SPX Option TraderOne of the most important questions every trader must answer is this, what dollar amountย should I be trading? This is aย question we are asked quite often, and the answer we give is always the sameโ€ฆ.it depends. There is no hard and fast answer to the question of how much should I be investing in my daily trading, but we wanted to share a few guidelines that weโ€™ve developed in our own trading throughout the years.

  1. We never risk more than 5% of our Risk capital in a single trade. Now some may want a smaller % or a larger % based on an individualโ€™s situation. You must determine what % will work for you in your situation and then stick to that rule. The goal is to be able to sustain many down days without concern. So be sure your lot size is set accordingly.
  2. We trade a consistent dollar value in our trades. Each day we adjust the number of contracts we are trading to try and keep as consistent a dollar investment as possible.
  3. When seeking to increase lot size, we normally only do it once per quarter. This helps keep us from going up to quickly. Weโ€™ve found it helpful to set a dollar goal that we want to make before increasing our lot size. We wait until that goal is hit, and then consider increasing our lot size if weโ€™ve been at our current level for at least 3 months.
  4. We never trade more than we can afford to lose without worry. If you take a full loss on a trade and it causes you great concern or worry, you are trading over your limit. If you canโ€™t sleep at night because of a loss you took the previous day, you are trading too much. Trading involves taking losses, and if the dollar amount you are trading is causing you great concern, lower your investment. A trader must be able to take a hit, and keep going without worry. This is one of the most common mistakes we see traders make, trading too big of lot size. You cannot trade with scared money.
  5. Never increase your lot size for emotional reasons. When we increase our lot size, it is because we are willing to risk more and can afford to do so, and have been making money. We donโ€™t increase our lot size trying to make money quickly, or make up for some down trades. We never increase our lot size unless weโ€™ve made our profit target over the previous weeks. This ensures we arenโ€™t increasing our lot size during a down period in our trading.

These are our personal guidelines for money management. We encourage each trader to develop their own, and then stick to them. Hopefully youโ€™ve found our rules helpful to you. We had another great week this past week day trading SPX weekly options, 340% return for the week. We look forward to another great week ahead at SPX Option Trader.