It is quite possible that some people will still need to work another job, but manage to pull a little money out of the market each month through day trading. There is also a large group of want-to-be traders who will fail , and never make any money. Income potential is also based on volatility in the market. Over time, the average number of trades balances out, but on any given day, week or month you could have more or fewer trades than average…which will affect the income that month.
Risk is the potential loss on a trade, defined as the difference between the entry price and stop loss price, multiplied by how many units of the asset you take called position size. The numbers below are based purely on mathematical models , and are not meant to indicate you will make this much.
As indicated in the first paragraph, most traders fail. For all the scenarios below we will be using relatively small accounts, as that is what most day traders start with. It is easier to make high percentage monthly returns on a smaller account compared to a larger account. Therefore, it will become continually more difficult to generate these sorts of returns as the account gets bigger and bigger this is a problem you all hope to have!
That said, as the account grows, your dollar income may continue to grow, even though your percentage return stagnates or declines. Very small changes can have a huge impact on profitability. For these scenarios we assume a modest 1. Day trading stocks is probably the most well-known day trading market, but it is also the most capital-intensive. This is about a 1. You average 5 trades per day, so if you have 20 trading days in a month, you make trades per month.
Your commission costs are: This is simply a mathematical formula, and would require finding a stock where you could make this reward: That could prove difficult. Your risk is 6 ticks, and you will try to make 9 ticks, as that is a 1: Assume you average 5 trades per day, so if you have 20 trading days in a month, you make trades per month.
This is simply a mathematical formula, and would require finding five trades a day that offer this reward: Forex is the least capital-intensive market to trade. Leverage up to With 6 pips of risk you can trade 8. Notice how highly leveraged this position is. If uncomfortable with this amount of leverage, reduce the position size. You averaged 5 trades per day, so if you have 20 trading days in a month, you make trades.
If day trading forex, use an ECN broker. ECN brokers offer the tightest spreads, which in turn makes it easier for your targets to be reached. Therefore, commission costs are trades x 8. Your position size is 8. Therefore, to attain that return requires at least Leverage is very powerful, and makes all the difference here.
All scenarios, and income potential, are assuming you are one of the few day traders who reaches this level and can make a living from the markets. The very profitable traders are a smaller percentage. The major distinction is simply that to get involved in stocks you need the most capital, and you need the least to get started with forex.
Futures trading falls in the middle. Have worse stats, and the results will be worse. Most day traders trade with a set amount of capital and withdraw all profits over and above that amount each month. It contains important information about managing expectations and building wealth.
The scenarios are setup so you only win a bit more than you lose, and your winning trades are only a bit bigger than your losing trades. In the real world, that is typically how day trading goes. They think they are doing something wrong and keep switching strategies. This constant flip-flopping of strategies results in losing even more often. Do this, and you may join the small ranks of successful traders. Expect variance in your income from month to month.
I really like your site. I will never make that mistake again. Keep up the good work! I will be checking back. Hi Cory, I am very appreciative of your detailed write ups on trading. The information you shared are truly enriching. How many number of trades could I possibly open?
What is a drawdown and how do I manage my drawdown well? Typically when day trading I focus on just one trade at a time. But you could have multiple trades open potentially. One, two, maybe three at a time, although I guess this would depend on the trader.
Typically I only have one at a time. Thanks for your fast reply. What kind of trader is this called? Will it increase my probability level of winning too? That sounds like a bad idea, to be honest. You have 2 bad days and your entire account is gone. Very unlikely you would lose all 40 trades…but still, you get my point hopefully. Focusing on one or two trades at a time provides more than enough profit potential, as the article shows.
Once again, thanks for your honest advice. This would depend on your strategy. But usually day traders close positions before the end of the day.
Then it becomes more a gamble of whether your stop loss or target will get hit first. If you are holding overnight, that is more swing trading…which is a different trading style. More on day trading forex is discussed here: Thanks for a great and informative site. I purchased your E- book and read it — It is good. The mail point and learning I picked up af blowing up several accounts mainly in the Future markets is to max.
Actually, you should be able to get a very good estimate of your stop loss and entry before you get into the trade. I do not let one-minute bars elapse. As soon as a trade signal occurs in real-time at least while day trading I take the signal.
That means you always can see the bars prior, or a pattern to indicate the stop loss and entry, before getting into the trade. Just need to be on it, and watching that chart…as the price moves, always be thinking about where your trade setups could develop, how far the price could move target, and is the trade worth taking and where the stop loss would be. To be safe, reduce the position size slightly in case of slippage which would increase the risk and therefore reduce the position size.
This way, on most trades you know you will be in the ballpark of your correct position size. Then only adjust it if there is a trade where the stop loss distance is quite a bit greater. HI Cory, Is it possible for people to make 5 trades if they are trading only for hours a day? Will of course depend on the asset they are trading, how volatile it is price moves are what create opportunities , what their strategies are and what time frame they are trading on.
But it possible that on some days there may only be one or two opportunities. But that is pretty rare. I purchased your book and find it very informative as for me trying to learn forex trading might as well be trying to learn another language! In reading your book and following your videos and articles online do you think there is enough volitility in the market these days to make money at forex trading for newbies?
Still getting my butt kicked daily lol Should a person look at another pair to day trade with more volitility? So if you end up liking that pair better, you can stick with it. Thanks for the prompt response!
Sometimes I think to trade others markets around the world but one thing stop me trade forex. Anyway to use futures in CME like a base to scalp and day trade? Best Regards from Rio de Janeiro, Brazil.
But it is not the same as the stock or futures market. Forex is fragmented, as it is not a centralized market. So you will see different things on the Level 2 depending on which broker you are using. Some brokers have bigger liquidity pools that others.More...