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Day Trading — The Importance Of Taking Tiny Losses
In order to be a successful day trader, you need to be a very profitable trader. When you take a profit of $50 one day, and take a loss of $200 the following day, you are on your way to blowing your account (depleting all of your funds in your account) in a very short period of time.
In order to grow your account and start living off of your day trading, you need to flip the loss-to-profit ratio. Let’s say you have an account size of $10,000. If you take a loss of $100-$200, that’s 1–2% of your account size. However, if you take a loss of $100-$200 with an account size of $500, that’s a huge bulk of your account.
You may be starting out with an account size of around $100-$200 so your losses should be around $1–$2 with a $100 account size and $2-$4 with an account size of $200.
Picture this: You have an account size of $250. One day you take a loss of $2.50, the next day you take a profit of $40, the next day you take a profit of $5.00, the next day you take a loss of $3.00, etc.
When you day trade you want your profits to grow your account and you want the losses to be so tiny that if you go through a losing streak, the losses barely move the needle on your account. So if you have a profitable week of $75 one week and go through a week of a losing streak the next week with a loss…
