The Best Money & Risk Management Plan for Day Traders

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You know, when I was young, I grew up in a fairly 
strict house, always knowing right from wrong and  

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for the most part always been able to decipher 
what I should or should not be doing. And now  

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that I'm a parent, I realize that having an 
unforeseen set of rules is extremely important  

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part to an orderly and functional household.
And any trader that wants to make it for the  

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long haul must also have a strict set of rules 
and make sure we stick to them. Because at the  

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end of the day, what good are rules? Even 
if we break them maybe 2 to 3 times a year?  

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You know, there's nothing worse to me personally 
than taking a loss in the market that can wipe  

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out weeks or maybe even months of trading.
You feel like the last several weeks or months  

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get simply flushed down the toilet. You know, 
you spent day in, day out, grinding out wins,  

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grinding out trades only to have everything 
you know be wiped out. It can be mentally  

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demoralizing and very hard to get your mind 
back on reset. You know, it's the financial  

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part of the loss that hurts the most, but the 
mental and emotional part can be just as bad. 

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Because if you're not trading with a free 
and clear mind, you may as well go home.

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And he's absolutely right. If you don’t have  

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the discipline to protect your 
capital, nothing else matters.

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Let’s get real! No strategy, no indicator,  

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no perfect setup will save you if you 
don’t know how to manage risk. That’s why,  

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in this chapter of our Technical Analysis for 
Day Traders course, we’re shifting the focus  

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to something most traders ignore… until 
it’s too late: money and risk management.

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The truth is, most traders don’t fail because 
they lack good entries—they fail because they  

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don’t know how to protect what they’ve earned. And 
without capital, you’re out of the game. Period.

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In this video, we’ll walk you through powerful, 
practical techniques to help you control your  

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exposure, size your positions smartly, and 
manage your emotions under pressure. These  

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are the tools that will help you survive losses, 
stay consistent, and grow your account over time.

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Because in trading, it’s not just about 
making money—it’s about keeping it.

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So, if you’re serious about 
long-term success in the markets,  

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this chapter is non-negotiable. Let’s get into it.

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After reviewing your feedback and 
comments, it was clear that many of  

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you are eager to learn more about risk and 
money management strategies. We always take  

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your suggestions seriously, as they help 
us tailor our content to your needs. So,  

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if there's a topic you're passionate 
about or a concept you're struggling with,  

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drop a comment below and let us know. Your 
input drives the direction of our future videos.

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So, let's start with the basics: what exactly 
do we mean by money and risk management?

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Risk management is all about recognizing and 
minimizing potential threats to your capital,  

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whereas money management is about wisely 
allocating and safeguarding that capital to  

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maximize your profits. Both strategies work 
hand in hand to ensure one crucial outcome:  

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long-term success in trading by preserving your 
capital and optimizing your profitability. Without  

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a strong grip on these concepts, even the 
best trading strategies can lead to failure.

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Now, let's visualize a scenario where the market 
is trending upwards. We identify a strong level of  

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support and notice a reversal candlestick pattern 
forming. In this case, we decide to enter a long  

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position as the engulfing candlestick closes. To 
protect our trade, we place our stop loss just  

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below the doji candle, aiming for a profit target 
that's double our risk. This approach ensures  

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that even if the trade doesn't go as planned, our 
potential reward outweighs the risk we're taking.

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Let's assume we're working with a trading 
account of one thousand dollars. The size  

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of our position will dictate how much 
of our capital we stand to lose if the  

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market hits our stop loss. For instance, 
if we decide to risk five percent of our  

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account on this trade and the stop loss 
is triggered, we'll lose fifty dollars.

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Interestingly, even if we only 
win one out of every three trades,  

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we'd still manage to break even. It might 
not sound ideal, but it's a strategy designed  

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to keep you in the game longer, which is 
crucial in the volatile world of trading.

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But let’s consider a tougher scenario: 
what if we experience a string of five  

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consecutive losses in a particularly challenging 
trading week? In that case, we’d end up losing  

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twenty-five percent of our capital in just 
one week. And while that might sound extreme,  

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it’s more common than you think—especially for 
traders who take on too much risk per trade.

