Day traders have long held the mystique of power players in the know who make millions by just trading stocks day by day, never holding on to any past the closing bell. Thanks to the picture that Hollywood paints, many get the impression that day traders buy and sell and make money using other people’s capital, all while sitting back lounging with a laptop. Seems too good to be true, right?
So, can day traders beat the market? Based on studies done on day trading, less than 1% of day traders were able to beat the market. A separate study showed that only 3% of day traders made any money at all.
It turned out that it was more profitable to invest in the market and do nothing than to try and beat the market day trading. The same study showed that over 80% of day traders actually lost money.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
What Day Traders Do?
In order to be a day trader you must first have enough money to do so, the Financial Industry Regulatory Authority states that pattern day traders must keep a minimum balance of $25,000 in their brokerage account and if the balance in their account falls below that amount they cannot trade.
Day traders will trade stocks, options, or currencies within one day, hence day traders. They can hold these stocks for minutes or hours depending on the strategy they are using. They may buy a stock that is on the rise and sell it just as it begins to dip, making a profit. This is why day traders trade in such large quantities, the stocks that they are trading may only earn pennies on the trade, so they need to buy a lot of it.
As the name implies, day traders aim to not hold over any stock past the closing bell, having sold everything by the end of the day. The vast majority of the time this is the case however there are instances where trade may not go through in time and the day trader has to carry the stock over. This is always risky in a day trading strategy because of the potential for the stock to take a nosedive the next day based on any one of the many uncontrollable factors that plague the market.
How Much Can A Day Trader Earn?
A day trader’s potential is largely based on how much capital he or she is using to trade with. If a day trader is working with a business, he/she may have millions that can be used to make trades. On the flip side, in the case of individuals day trading for themselves, they would probably have substantially less capital to trade with. Either way, they have to spend money to make money and in large quantities in order to make any money at all.
The amount that a day trader can earn is ultimately limitless, but so is the amount that they can lose, and based on most research, you are far more likely to lose money than you are to earn it. There are strategies and advisors out there that can help you along the way and dramatically increase your chances of being successful.
When exploring how much money can one make day trading, you also have to consider that it is a very fluid practice and that it is not a steady income stream like a regular job. One day you may make money and the next day you may lose money.
Thus, in day trading, your ultimate goal is to net out a profit. In case you are new to day trading or investment in general, you must always remember and focus on this goal. This is because, as long as you go into it knowing that there will be profitable as well as losing days, you can control the urge to do something irrational because of a large swing one way or the other.
How Can A Day Trader Beat the Market?
Given that the odds to beat the market are extremely small, it is still possible to make money if you are willing to take some risk. Gaining as much knowledge as possible and learning everything you can about the market is going to be your biggest asset. Learning from others and getting a financial advisor who specializes in day trading are both ways to help get the odds on your side.
In order to make money day trading, you have to be serious about it and not treat it as a hobby or pastime. Those that have been successful at day trading do it as a full-time job. Understanding the market and the risks involved are paramount to becoming a successful day trader.
Becoming good at day trading also takes time. Learning the market and practicing the craft is essential to becoming a good day trader. Even experienced day traders have misses, and that is just part of the trade.
Understanding Market Fluctuations
Based on how much the market fluctuates and by how much will influence how well a day trader performs. Sometimes more volatility is a good thing depending on the method that the day trader is using. Other times the more general approach of buying in anticipation of the stock rising is the best method.
No matter what, the market fluctuation is what makes and breaks the day trader. It can help you depending on your method or hurt you if the ups and downs are too erratic. The different factors that affect the market such as economics and politics are some of the uncontrollable aspects that come along with trading on the market.
Controlling Greed and Fear
Greed has resulted in the downfall of many day traders. It is very easy to make good money on a stock and want to immediately jump back in with reckless abandon without thinking through your strategy. This success can cause you to make irrational decisions and end up losing more than you had made.
Fear is the same in a lot of ways. Panicking and selling a stock too soon or being afraid to buy when the price is right can hinder some people from making money day trading on the stock market. Being able to control your emotions and think logically and without fear is a good step towards being successful at day trading.
Proper Risk Management
Managing the daily risk that you take as a day trader is essential to success. This is why so many people compare day trading to gambling. There is a certain uncontrollable factor to day trading that can only be softened by managing the risk involved.
There are two different methods that day traders use to help manage risk:
Stop-loss
This is a predefined number that you decide when you buy a stock that you will sell it at and take a loss no matter what. This will keep you from waiting too long and hoping that the stock bounces back when it may not.
Take-profit
As you can imagine this is the exact opposite of a stop-loss. Here you decide what the dollar amount is that you are going to sell the stock and take the profit. This helps you to retain the profit before a period of consolidation hits.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Beating the market in terms of figuring out the one method that will make millions time and time again is not viable. However, learning the trade, educating yourself, and practicing the trade will afford you the opportunity to make money day trading. It may just be a difference in wording if you think about it but making a living at day trading is possible if you put the time and energy into it. There will not be one silver bullet that will solve the complexity of the stock market, but taking the losses that come with the job in stride and being able to think logically will help you earn money as a day trader.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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