistent profits
Everything you do in trading should revolve around the idea of consistency. The more consistent you are, the better chance your strategy will work for you. This is the main focus around a trading plan and why developing a trading plan is so important; again, consistency is the key to consistent profits. A complete trading plan should outline how much you will stake on each trade, how much you’re willing to lose, and how much you intend to profit. Profitable trading strategies have one thing in common; they all produce consistent profits as a result of consistency in every aspect of trading.
Scaling up your trading
Trading for yourself is one of the best businesses available because it’s so easy to scale up. All a trader needs to do is enter another zero to the end of an order, and you are ten times more profitable or ten times less profitable. Take advantage of this by setting a timeline for scaling up. Your trading plan should show how often you plan to scale up your trading and by how much each time.
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