If you’ve ever YouTube’d Day Trading one of the first things you see are videos of things like watch me make $5,000 in one hour or learn how I make $200 a day trading or any other nonsense that is only there to sell you.
The truth is, without knowing how much they were risking to make that, you don’t have all the facts and cannot POSSIBLY consider their strategy legitimate for anything more than selling purposes.
When looking at any trade result, any strategy, or any plan, the secret to success is all in the R.
R or Risk Factor is how much you’re willing to risk per trade. Typically, the logic goes that you should not risk more than 2% or less per trade. Many times you’ll hear this in swing trading but not as often in day trading as even that amount can be substantial.
Regardless of what the amount is, the key is understanding why it matters.
If a “guru” risks $1,000 and makes $1,000 and posts a video of it online, it’s impressive to an extent but it’s no different than someone risking $10 to make $10. They just had a larger account to begin with.
However, if the same guru posts a video that shows $1,039 day come see how at my site” then you’ve been hooked into believing you can start making $1,000 days yourself if you just follow along.
The truth is your dollar amount return is completely dependent on your account size. If you are only supposed to risk 2% per trade then to risk $1,000 you must be trading a $50,000 account.
This isn’t that large a number in the grand scheme of things, but when you’re struggling to come up with the $500 to pay this “guru” to show you how to make $1,000 a day, be very aware of how much it costs to copy him in all aspects; not just the profit part.
Another important reason of R value is for data comparison and trade management. At the end of the day if you pull in $300 it is a nice day. If you have a monetary daily goal as your main focus point (not recommended) and you reach it; then you exit all and call it.)
But if you want to double that monetary goal, what do you have to do? Hold twice as long? Risk twice as much? By tracking Rs instead of $ amounts, you can quickly see which management style produces the best Rs over the long haul and then simply make the Rs match the goals instead of trying to make the money match the goals.
If you want to make $5,000 a month, you can risk $1,000 a trade and hit it with 5 trades or you can risk $500 a trade and make it with 10R. They do the same thing but they handle themselves entirely different.
One final point; ever wonder why casinos make you trade in your cash for chips? Because you can handle yourself better with chips. If you are carrying around 20s and 100s and playing with them, the money is too real, you’ll play differently. Trading should be the same, by focusing on Rs and not the $s, you can trade the right way and hit targets whether you’re trading $25 an R this month or $200 an R next month.
Let the Rs show success; stop chasing the $$$.
If you need more help with this, we offer plenty of free training through our blog and email group or we offer a premium service with custom built management and tracking if need be.