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As Dr. David Paul explains, even 
systems with a 50% win rate can  

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lead to complete failure if your 
position sizing is too aggressive:

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In a 50% system. Unfortunately, you get two bad 
ones every four trips. Ladies and gentlemen,  

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if you were to bet 50% of 
your coins on any one trade,  

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you go bankrupt every four gets 
worse. Eight trades in a 50% system,  

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you have a cluster of three bad ones in 
a row. That means, ladies and gentlemen,  

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that if you were to bet a third of your coins 
on any one trade, you'd go bankrupt every eight. 

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And most people go bankrupt because they 
bet far too much on any one single trade.

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This is a powerful reminder that blowing 
an account doesn't necessarily mean losing  

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every dollar. It can also mean 
suffering such significant losses  

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that you're mentally drained and lose 
the confidence to make sound decisions.

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This is precisely where effective money 
management makes a difference. If we limit  

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our risks to just two percent of our account 
size per trade, even after five consecutive  

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losses, we'd only be down ten percent of our 
capital. That's a much more manageable loss,  

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and one that can be recovered more 
easily during profitable trading days.

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Later in this video, I'll introduce you to 
some powerful money management techniques  

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designed to help you maximize your profits 
while keeping risks in check. But for now,  

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let's continue to focus on the 
importance of risk management.

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So, how exactly does risk management play a 
role in the scenario we discussed earlier?

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Let's imagine that after entering the trade,  

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the market starts moving against our prediction. 
The price breaks and closes to the downside,  

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signaling that it might continue to drop and 
potentially hit our stop loss. Even though the  

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stop hasn't been triggered yet, if we decide 
to close half of our position at this point,  

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we can reduce our risk exposure by twenty-five 
percent on this particular trade. This proactive  

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approach helps mitigate losses and preserves 
more of our capital for future opportunities.

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On the flip side, if the market moves in our 
favor, there's always the risk of a sudden  

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reversal that could turn a profitable trade 
into a loss. That's why it's often wise to  

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secure some of your profits before the price 
hits your final target. By locking in gains  

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along the way, you reduce the emotional 
pressure and ensure that you're walking  

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away with something positive—even if 
the market takes an unexpected turn.

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In essence, risk management is all about 
anticipating potential future scenarios  

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and taking steps to minimize the impact of those 
risks on your trading account. It's about being  

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prepared for the unexpected and having a plan 
in place to protect your hard-earned capital.

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Now that we've covered the 
basics of risk management,  

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let's shift our focus to some fundamental rules, 
key concepts, and essential calculations involved  

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in money and capital management. These 
principles are the backbone of a robust  

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trading strategy, ensuring that you not 
only survive in the markets but thrive.

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A critical question every trader must ask 
is: how much should you risk on each trade?  

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The answer to this question largely depends 
on your personal risk tolerance—essentially,  

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how much money you're comfortable losing 
when those inevitable losing trades occur.

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There are two aspects to consider: 
risk tolerance per trade and overall  

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risk tolerance relative to your total 
capital. Ask yourself, "What percentage  

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of my capital am I willing to put on the line 
for a single trade?" and more importantly,  

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"Would I be okay with losing this 
amount if the trade goes against me?"

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Understanding and setting these limits 
is crucial for long-term success.

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Another key consideration is the 
psychological impact of consecutive losses. 

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If you have a series of bad days 
and lose five trades in a row,  

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how much of your account would you be down?
And at what point would these losses begin  

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to cloud your judgment and affect 
your future trading decisions? 

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It's essential to know your emotional 
thresholds as well as your financial  

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ones. Because even with a solid system, if you 
can’t execute it under pressure, it won’t matter.

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As Mark Douglas explains, consistent execution 
depends on your ability to trade from a calm,  

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focused, and fearless mindset—one 
built on understanding probabilities:

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You’re going to have to learn an edge. You’re 
going to have to acquire a trading methodology  

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that gives you an edge. I’m defining an edge 
as that: there’s a higher probability of one  

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thing happening over another. That’s what an 
edge is. We’re going to learn the nature of  

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probabilities here in a moment. You’re 
going to have to have a plan on how you  

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utilize that edge, meaning what the risk 
is, position size, and profit objectives.

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Then you’re going to have to be able to execute. 
You’re going to have to get to the point where  

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you can execute that edge without making errors. 
For you to be able to execute that edge without  

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making errors, you’re going to have to learn 
how to trade from a carefree state of mind,  

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meaning you’re going to have to aspire to the 
point where you can trade without fear. And to  

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trade without fear, you’re going to have 
to learn how to think in probabilities.

