Daily Price Range Trading: Risk Management Checklist

Master daily price range trading by focusing on risk management. Here’s how you can protect your capital and improve your trading strategy:

• Set Stop-Loss Orders: Predetermine your exit points to limit losses.
• Position Sizing: Adjust trade sizes based on asset volatility to manage exposure.
• Risk-Reward Ratio: Ensure potential gains outweigh potential losses (e.g., aim for at least a 2:1 ratio).

Key Steps:

1. Pre-Trade: Use tools like support/resistance levels, ATR, and Fibonacci to define trading ranges and risk limits.
2. During Trading: Monitor trades, stick to stop-loss rules, and adjust positions based on market conditions.
3. Post-Trade: Log results, review performance, and refine your strategy.

Quick Example:

For a $100,000 account, risk no more than 1% ($1,000) per trade. If your trade risk is $1.50 per share, your position size would be 666 shares.

By following these steps, you’ll build discipline, minimize losses, and improve consistency in daily price range trading.

Before Trading: Risk Checklist

Market Analysis Steps

Start by evaluating technical indicators and current market conditions. Look at the previous day's OHLC (Open, High, Low, Close) prices to outline possible trading ranges. Check economic calendars for major data releases, such as durable goods orders and PCE.

Leverage technical analysis tools to pinpoint support and resistance levels:

• Previous day's price movements
• Fibonacci levels to identify potential price targets
• Average True Range (ATR) to gauge market volatility

For instance, on April 13, 2025, ETH-USD had a projected range between $1,468.75 and $1,805.93 based on the prior day's data. This type of analysis helps establish clear daily risk parameters.

Daily Risk Limits

Setting strict daily risk limits is crucial for protecting your capital. Successful traders often follow conservative risk management strategies:

"The very first rule we live by is: Never risk more than 1% of total equity on any trade." - Larry Hite

Account Size	Max Position Size	Stop-Loss Margin	Total Risk
$100,000	20% ($20,000)	5%	1% ($1,000)
$100,000	10% ($10,000)	10%	1% ($1,000)
$100,000	5% ($5,000)	20%	1% ($1,000)

"Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. This is essential as large fluctuations can engage emotions and lead to feeling-justifying drama." - Ed Seykota

Stick to these limits when choosing assets to trade.

Building Your Trading List

Combine your market analysis and risk parameters to create a focused list of assets to trade. Choose high-volume assets with clear daily ranges. Once you've set your risk limits and assessed market conditions, refine your asset selection using these factors:

• Liquidity: Check average daily trading volumes to ensure smooth entry and exit from positions. Assets like Bitcoin, Gold, and DJIA usually offer sufficient liquidity for range trading.
• Volatility: Use the Average True Range (ATR) to measure typical daily price fluctuations. This helps you set position sizes and stop-loss levels appropriately.
• Technical Patterns: Focus on assets with well-defined support and resistance levels. These create natural points for entering and exiting trades, making them ideal for range trading strategies.

During Trading: Risk Controls

Trade Size and Entry Rules

Position sizing plays a major role in portfolio performance, accounting for up to 91% of its variability. To calculate the right trade size, use the Capital at Risk formula, which factors in your Account Risk (AR) and Trade Risk (TR).

For example, in daily price range trading, here’s how the numbers might look:

Component	Formula	Example ($100,000 Account)
Account Risk (AR$)	Account × 1%	$100,000 × 1% = $1,000
Trade Risk (TR$)	Entry Price - Stop Loss	$50.00 - $48.50 = $1.50
Position Size	AR$ ÷ TR$	$1,000 ÷ $1.50 = 666 shares

"Position sizing is calculated using ACCOUNT RISK (AR) and TRADE RISK (TR)." – Cory Mitchell, CMT

Make sure to secure your calculated positions by placing accurate stop-loss orders.

Stop-Loss Placement

Stop-loss orders are key to managing risk. Use technical analysis to set them at levels where normal market fluctuations are unlikely to trigger them. For daily range trading, consider these strategies:

• Place stops just below or above important support or resistance levels.
• Position stops outside the Average True Range (ATR) to account for typical price swings.
• Set stops beyond the extremes of the prior day’s trading range.

"A stop loss should be a part of your trading plan on entry not decided later after the fact."

Trade Monitoring Guidelines

Once your stops are in place, monitor your trades closely but stay disciplined. Keep an eye on market conditions and adjust your positions as needed. As Richard Moglen puts it:

"Risk is the capital you have exposed in the markets at any given time. It's controlled by the number of positions you have on, the position sizes of each of those positions, and where your stops are for each of those positions (where you will exit)."

Here’s how to adjust your risk based on market conditions:

Market Conditions	Risk Action	Position Adjustment
Improving	Increase total risk	Larger position sizes
Deteriorating	Reduce exposure	Smaller positions, fewer trades
Volatile	Widen stops	Reduce position sizes

"You want to be trading your largest when you are trading your best and your smallest when conditions/your trading is at its worst." – Mark Minervini

Finally, use price alerts at critical levels to stay informed and avoid unnecessary trades.

Why Trading Ranges is Risky: What Every Trader Should Know

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After Trading: Review Process

After closing your trades, take the time to review and refine your strategy. This step is crucial for improving your performance over time.

