How To Make Money Day Trading
How To Make Money day trading
How to Make Money Day Trading with LOW RISK
One of the most popular internet search topics is day trading. Unfortunately people don’t start looking to swing trading as an alternative income source until they need income. This is the absolute wrong time to consider day trading. Honestly, what you are really considering is gambling, day trading just sounds more justifiable the roulette.
Day trading involves finding a statistically small advantage and repeating your strategy with extreme precision. Here is the problem with small advantages; they require really large bankrolls to make a decent income and a really large bankroll in order to survive draw downs.
Trading on a tight budget requires you to trade hoping for the long tail of the statistics where you get a hot streak. Unfortunately if you’re running near odds win / loss trade strategy you are just as likely to catch a long losing streak. These long losing streaks will take you out of the day trading game. You will be much further ahead to open a practice account and look for a regular job. If over the course of saving your first trading account you still enjoy trading your practice account and have a winning strategy then and only then are you ready to attempt your day trading career.
So just how much money do you need to start this day trading career? In my experience a realistic trade strategy for a day trader new comer will have 2% of their account at risk with an average win to loss ratio of 3:1 and a win percentage of 50%. Unless you’re scalping which will have a much different win / loss statistics, you’ll probably only find one or two trades a day. So if you want to make $100 a day and your average 4% on each trade then you need to trade $2500 each time. Since you’re putting 2% of your account at risk you need $1250,000 to safely trade this strategy and earn your daily wage (which wasn’t that high of a wage.)
Please don’t use short term trading as an escape from your money troubles, but as a goal for your future. Taking three to five years of practice and learning while you build your war chest up is the best thing you can do for your trading career.
Bill Spohnholtz the publisher of Learn The Stock Market writes from a unique perspective of a small business owner and a large company process improvement engineer attempting to help individuals use corporate efficency tools to improve their lives and small businesses.
For more reading check out Become A Day Trader
What percentage of a persons total Day Trading account should they risk per trade?
Let’s say someone has a brokerage account with $50,000 in it. How much of it should they trade in order to reduce risk but also make some money? How do you reduce risk in your Day Trading?
The answer to this depends largely on the risk of the strategy. If you had an absolutely riskless system (impossible but just for the sake of argument), of course you would risk a lot. But for just starting out, I’d recommend using none of the margin at all and only investing a portion of the equity itself. Or better yet, paper trade (see below).
Be sure you’ve got a genuinely profitable strategy, because most people (over 90%, according to most studies) lose much or all of their captial within a fairly short period of time. If you’re not sure about this, or even if you think you are, then you should “paper trade” or simulate your trading. Most brokerages now offer paper trading features. This will also give you a much better idea of how much you want to risk. But even then, there’s a lot of risk (simulators aren’t perfect, and things change).