Day trading comes with a unique and exciting set of challenges for those who are serious enough to learn the craft. How much stock traders can make day trading vastly depends on their skill at reading the market. Day traders can have a massive income spike one month and lose just as much the next. How much a trader can make from day trading depends on how well the trader executes their trading strategy and mitigates risk. Take a look at some of the factors that can affect how much any trader earns.
Risk Management
Professional day traders try to mitigate their risk on every single trade with proper risk management techniques. A general rule of thumb that some day traders employ is only risking 1% of a trade per stock. When picking which position size to go with for a move, day traders rely on intuition and insight gained from technical analysis.
Trading Strategy
Most day traders lose money because they didn’t develop an effective trading strategy and stick to it. Strategy for day trading is broken down into wins and losses. The idea is to have more trades in the win category than the loss category. Testing strategies can be broken down into the same principle. If the strategy tests at winning 60 out of 100 trades, then you have a 60% chance of success with it. Most traders want to pursue stocks with a high win rate, but there’s more to it than that. The stocks you count as wins in your trading journal need to be more profitable than all of your losses added up.
Refining Strategy
Successful day traders never stick with the same strategy for long. There is always a degree of strategy refinement needed to stay successful in this world. Small alterations to a strategy can have a tremendous impact on its profitability. Price slippage can often derail a strategy that otherwise seems sound in backtesting and looking at the technical analysis charts. The percent of slippage depends mainly on the volume of the stock you’re trading, but you should always account for it in your predictions. At least 10% of your net profitability figures should be removed and attributed to slippage in any strategy.
Profits or Not?
Day trading is not for everyone. In fact, most people who take an interest in day trading give up within the first year. But those who remain persistent and learn to spot trends in the charts can excel at day trading. Day trading success rates are highly dependent on the individual and the strategy they’re attempting to execute. Relying on sound information and intuition learned over the course of trading can help you find winning trades. Don’t get into day trading expecting every trade to be a winner and try to separate your emotions as much as possible when making these trades. Remember the 1% rule when considering your position sizes to keep you from losing assets unnecessarily. Join day trading communities to help learn the lingo and understand the day trader mindset.