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With these answers in mind, you can construct a 
solid money management plan that aligns with your  

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risk tolerance. Sticking to this plan is crucial 
because it helps you keep emotions in check.

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Remember: if you risk more than you're 
comfortable losing on any given trade,  

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your emotions are likely to take over,  

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leading to impulsive decisions that 
could hurt your trading performance.

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For instance, let's say you decide to 
risk three percent of your account on  

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each trade. If you encounter five losing 
trades in a row, your capital would be  

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reduced by fifteen percent. But you might 
wonder—why not risk even smaller percentages?

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The amount you risk per trade directly 
influences your potential gains. For example,  

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if you have a smaller account and decide 
to risk just one percent per trade with a  

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risk-to-reward ratio of one to one, each winning 
trade would yield a one percent gain. However,  

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if these modest returns don't meet your 
expectations—after all the effort you've  

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put into trading—it's easy to become discouraged.

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This is why balancing risk and reward is 
so important. It's about finding that sweet  

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spot where you're comfortable with the potential 
losses but still motivated by the potential gains.

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Ultimately, your money management plan should 
be designed to keep you motivated. Your wins  

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should encourage you to keep going, while 
your losses shouldn't discourage you to the  

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point of giving up. If I were starting out 
with a small account, I'd likely risk around  

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two to three percent of my capital on each 
trade. This approach offers a good balance,  

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allowing you to grow your account steadily while 
minimizing the psychological impact of losses.

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So, how exactly do we calculate the optimal  

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position size when trading 
different currency pairs?

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Let's break down the process of calculating your 
position size when trading various currency pairs.  

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This is a question I get asked frequently, 
and it's crucial to understand it so you  

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can apply it effectively in your 
trading routine. By mastering this,  

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you can ensure that each trade you make 
is proportionate to your account size and  

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risk tolerance, giving you the best 
chance for consistent profitability.

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The first step is to determine how much you're 
willing to risk on each trade. This decision  

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is vital for protecting your capital and 
making sure you can keep trading even if  

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you hit a rough patch. For instance, if you 
have a one thousand dollar account and decide  

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to risk two percent per trade, you're putting 
twenty dollars on the line with each trade.  

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This amount—your risk per trade—forms the 
foundation of your position sizing strategy.

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Next, you'll need to identify the stop-loss 
distance, which is the number of pips between  

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your entry point and your stop loss. 
The distance you choose will vary based  

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on the currency pair you're trading and the 
specific strategy you're using. It's crucial  

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to measure this distance accurately because it 
directly influences the size of your position.

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The larger the stop-loss distance, the smaller 
your position size should be—and vice versa.  

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This ensures that your risk remains consistent 
across all your trades. That's why, before  

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opening a position, it's crucial to analyze the 
historical volatility of the asset you're trading,  

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especially relative to the time frame you're 
operating in. This step is often overlooked,  

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but it's essential, because a stop-loss of twenty 
pips or a fixed financial stop defined by the  

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trader might not be sufficient to position 
your stop-loss at a technically sound level.

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In some markets or with certain brokers, 
it's possible to fraction your position to  

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adjust your risk properly. For 
example, in the forex market,  

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you can often trade micro lots or mini lots 
to fine-tune your position size. However,  

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this flexibility isn't available in all 
trading environments. For instance, some  

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futures markets or broker platforms don't allow 
position fractioning, leaving you with the tough  

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decision of whether to accept the higher risk—or, 
preferably, to avoid the trade altogether.

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Remember: a trade not executed is 
infinitely better than a trade that  

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results in a loss. When faced with such scenarios,  

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it's often wiser to pass on the trade rather than 
compromise on your risk management principles.

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Now that we have the key components—your risk 
per trade and your stop-loss distance—let's  

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bring everything together with a simple formula. 
This formula will allow you to calculate your  

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position size accurately, ensuring that each 
trade is in line with your risk management plan.

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The formula is straightforward: your 
position size is equal to the amount  

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you're risking per trade divided 
by the stop-loss distance in pips,  

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and then multiplied by the pip value. This 
calculation helps you determine how many  

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units of the currency pair you should trade 
to stay within your predetermined risk level.

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To put it simply, your position size is calculated 
by taking the amount you're willing to risk on  

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that trade, dividing it by the number of 
pips between your entry and your stop-loss,  

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and then multiplying that result by the pip 
value. That final number tells you how many  

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units, or how much volume, you should 
trade to stay within your risk limits.

