Day Trading Risk Management and XAUUSD Money Management Strategies

Day Trading Risk Management Strategies

In any business, so as to make profit a trader must learn how to manage the risks. To earn profits in day trade you need to learn about the various risk management methods discussed on this learn trading day guide site.

In online trading, the risks to be managed are potential losses. Using risk management rules won't only protect your account but also make you profitable in long run.

What's DrawDown in XAUUSD Trading?

As traders the number one risk in trading day trading is known as draw down - this is the sum of money you've lost in your trading account on one trade.

If you have $10,000 capital and you make a loss in a single trade of $500, then your drawdown is $500 divided by $10,000 which is 5% trade draw down.

What is Maximum Trading Draw Down?

This is the total amount of money you have lost in your trading account before you begin making profitable trades. For example, if you have $10,000 in day trading capital and make 5 consecutive losing trades with a total of $1,500 loss before making 10 winning trades with a total of $4,000 profit. Then the drawdown is $1,500 divided by $10,000, which is 15 % maximum trade draw down.

Gold Draw-Down is $442.82 (4.40%)

Max Draw Down is $1,499.39 (13.56 %)

To learn how to generate the above in day trade reports using MT4 platform: Generate Gold Trading Reports on MetaTrader 4 Guide - Draw-Down Risk Management Calculator

Day Trading Money Management Strategies

The in day trading example shown & described below portrays the contrast between risking a small percent of your capital compared to risking a higher percent. Good Day Trading Risk Management Strategies guidelines requires you as the trader not to risk more than 2% of your total account equity on any one single trade.

Gold Percentage Risk Technique

2 % and 10% Funds Management Rule - Day Trading Risk Management Strategies

There's a large contrast between risking 2% of your account equity compared to risking 10 % of your equity on one trade.

If you happened to go through a losing gold streak & lost only 20 trades in a row, you would have gone from beginning account equity balance of $50,000 to--having--onlyto--only--having $6,750 left in your account if you risked 10% on each trade. You would have lost over 87.5% of your account equity.

However, if you only risked 2 % you would have still had $34,055 in your account which is only a 32 % loss of your total account equity. This is why it's best to use 2% risk management strategy in day trading.

The difference between risking 2 percent and 10% on one trade is that if you risked 2 percent you would still have $34,055 in your account after 20 losing trades.

However, if you risked 10% you would only have $32,805 in your account after only 5 losing trades that is less than what you would have in your account if you risked only 2% of your account and lost all 20 trade transactions.

The point is that you want to set-up your Day Trading Risk Management Strategies rules so that when you do have a loss making period, you will still have enough in day trading capital to open a trade the next time.

If you lost 87.5% of your in day trading capital you'd have to make 640 % profit to get back to break-even.

As compared to if you lost 32 % of your in day trading capital you'd have to make 47% profit to get back to the break-even. To compare it with the examples 47% is much easier to break even than 640 % is.

The trading chart below shows what percentage you'd have to make in order to get back to breakeven if you were to lose a certain percentage of your in day trading capital.

Concept of BreakEven - Draw Down Risk Management Chart

Account Equity & Break Even - Day Trading Risk Management and XAUUSD Money Management Strategies - Draw Down Risk Management Chart

At 50% trade draw-down, one would have to make 100% on their invested capital - a task accomplished by less than 5 % of all traders worldwide - just to breakeven on a account with a 50% loss.

At 80% draw down, a trader must quadruple their trade equity just to take it back to the original equity. This is what is referred to as to "break-even" - which means - get back to your original account equity balance which you started with.

The more money you lose, harder it is to make it back to your original account size.

This is why as a trader you should do everything you can to PROTECT your account equity. Do not accept to lose more than 2% of your account equity on any one single trade.

Gold Money management is about only risking a small percent of your capital in each trade so that you can survive your losing streaks & avoid a large draw down on your account.

In day trading, traders use stop orders that are put in order to minimize losses. Controlling risks in day trading involves putting a stop loss order after placing an new trading order.

Effective Risk Management

Effective in day trade risk management requires controlling all the risks in day trading & one should create a money management system and a funds management in day trading plan. To be in day trade or any other business you must make some decisions involving some risk. All in day trading factors should be analyzed to keep risk to a minimum and use above money management tips on this article - Draw Down Risk Management Chart.

Ask yourself? Some Gold Trading Tips

1. Can the risks to your in day trade activities be identified, what forms do they take? and are these clearly understood & planned for in your in day trade plan? All the risks should be taken care of in your in day Trading plan.

2. Do you grade the risks encountered by you when in day trading in a structured way? - Do you have a money management strategy & a in day trade plan? have you read about this learn in day trading topic which is well covered here on this learn in day trading site for novice traders.

3. Do you know the maximum potential risk of each exposure for each trade that you place?

4. Are trading decisions made on the basis of reliable & timely market information & based on in day trading strategy or not? Have you read about in day systems on this learn web site.

5. Are the risks large in relation to the trade turnover of your invested capital and what impact could they have on your profits margins and your account margin requirements?

6. Over what time periods do the in day trade risks of your in day trade activities exist? - Do you hold in day trade trades longterm or shortterm? what type of trader are you?

7. Are the exposures in trading a one off or they--areare--they recurring?

8. Do you know about the techniques in which day trading risks can be reduced or hedged & what it would cost in terms of profits if you didn't include these measures to reduce the potential loss, and what impact would it make to any upside of your profit?

9. Have your money management guidelines been adequately addressed, to ensure that you make & keep your in day Trading profits.

Day Trading Risk Management and XAUUSD Money Management Strategies - Draw Down XAUUSD Money Management Chart - Draw Down Risk Management Calculator