Stop Losses and Possible Risk Behind DCA · Day Trading for Beginners

Stop Losses and Possible Risk Behind DCA

I have been reading up on your strategies and so far I noticed that in the articles 'This Position Trading Strategy Explained' and 'A Strategy for Beginners to Start With' you didn't mention stop losses, only take profit points. I was wondering how one should go about setting stop losses to manage risk for both the strategies mentioned in the articles. I feel stop losses are important, because you will not always be right, and they can help you limit your losses.

When you begin to get into Dollar Cost Averaging(DCA), which can be used to lower the average costs of the stocks/options/financial instrument you are trading, traders should also be aware it makes you put more money into the trade. This means more of your portfolio is now involved in and affected by the potential gains and losses of your strategy.

Example: Where you initially calculated and accounted for using 10% of your equity in a single trade and allowing for only a 30% loss of your trade(3% loss on your portfolio). Dollar Cost Averaging could lead you to have more than 10% of your portfolio involved in the trade; let's say you made 2 more buys each another 10% of your portfolio and now you are using 30% of your equity. That 30% loss on your equity could then be a 9% loss on your portfolio.

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