Everyone want to make tons of money from their trading sessions, but for most people this is impossible. So, how to trade for a living? According to numerous studies and a large amount of anecdotal evidence, earning an income by day trading is indeed possible, but for most people, it is not probable.
Frequently, traders ask financial experts whether or not they can make a living by day trading and, commonly, they desire to know the strategies that these experienced traders use to earn large sums of money when trading stocks (or forex, or futures).
However, day trading is an articulated and complex discipline, and it would be impossible to hope to generate profits by approaching it without a minimum of skills. That’s why we have also created a comprehensive guide to day trading.
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Successful Traders
There are many people who have made a career as both traders and investors. For example, Warren Buffett has had a long successful career as an investor. In this period, he has invested in some of the best-known companies in the US like Coca-Cola, Apple, and Geico.
Warren Buffett is different from day traders like James Simmons and Ken Griffin. While he holds his assets for years and decades, these traders enter and exit trades throughout a trading day. Some large hedge funds initiate thousands of trades per day.
Over the years, there have been many well-known online traders. James Simmons, the founder of Renaissance Technology is the best-known trader in the world. His flagship fund known as Magellan, has consistently returned over 40% annualized returns.
In addition to James Simmons, other hedge funds that focus on day trading are Man Group, Two Sigma, Citadel Securities, and AQR Capital.
In spite of these successful traders, the majority of people who attempt to make day trading stocks for a living fail and lose significant portions of their investments.
These other speculators are usually enthusiastic, willing to spend many hours to learn the tricks of the trade and have large amounts of money to invest.
Many experts have determined that the reason that they fail is a lack of effective strategies or trading systems. So we suggest you to see, at least, these 4 Timeless day trading strategies that still work.
The Freedom That Day Trading Provides
When considering the lifestyle that trading stocks can offer, you should imagine waking up every day at any time that you choose, going anywhere during the day, spending more time with your family members and your friends and enjoying long trips while still earning a high income.
In addition to these freedoms, day trading for a living offers the potential to earn a much larger income that you could ever make by working for somebody else.
Doing day trading vs. being an employee
Numerous studies have indicated that the amount of money that you can earn by working for a corporation is extremely limited! The company can opt to lower your salary or to replace you at any time, and in addition, the income that you earn every year is usually a fraction of the annual revenue that you make for the business.
The difference between working for a corporation and generating profits by investing is similar to the difference between being a movie star and making short films for fun.
Experienced traders can attest to the fact that live through day trading provides absolutely limitless opportunities, and as your account’s balance grows, you will be able to earn a much larger profit for each successful trade that you execute.
Moreover, many brokers provide substantially discounted fees for investors who keep their balances above a certain amount and for clients who complete a particular number of trades every month.
How To Start Day Trading
In order to trade stocks successfully, you must create a strategy that takes advantage of the short-term fluctuations in the value of each stock.
Additionally, you can opt to analyze economic news and the demand for a company’s products and services in order to predict the long-term success of a business. Many brokers also advise people to diversify their investments when learning how to start day trading.
By buying small amounts of numerous stocks, one change in the market can not eliminate your account’s balance, and in addition, several analyses have shown that purchasing a wide range of stocks can help you to earn a consistent, stable income.
Related » The Power of Diversification in Day Trading
There are other things you need to do when starting your day trading career.
Select a good online broker
You need to find a good company that provides the assets that you need to trade. There are two main approaches to this. First, if you prefer being a retail trader, you can select one of the popular retail trading platforms in the market. Some of the most popular brokers are companies like Schwab, Robinhood, and Fidelity.
As a retail trader, you should select whether you are a margin or a cash trader. With a cash account, you will trade with the cash you have in your account. On the other hand, with a margin account, you will use leverage to maximize your profits.
Second, you can decide to become a prop trader, where you will be using a company’s funds to trade and then take a cut. Some of the most popular prop trading companies are Real Trading and the 5%ers.
Select your focus assets
The next stage is where you select assets that you will be trading. As mentioned, there are numerous assets that you can day trade, including stocks, bonds, crypto, commodities, and forex.
There are more assets beneath these broader categories. For example, in bonds, you can focus on government or corporate bonds.
In stocks, you can focus on technology, financials, or industrials. In currencies, you can decide to focus on majors, minors, or exotics.
Create and backtest your strategy
After these two steps, you should learn more about day trading and then create your strategy. Fortunately, there are so many free materials that will help you become a better trader. There are books, YouTube videos, and even online courses.
By joining Real Trading You will receive all the traning and support you need to become a professional trader, without having to waste hours searching for the right material online.
As you learn, you should create a good strategy and then backtest it. Some of the most popular trading strategies in the market are:
- Arbitrage
- Pairs trading
- Copy trading
- Swing trading
- Scalping
- Trend following
- Reversals
After creating a strategy, you should work hard to backtest it.
Getting Started
Successful traders usually recommend that new traders set aside enough money to live for an entire year before they begin to trade. Having this amount of cash eliminates any pressure to earn a substantial amount of money quickly and allows you to slowly make relatively small trades.
How Emotions Affect Trading
Your feelings and circumstances can substantially impact your decisions while you are trading. Financial experts always recommend that a person shouldn’t place any trades when the individual is sad or angry (these emotions can destroy your account).
Furthermore, you must not let the initial rush of success cause you to become cocky and reckless. Even if your last 20 trades have been profitable, you must carefully research each transaction and treat every investment as if it was your only trade.
These are just some of the secrets on how to be a day trader (and here are some mistakes you must avoid).
The Nature Of Trading Stocks
Most experts believe that the majority of traders who earn a stable income actually lose a small amount of money when completing approximately 35 percent of their transactions, yet the large profits that successful investments provide cover those losses.
As human beings, we want to always win, but in spite of this natural desire, a trader must not allow losing transactions to affect a long-term strategy or the investor’s emotional state.
Related » How to Start Trading Again After a Big Loss
Is it possible to day trade for a living?
This is a relatively popular question especially among people who are new to the financial market. There are two sides to answering this question. While it is possible to day trade full time for a living, you need to put in the work.
This means that you should spend a lot of time learning about the financial market and how it works. At the same time, you should spend time drafting and testing trading strategies.
In addition, you should use proper money management strategies to ensure that you have enough money with you if trading does not work. This strategy will also guide you in spending the money you make in your trading career.
Finally, you should have the best risk management strategies, where you attempt to make money while mitigating most of the risks.
Set realistic expectations
It is possible to make a living as a day trader. However, it is always important for you to set realistic expectations about day trading. First, it often takes a long time before you can become a successful day trader. In most cases, it will take a few months or years.
Second, you should also set realistic expectations about the profit potential in day trading. While it is possible to make a lot of money, there is also a possibility of making huge losses. In the past, we have seen many well–known traders blow their accounts within a short duration.
Third, it is also worth noting that there is no single strategy that guarantees you profits. All strategies have their limitations. For example, trend-following rarely works when the market is in a consolidation phase.
Pros and cons of day trading for a living
There are several benefits and disadvantages of becoming a full-time day trader. Let us look at the benefits first:
- Freedom – