Is Day Trading Profitable?
Is day trading profitable ? It depends on 4 crucial factors. It list 4 crucial factors, start up capital, technique and skill, experience and control over emotions and mental makeup.
To answer this question, is day trading profitable ? I will first establish a few points as the foundation. Whether day trading is profitable depends on 4 areas. Only when we are have mastered these 4 areas, then day trading can be very profitable.
These 4 areas are
1 Start up capital
You need a certain level of start up capital to make money from day trading. Depending on the instrument that you are trading, the margin required may be from 2% for forex, to 20% for commodities. Due to the leverage nature of trading, you do not need to put up the full value of the contract.
For starters, even for a small trading account, you would still need to fund about $10,000.
2. Technique and skill
Another important factor that will determine whether you are profitable with day trading is your level of skills in the techniques being applied. There are many techniques that day traders use to determine entry points, take profit and stop loss levels.
This ranges from reversion to the mean strategy to moving averages spring strategy and many others more. Moreover, different strategies makes use of a range of technical indicators which you would have to master.
We make money from day trading primarily by exploiting 2 concepts. One is the idea of trading in the trend whilst the other is trend reversals. All of the strategies and technical indicators is to help to decide on playing on either one or the other.
You can find out more about the different strategies Here
Another crucial factor that determines how profitable day trading can be is the experience of the trader. A day trader has to be nimble to be profitable. The mantra is to get in fast, get out faster. This takes experience to exploit trend and short term trend reversals within the longer term trend. This is especially true during times of great volatility surrounding major events and announcements.
Day traders can trade anywhere from 1-2 minutes charts, up to 30 minutes chart. As the time duration is short, the price movement tends to be smaller in magnitude and therefore the size of your position relative to your account capital is crucial in determining your profitability and risk management. All these take experience
4. Control of emotions and mental strength
One of the most important factors to determine whether you can make good profits from day trading has more to do with your emotions and mental strength rather than anything else.
Day traders cannot let their emotions get the better of them or they will lose a lot of money. To profit from day trading, traders have to keep their emotions in check. When we got it wrong and our position is taken out by the stop loss, we have to continue and set up new trades.
When we have mastered the techniques and strategies and based on our experience, we must be confident that our winning calls to outnumber our losing calls. Another way to ensure that our wins will be bigger than our losses is risk reward ratio that we set for each trade which is usually 1:2. This means that when we win, we win double our losing trades.
Mental strength is very important in that we must have the mental strength to stick to set up trades based on what is identified. Many times, we tend to end up having more losing trades when we lose this discipline, get overcome by emotions and set up trades that should never have been set up.
Is Day Trading Profitable ?
Once you have control of the 4 factors, day trading can be extremely profitable. For the same amount of startup capital, there can be many trading opportunities over the day. With such velocity, as long as we have a risk reward ratio of 1:2 and executes a higher number of winning trades over losing trades, the profit potential is huge
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ABOUT THE AUTHOR
Alan Chow, your expert marketeer here to share with you tips on making money online. Check out my website for the many avenues which you can make money online. http://channelsmoney.com