Beginners in day trading are often found to be on the extreme ends of trading frequency. Some traders overtrade and lose a ton of money in the process, whereas others struggle to make any trades at all. So, is there a magical number that one can use as a guideline when determining how many day trades to make in a day? In fact, is it even logical for day traders to trade every day?
Do day traders trade every day? Day traders trade every time their strategy indicates a trade setup. On some days, day traders don’t take any trade, whereas on others they may take more than 5 trades. Hence, successful day traders let their trading strategy determine their trading frequency and not vice versa.
Many new traders usually find it challenging to develop a profitable trading strategy. Well, you will find some useful tips for developing one that will have you succeed in the section below.
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
How Often Should I trade?
One major factor that determines trading frequency is the trading strategy. You will need a well-defined strategy to know the right time and market conditions to enter a trade. It will also help you know when to get out of a trade to book unrealized profits or avoid losses.
To be successful in day trading, it is critical that one enters only the trades that are in line with his/her trading strategy. Overtrading can easily wipe out profits and frequently result in losses. Hence, one must keep the temptation to frequently trade in check, and only enter trades when there is a setup.
With that in mind, you now understand that trading frequency may vary depending on your trading strategy. For instance, if your trading strategy is to follow the trends, you are likely to make several trades a day when the asset is trending. Whereas, when the asset is in the consolidation phase, there will be days when an asset is not moving and your strategy will yield few to no trading signals.
On the flip side, if you are using a range-trading strategy, you will get fewer trading signals when the asset is trending. But, on the days when it is not, you will get many trading signals to take advantage of. So, your strategy largely determines how often you trade.
Furthermore, it is good to have strategies for both ranging and trending environments. And you should know how and when to use each one. When you do this, you will be able to trade a few times almost every day.
Finally, to conclude this section, to avoid overtrading, always take just the trades that your strategy allows.
Why Should You Avoid Overtrading?
Oftentimes, day traders overtrade by taking more trades than their strategy allows. Most times, they do it because they are bored or not disciplined. Most of the trades that happen outside your strategy are not likely to do well. They raise your commission costs and lower your possibility of making profits.
Commission costs are a major challenge for day traders who do not have a good trading strategy. You may also encounter this challenge when you overtrade. However, to avoid this problem, you need a disciplined strategy.
Why Should You Avoid Undertrading?
Sometimes day traders under trade by skipping the signals that their strategies dictate. Traders who do this are either not ready to trade or scared that they might lose. You may have a strategy that is good theoretically but not too good in reality. Such strategies are difficult to implement.
You may try to play safe by undertrading, but this will decrease your possibility of winning. In the business of day trading, undertrading is no better than overtrading. For instance, if you have a strategy that wins more than 50% of the time, it is more likely to be a winning one than a losing one when you skip a trade.
Always keep an eye on your performance and make sure your strategy is a winning one. Once you have done these things, allow your strategy to decide your trading frequency. And do not skip any trade signal.
How To Develop A Trading Strategy?
Every serious trader needs to develop, test, and practice a trading strategy. To do this, you will need to consider one that is suitable for your personality and lifestyle. For instance, you can have your day trading only during the hour when the U.S. market opens. Your trading day will be short, and you can make up to five trades within that hour.
You can also choose to trade all day. And to do this, you will need a strategy that can adapt to different market conditions. You should know that many different assets range or trend, and stocks’ volatility increases and decreases. All these are changing conditions that you must be prepared for if you want to succeed.
Once you have a strategy, you need to test it. Testing your strategy will help you establish its profitability. After doing this, you can now practice using real-time data to confirm that you can implement it. Once you are sure that your strategy is profitable, you will now know how much to trade.
Ignore the urge to trade less or more and always trade with the right amount. You are likely to encounter problems when you trade without a strategy. So, make sure you have one before you start.
Tips To Be Successful In Day Trading As A Beginner
As discussed above, it is extremely important to develop a good trading strategy if you want to succeed in day trading. In fact, having a solid trading strategy will be the deciding factor on how much success you will realize in your day trading endeavor.
That being said, in addition to developing a sound trading strategy, there are a few additional things that you should do for a successful day trading career as a newcomer. These include:
Start Small
As a newcomer, you should consider focusing on at most two stocks in one trading session. It will be much simpler for you to find and track opportunities with a few stocks. Another smart move will be to trade fractional shares. You can do this by specifying a small amount of money that you would like to invest with.
For instance, if a share is trading for $200, you can decide not to buy the whole share. Instead of paying $200, brokers will let you pay $100 and purchase only half of the share.
Set Aside Some Funds
Always consider the amount of capital you can risk on every trade. If you want to succeed, do not risk more than 2% of your account per trade. For instance, if your trading account contains $10,000 and you are willing to risk only 1% of your capital during a trade, the maximum amount you can lose on a trade is $100.
Always ensure that you have a surplus amount of money to trade with and be ready to lose. Always keep in mind that anything can happen. You may win or lose.
Set Aside Time
You must know that day trading will take a lot of your time. You are going to spend most of your day trading. And if you do not have a lot of time to spare it is advisable not to pursue day trading as a career. As a trader, you need to be alert.
Day trading requires that you track markets to spot opportunities. If you want to do this effectively, you must move fast as opportunities can come up at any time.
Do Not Go For Penny Stocks
Most new traders are always on the lookout for stocks with low prices, and this is okay. But it would help if you avoided penny stocks. Most of these stocks are illiquid, and it is often very difficult to win with them as a beginner. Do not go for stocks that are too cheap.
Most stocks that are below $5 per share are usually taken off from the major stock exchanges. You can only trade them over the counter. It would help if you also avoided these stocks. But if you researched them and saw an opportunity, you can purchase them. You just need to be extra cautious with such trades.
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!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Many new day traders wonder how often they should trade daily to avoid overtrading or under trading. The best thing to do is to allow your strategy to decide your trading frequency. However, you must make sure you have a trading strategy that is profitable before implementing it. In all, you can trade as much as you want daily, provided that you do not violate the rules set by your strategy.
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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