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The pip value varies depending on the 
currency pair and the base currency of  

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your trading account. For example, if you have 
a U.S. dollar–based account and you're trading  

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the euro against the U.S. dollar — that’s the 
euro-dollar pair — the pip value is usually around  

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ten dollars for a standard lot. And that number 
is important, because it directly affects how  

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big your position should be… and ultimately, how 
much each price movement can impact your capital.

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By applying this method, you ensure that your 
risk remains consistent across all trades,  

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regardless of which currency pair you're trading. 
This consistency is not just a good practice—it's  

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essential for effective money and risk management. 
It helps you maintain control over your trading  

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decisions and keeps your emotions in check, 
which are both crucial for long-term success.

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I hope this explanation gives you greater 
confidence in managing your trades. Remember:  

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correctly calculating and managing your position 
size can make a significant difference in your  

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long-term trading success. It's one of those 
foundational skills that, once mastered, will  

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set you apart from less disciplined traders and 
put you on the path to consistent profitability.

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Up until now, we've focused on money 
management concepts that prioritize  

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survival and the preservation of 
your capital. But what about those  

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times when you're on a winning streak and 
want to accelerate your account growth?

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How do you safely increase 
your exposure to capitalize  

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on favorable market conditions without 
letting emotions cloud your judgment?

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One effective and safe method to grow your 
account faster—without letting emotions get  

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the best of you—is to transfer some of 
your profits into a secondary account  

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during periods of significant gains. In this 
secondary account, you can afford to take on  

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higher risk than you normally would, testing how 
much you can grow it with more aggressive trades.

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The key here is that you're only risking 
profits, not your initial capital,  

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which makes it easier to maintain emotional 
control and keep your primary account safe.

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Additionally, it's important to regularly 
withdraw a portion of your profits—say,  

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on a monthly basis—and use them to reward 
yourself. This practice not only reinforces  

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your progress but also keeps you motivated 
to continue in what is truly a marathon,  

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not a sprint. If you try to grow your account 
exponentially without ever taking profits,  

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you may find yourself burned out or 
stuck midway through your journey.

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If your goal is to generate consistent, 
long-term income from the financial markets,  

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then thorough preparation is non-negotiable. 
This means backtesting your trading setups  

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at least one hundred times across multiple 
currency pairs to establish an approximate win  

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rate and gain confidence in your strategy. 
By doing this before you risk real money,  

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you'll not only fine-tune your approach 
but also build the discipline needed to  

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stick to your trading plan and 
rules when the pressure is on.

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Having covered the essential 
concepts of money management,  

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let's now turn our attention to some 
specific risk management techniques.  

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We'll explore how to manage open positions 
effectively to maximize your profits while  

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minimizing potential losses—ensuring that you 
make the most out of every trading opportunity.

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Let's begin with one of the most 
fundamental risk management techniques:  

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how to bring your trades to a break-even point. 
This method is crucial for protecting your  

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capital while still allowing your trades the 
chance to reach their full profit potential.

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Imagine the market is in a clear uptrend 
with a series of higher highs and higher  

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lows. You decide to trade with the dominant 
trend, entering a long position. You place  

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your stop-loss just below the most recent 
swing low and set your target at a key level  

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on the higher time frame—a level that could 
potentially mark a significant price reversal.

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This trade offers a favorable 
one-to-five risk-to-reward ratio,  

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which is great. However, perhaps you've 
experienced the frustration of seeing  

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your trade move into profit only for the 
market to reverse and hit your stop-loss,  

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turning a winning trade into a losing one. 
Or maybe you've closed your position early,  

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securing a small profit, only to watch the 
market continue to your original target.

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These scenarios highlight 
the importance of managing  

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your trade to avoid unnecessary 
losses and maximize your gains.

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To avoid these common pitfalls, 
traders often employ a simple  

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but effective technique to bring 
their trade to a break-even point,  

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which also helps to relieve some of the 
emotional pressure. Here's how it works:

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Once the price moves in your favor and reaches 
a level that is twice the distance of your  

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stop-loss, you close half of your position 
to lock in some profits. Alternatively,  

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you could split your position into two 
trades, each with half the original risk,  

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and set one of the targets at a 
one-to-two risk-to-reward ratio.  

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This way, even if the price reverses and hits 
your stop-loss after reaching your first target,  

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you'll be at break-even and won't lose any money. 
After that, you can let the remaining position  

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run, giving it the opportunity to reach your 
long-term target without the added pressure.

