Trading Jobs Day Trading Strategy 4

Question 1

What is the primary purpose of a stop-loss order in a day trading strategy?

Accepted Answer

To cap the maximum loss on a trade automatically

Answer

A stop-loss automatically exits a position at a preset level to limit downside risk.

Question 2

A trader risks $100 to make $300 on a trade. What is the risk-reward ratio?

Accepted Answer

1:3

Answer

Risking $100 to gain $300 is a 1:3 risk-reward ratio, a favorable setup for day traders.

Question 3

What does the 1% rule in risk management suggest?

Accepted Answer

Risk no more than 1% of account capital on a single trade

Answer

The 1% rule limits risk on any single trade to 1% of account equity to preserve capital.

Question 4

What is a 'trailing stop'?

Accepted Answer

A stop that moves with price to lock in gains as the trade goes favorable

Answer

A trailing stop follows the price at a set distance, protecting profits while letting winners run.

Question 5

Why should a day trader define position size before entering a trade?

Accepted Answer

To ensure the stop-loss distance keeps risk within account limits

Answer

Position size is calculated from stop distance and risk tolerance so that a loss stays within acceptable limits.

Trading Jobs Practice Test