Risk Management Definition: How Many Failed Trades Before I Should Call It A Day?

Today’s question is: How many failed trades before I should call it a day?

I guess this trader is a day trader. I think a lot of day traders have an issue with calling it quits. I know that I had that problem. I would trade until my eyes were sore. This is especially true when I lost money in the first 30 minutes of my trading day; it was a disaster after that. I would try to get back the money  I lost in the first 30 minutes or the first hour of the trading day. I would find myself in like a hundred trades that day. Also, probably 70% of those trades were just bad trades; they were desperate trades. They were not well thought-out trades.


You can’t really put a number on it. It depends on the following:

1. How much capital you have in your trading account
If you have a $2,000 trading account, you can’t be a day trader. If you have a $30,000 trading account, you can be a day trader but with a $30,000 trading account, depending on the amount of shares that you’re trading, you might lose $5,000 and then you’re done day trading. So again, it really depends. You can’t say a specific number, say 3 trades and then you’re out.

My coach once said, after 3 losing trades as a day trader, step away from your computer because you clearly don’t know what you’re doing at that moment. It was really harsh but it was true.

2. What does your trading plan say you should do
If you don’t have a trading plan, you’ve got another problem all together.  You should always consult your trading plan. In your trading plan, you should have your risk tolerance and your risk measure so you can help control yourself.

3. What time frame you are trading
Day trader makes a lot more trades than swing traders.

4. How do you feel? If you’re angry, you’re going to revenge trade

If you’re angry, you’re going to revenge trade from that point. All you’ll think about is that you want your money back. You’re not very powerful at that moment. You’re feeling like a victim. When I feel angry and I feel like a victim, I go back into the market and fight to get my money back. But the thing is, the market always has more money than I and it is always right.

Fighting with the market is stupid. That’s why it’s good to take time out after 3 losing trades in a row and take time to process how you feel. The best way to do this is by having a trading journal where you can write how you feel. I know it sounds woo-woo but if you’re not going to work on your psychology, you’ll be out of the market in no time. Trading is 80-90% psychology and 20%-10% knowledge.

A 2-Step Formula To Determine Your Risk Tolerance

• If you lost 9/10 trades, how long could you stay in the market for?
If you had $5,000 and you lost $50/day, you could stay in the market for 6 months.

In the first 6 or 12 months of you trading career, and if you don’t have education, you’ll probably lose 10/10. You might get 1 right and it may just be out of pure luck. If you have education, you could have 70%. So out of 10 trades, you’ll have 7 trades working out in your favor and 3 trades that won’t work.

You have to give yourself the worst-case scenario. If you lost 9 out of 10 trades, how long could you stay in the market for?

So again, if you had $5,000 and you lost $50/day, you could stay in the market for 6 months. But this also depends on your share size. If you’re trading a thousand shares with a $5,000 trading account, clearly you are gambling because your trading account is too little to be trading that much share size.

These questions are very important to ask yourself because you want to give yourself as much time in the market before you completely blow out your trading account or before you have to replenish your trading account. $50 doesn’t sound like a lot of money to lose but when you are losing every day, it adds up until it wipes out your trading account. If you don’t want to wipe out your trading account in 6 months and be in the market for a year, you’ve got to cut it down to $25. If you’re doing $25/day, your share size is also going to be small.

The key to stress-free trading is education. Make sure you get good education before you place your first trade. Read trading books and enroll in courses.

Now it’s your turn…