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You might also consider closing the trade 
early if you anticipate market volatility—such  

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as during the release of high-impact 
news or at the end of the trading week.

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Now let's move on to the second technique,  

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which focuses on maximizing your profits 
by closely tracking the market's movements.  

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This strategy involves trailing your 
stop-loss as the trade moves in your  

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favor, allowing you to capture trades with 
exceptionally high risk-to-reward ratios.

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As the price approaches a key level on the 
higher time frame in a bullish scenario,  

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after entering a long position, you'll want to 
adjust your stop-loss every time the market breaks  

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the structure to the upside. Specifically, you 
would move your stop a few pips below the most  

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recent swing low. By doing this, you allow your 
profits to run as long as the market continues  

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in your favor. This way, your position can capture 
significant gains if the price reaches the higher  

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time frame key level. If the market reverses 
before hitting your target, your trailing stop  

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will help lock in profits—protecting 
you from losing the gains you've made.

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To bring this concept to life, let's take a 
look at a real example using an actual chart.  

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Looking at this five-minute chart of the 
euro-dollar pair, we can see that price has  

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just touched a major structural level — one 
that could signal a possible turning point  

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in the current downtrend. To confirm our 
entry, we identify a double bottom forming  

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on the chart — a classic pattern that 
often indicates a potential reversal.

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Based on this setup, we enter a long position, 
place our stop-loss just below the swing low,  

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and set our target at the next significant 
level on the higher time frame, anticipating  

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that the price will rally toward it. From 
here, we let the trade run its course. As  

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the market continues to break to the upside, 
we'll consistently reposition our stop-loss just  

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below the most recent swing low. This approach 
allows us to track our profits effectively,  

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giving us the opportunity to capture trades with 
substantial risk-to-reward ratios. At the same  

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time, it protects us from giving back too much 
of our profits if the market starts to reverse.

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In conclusion, successful trading is not 
just about finding the right entries or  

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exits. It's about mastering the art of 
risk management and understanding when  

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to act and when to stay on the sidelines. By 
carefully analyzing the historical volatility  

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of the assets you trade, properly 
calculating your position size,  

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and adhering to your risk management rules, 
you set yourself up for long-term success.

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Remember: sometimes the best trade is 
the one you don't take. Preserving your  

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capital and exercising disciplined 
decision-making are what keep you in  

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the game long enough to seize the 
truly high-quality opportunities.

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And no one illustrates this 
mindset better than Warren Buffett. 

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Take a listen to how he explains it 
through the lens of baseball and investing:

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Ted Williams wrote a book called The Science 
of Hitting, and in The Science of Hitting,  

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he’s got a diagram showing him at the plate, 
with the strike zone divided into 77 squares,  

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each the size of a baseball. And he says, 
if I only swing at pitches in my sweet zone,  

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which he shows there, and he has what his 
batting average would be, wich is .400.  

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If he had to swing at low outside pitches,
But still in the strike zone, his average  

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would be .230. He said the most important thing 
in hitting is waiting for the right pitch. Now,  

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he was at a disadvantage because if the count was 
0-2 or 1-2, even if that ball was down where he  

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would only be .230, he had to swing at it.
In investing, there are no called strikes.  

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People can throw any stock, and I don’t have 
to swing, and nobody’s gonna call me out on  

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called strikes. I only get a strike call 
if I swing at a pitch and miss, so I can  

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wait there and look at thousands of companies 
day after day. And only when I see something  

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I understand and when I like the price at which 
it’s selling, then if I swing, if I hit it, fine. 

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If I miss it, it’s a strike. But 
it’s an enormously advantageous game,  

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and it’s a terrible mistake to think you 
have to have an opinion on everything.

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That’s the edge we have as traders: we don’t 
have to swing at every setup. We can wait for  

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the perfect alignment—when the market conditions, 
the strategy, and our mindset are all in sync. 

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That’s when risk management becomes a weapon—not 
just for defense, but for long-term growth.

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Stay patient, stay disciplined,  

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and always keep risk management at the 
forefront of your trading strategy.

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I hope you enjoyed today’s video. If you found the 
content useful or fun, please give it a like, as  

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this helps the video reach more traders like you. 
Remember to subscribe to the channel and activate  

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big difference and helps our community become 
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Thank you for watching, and good luck on 
achieving excellent results in your trades.