Become a Successful Trader

May 25, 2011

3 Ways to Keep More of Your Trading Profits

The number one way new traders fail is in counting their trading profits, or the money that could be made on the trade before the trade is even placed. Pro traders know you should be focusing on how much they could lose on the trade.

To succeed you must be able to accept the risks and apply money management techniques such as stop loss orders, max daily loss limits, and account draw down rules.

Think Risk First, Then Reward

When you focus on, and accept the risk of losing, the doorway to profits will open. A saying I use is, when in doubt, wait it out. If you’re in a position and are feeling anxious and want to get out early, it usually leads to taking profits too soon.

Here are 3 ways you can limit the losses to keep more trading profits:

Stop Loss Order

Stop Loss Orders

In order to limit downside risk, a stop loss must be placed on every trade. It is imperative to your long term success that you do this. There is no getting around losing trades, we all have them. The key is to keep those losers as small as possible, and give your winners a chance to take shape.

Be quick to exit when the position is going against you, slow to exit when it’s going you way.

2 crucial rules for stop loss orders

  • Stops must be placed at the time of entry
  • A stop can only be tightened, never widened

Max Daily Loss Limits

To prevent the dreaded “blow up” of your account you must place a max daily loss limit on your account. Don’t just write it down on a post it. I recommend setting a hard loss limit with your broker to ensure this rule will be followed.

When we are at our weakest is when our rules become the most important, yet the hardest to follow.

Limit your max daily loss to no more than 5% of your account balance (and this is even a high number). Still, this ensures that you will live to trade another day and not lose everything on what is in some cases, one bad decision or mistake.

Draw Down Rules

Another way to limit your risk is to cease trading after 2 full stop outs on the day. If you have two stop outs, the market is telling you that it is not conducive to your setups that day and you need to stop trading.

There are methods for scaling out of your positions in which you may sell half at a smaller profit target. If you get taken out of the remaining portion of your trade after this first target is hit I do not consider that a full stop out.

Does Your P/L Statement Look Like This?

Chances are your profit/loss statements are made up of a handful of average days, a few big winning days and a few big losing days. If you can eliminate the big loser the profits can emerge. Once you can successfully manage your losses your trading profits will follow.

What other ways can you think of to limit losses?

I’d love to hear from you below!

Get My Top 5 Trading Tools

Join over 10.000 visitors who are receiving a short weekly trading newsletter and learn how to trade for a living. Plus get my top 5 trading tools and 3 free chapters of my Trading Rules eBook.
We hate spam. Your email address will not be sold or shared with anyone.
How To , , ,
About Tim Racette
Tim Racette is a day trader of 15+ years in the E-mini futures and swing trader of stocks. Mountain biker, lover of the outdoors, and explorer. Tim is an ASU Sun Devil and a Chicagoland Native now living in sunny Scottsdale, AZ.
  1. For me this is the biggest rule of them all. I never take a trade without placing a stop automatically when my entry is filled.

    8 Bullets a week, as you have thought me in your newsletter, is the risk limitation strategy I use. Works like a charm!

  2. If you can limit your downside risk, then you’ve won half the battle (so to speak) the other half is simple allowing the trades to work, not micro managing the position once it has been placed. Great job Gauthier.

  3. Hi Tim and All
    I am a New to Trading career. I am probably in your age group Tim. It is really fun trading everyday!
    I was going to ask if anybody know any websites that let you aware of any Big Economic News Event dates.

  4. Hey thanks Tim for the quick reply

    To briefly introduce myself, I am 27 and graduated from Ohio State University about 4 years ago.

    I trade Euro / gold / Crude / russell and Trade about 1-4 times a day.

    My specialy is Shorting at the Top. so I don’t really Buy Low and Sell High. Most of the time I Sell High and Buy Low lol.

    My Trading career started Few month ago. Yes so I am a super Newbie.

    I happen to find you at the Google searching for Disciplined Trader Rule.

    I found myself Not being disciplined and researched what other successful traders are doing to make themselves deciplined.

    I got so many great mentors but most known person is Mark Douglass.

    Anyways, It is my pleasure to communicate with successful young trader who is my age group.

    I read your Daily routine and I found myself lacking the schedule. sometimes I just trade at night time.
    I usually wake up at 5:30 am PST (I live in Seattle) and Start the day. I guess I just can’t stand missing the Potential great Set-up during night time.
    I know that the opportunity always comes but I don’t wanna miss anything while I am sleeping.
    so i always find myself trading at night right b4 i goto bed.

    What do you think of this approach ? I think I am very impatient person… is that why??

    Any advice on this Tim ?

    • Patience Pays, that’s for certain. Mark Douglas’ book Trading in the Zone is one of my favorites.

      I feel it’s very important to have a routine. Creating a framework around the chaos of the market allows you to be prepared for all scenarios. Especially important when trading multiple instruments. As to trading before bed, that’s never a good idea. The best times for the Euro and the NYSE is at 2:00 AM CST (the European open) and then 7AM to 12PM CST when the European market and US markets overlap. This produces the best entries because there is more participation. There are instances when a larger daily setup may trade and stick at an off time, but what happens most times is the market comes back and retests that bigger entry during peak hours.

      My best advice would be to pick one or two setups and master them. Know exactly what you are going to do in all situations, it goes against you, it goes in your favor, it rips out, it’s a choppy market, etc. etc. It’s your job as a trader not to simply get into a position (anyone can click the buy or sell button) but to manage the position and stay in as long as possible to extract the most $ possible from that particular trade.

      Trade the trend until it fails.


      • Thanks Tim..

        So you are a Trend Follower..

        I am Not a trend follower and my personality won’t make me be one. For me it is too scary.

        I like my methodology and style for now. It is working great so far…

        But thanks so much for the advice Not to take a trade b4 the bed!

        • You’re Welcome Eden,

          I’m a trend follower in the broadest sense of the word in that it’s my objective to extract profits from the meat of the move within the trend. I do have select counter trend trades that I do take, but for the most part, trading with the larger trend is my style.

          • Hey Tim…

            2 Questions.

            1. Do you withdraw money weekly basis or bi-weekly or…Monthly ?

            2. What happens if your internet connection gets disconnected while you are in a position and you did not place Profit target just yet. Your Euro trading starts at 2am and your brokerage is closed… what are you going to do ?

            • Hi Eden,

              I prefer removing a portion of profits on a weekly basis and using that money to fund other projects, investments, expenses etc. As for internet connection issues, support at Infinity Futures is great, I’ve never run into any issues getting a hold of my broker or someone at Infinity. Power outages are definitely an issue to prepare for. Keep those important numbers in your phone and ready just in case.

Leave a Reply