Trading Log Setup

Keep a detailed trading log to track your performance and gain insights. Make sure to include these key components:

Component	Details to Track	Purpose
Trade Metrics	Entry/exit prices, position size, dates	Measure performance
Risk Parameters	Initial stops, profit targets, R/R ratio	Evaluate risk management
Market Context	Visual trade setups	Identify patterns
Execution Notes	Reasons for entry/exit, observed mistakes	Analyze decision-making and psychology

"If you can't measure it, you probably can't manage it… Things you measure tend to improve." – Ed Seykota

Results Analysis

Analyze your daily performance with a focus on specific metrics. Here are a few to consider:

Performance Metric	Calculation Method	Target Range
Win Rate	Winning trades ÷ Total trades	50–60%
Risk/Reward	Average win ÷ Average loss	Minimum 2:1
Daily Risk	Total capital at risk per day	Maximum 2%

Group your trades into these categories:

• Trades that were well-executed and profitable
• Trades that followed your plan but resulted in a loss
• Trades where mistakes were made

"Study your mistakes and so-called 'failures' and learn from them. Your results are valuable teachers. Don't squander them or hide from them, embrace them as an important part of the process of achievement. Those who understand this stand in a field of acres of diamonds." – Mark Minervini

Finally, evaluate how effectively your risk controls were applied.

Risk Control Review

Take a closer look at how well your risk management strategies worked:

1. Stop-Loss Effectiveness
   Assess whether your stop-losses were:
   • Too tight, causing premature exits
   • Too loose, leading to larger-than-necessary losses
   • Properly placed, balancing capital protection with trade potential
2. Position Sizing Accuracy
   Check if your position sizes matched:
   • Your account's risk limits
   • Market volatility
   • The quality of each trade setup
3. Overall Risk Exposure
   Review your daily capital exposure, trade correlations, and maximum drawdown to ensure you're not overexposed.

Use these findings to refine your trading plan and strengthen your risk management strategies for future trades.

Risk Management Tools

These tools are designed to strengthen your trading strategy and align with your broader risk management plan.

Risk-Reward Calculations

The risk-reward ratio helps you evaluate whether a trade is worth pursuing by comparing potential profit to potential loss:

Component	Formula	Example
Risk	Entry Price – Stop Loss Price	$50.00 – $49.00 = $1.00 risk
Reward	Target Price – Entry Price	$52.00 – $50.00 = $2.00 reward
R/R Ratio	Reward ÷ Risk	$2.00 ÷ $1.00 = 2:1 ratio

To calculate the minimum win rate needed to break even, use this formula:
Win Rate = 1 ÷ (1 + Risk-Reward Ratio)

For example, with a 2:1 risk-reward ratio, you’d need a win rate of about 33.3% to break even.

Market Movement Indicators

The Average True Range (ATR) is a key metric for gauging market volatility. It can help fine-tune your trading approach in several ways:

• Position Sizing: For a maximum risk of $500 and an ATR of $2.00, you can calculate your position size as:
  Position Size = Maximum Risk ÷ ATR = $500 ÷ $2.00 = 250 shares
• Stop-Loss Placement: Place stop-losses at roughly 2 times the ATR, adjusting as needed based on market conditions.
• Volatility Screening: Use the ATR Percentage (ATRP) to compare the volatility of different securities and identify the best options for your strategy.

Portfolio Balance

Managing risk goes beyond individual trades - it’s also about maintaining a balanced portfolio. Diversification is key to avoiding overexposure to any single asset. Some steps to help with this include:

• Reviewing correlations between positions and adjusting exposure to reduce overlap.
• Scaling out of profitable trades to lock in gains.
• Regularly monitoring your portfolio to prevent any one trade or asset from carrying too much risk.

Summary

Key Risk Rules

Manage trading risks effectively by breaking the process into three main phases:

• Pre-Trade Assessment
  • Determine position sizes based on your risk tolerance.
  • Use market indicators to evaluate volatility.
  • Define clear entry and exit points in advance.
• Active Trade Management
  • Keep a close eye on positions to ensure they stay within your risk thresholds.
  • Stick to stop-loss placement rules to limit potential losses.
  • Monitor overall portfolio exposure to avoid over-leveraging.
• Post-Trade Evaluation
  • Record the outcomes of each trade for future reference.
  • Analyze the trade's risk-reward ratio to gauge effectiveness.
  • Assess how well your stop-loss strategy worked.

These steps are essential for building a disciplined trading approach that supports consistent decision-making.

Following Your System

Incorporate these risk management rules into your daily trading routine to improve outcomes. Here's how a structured approach impacts trading:

Aspect	Benefit	How to Measure
Portfolio Protection	Helps minimize large losses	Track daily loss thresholds
Emotional Management	Lowers impulsive decision-making	Follow preset trading rules
Performance Tracking	Supports strategy improvements	Monitor key performance metrics

To stay on track, develop habits like:

• Logging your trades daily and adapting to market conditions.
• Keeping your portfolio balanced to avoid overexposure.
• Reviewing and refining your risk protocols every quarter.

While your system should adapt with experience, its core principles must remain focused on protecting your investments. Regular reviews will help ensure it stays effective as market conditions evolve.