Day trading is one of the most popular ways to make a living online and be your own boss.
However, the journey isn’t easy, with many years of studying, learning from your mistakes, and ultimately becoming a profitable trader.
You can make as much money as you want in the market, but several factors come into play in order for you to achieve your goals.
Since you’re wondering, “how much can you make day trading?” let’s dive into some of the basics.
Set Realistic Goals Within Your Budget
Putting aside your life savings to begin trading without knowing what you’re doing is a recipe for disaster.
The first step is to gather some income, whether setting a percentage on the side to begin trading or starting a side hustle—and deposit it into a trading account.
Most traders fail because they try to turn their $1000 into $10,000 overnight—which is not realistic.
Depending on your deposit, you must risk 1 – 3% to practice proper risk management.
Because of compounding, with a profitable risk to reward ratio, you will inevitably start to earn through trading.
Beginner traders put risk management on the back burner because they want to get rich quickly.
However, the market will humble you over time, forcing you to become a disciplined trader.
Risk management is the best way to cut losses and ensure your profitable trades grow your account.
First, you risk a percentage of your account. This can be between 1 to 3%, which tends be to be on the safer side. Aggressive traders are about 5 to 10% of their accounts.
To see this in action, let’s say you have a $1000 account. You risk 3%, which is $30, and double the investment, earning $60 or 6%. It may seem small, but wins are welcome in day trading to grow your account.
Unfortunately, beginner traders don’t have the patience and may begin trading 10% or even 20% just to hit it big. If you risk 10% in this case, you will lose $100 and will have $900 left to trade. If you stuck with the 3% and lost, you would only lose 3%, with a chance to gain it back another day by risking 3% again and earning 6%.
The 3% becoming 6% is a 1:2 risk to reward ratio. A risk to reward ratio helps you determine your profits and losses before you execute. Most traders aim for 1:2 or more.
In other words, to begin earning, you must practice risk management and be on the safer side when you start.
Identifying Your Trading Style
Every trader has a strategy that makes them successful. The interesting thing about trading is that one person’s system may not suit you, despite that strategy making them profitable.
People have personalities, and it will show in trading. Patient traders who practice proper risk management tend to hit be profitable.
Aggressive traders tend to be seasoned veterans who know the risks but are heavily rewarded.
Different stocks, currencies, metals, or anything else you may trade will also have their own personality.
For example, volatile stocks will be more fast-paced. Aggressive traders tend to like volatility but also high risk, looking for high rewards.
Slower-moving instruments tend to have their moments but are more consistent.
Dabble in a few stocks during the New York session to find which stocks and trading style is best for you.
Developing a Strategy
Once you’ve learned more about yourself and the market, it’s time to develop a strategy. Without laying down the groundwork, you will not become profitable.
Start to identify patterns and know your edge.
Many traders favor the break and retest strategy, where resistance becomes support, and vice versa. Other traders prefer indicators, whether it’s moving averages, ADX, ATR, RSI, and more. Over time, you will find out which indicators work best for you.
Support and resistance are the bread and butter of trading for most day traders, proving to be a practical part of anyone’s strategy. The market structure is also a key component, as you must be able to know what’s going on, including the trend.
After, set a time to trade every trading day. Most US-based traders enjoy the New York session, which is the most profitable for stocks. Other markets, such as Forex, have London sessions before the NY session.
Many people day trade from 9:30 am EST to market close. However, the most profitable tend to be at market open or pre-market. While the market may open at 9:30 am EST, the market begins to move around 6 am to 7 am.
Most profitable traders journal their trades. This means jotting down market movement, your anticipations, your actions, your risk management, risk-to-reward ratios, wins, losses, instruments traded, and more.
When you begin journaling, you start to learn more about yourself and learn from your mistakes. For example, your emotions, mindset, and psychology will affect your trading. Knowing how to correct impulsive trades, or avoid them, is another step to becoming a profitable trader.
No one likes to hear about patience, knowing there are millionaire traders out there, and you want to become one of them too.
However, patience is key to becoming a profitable trader.
Once you learn how to compound trades, manage your emotions, develop a strategy and become consistent, you will grow your account and start to earn a side income from trading. Before you know it, day trading is your job.
For eons, beginner traders will wonder, “How much can you make day trading?” because the answer varies depending on the person.
Most traders will fail, with only 1% succeeding. Your account, risk management, strategy, and discipline will determine how much you make day trading.
The larger your account, the less likely you will be aggressive and risk more than you should, as impatience is key to why people do not make it in the market.
If you are unsure if your strategy works, you can use a demo account.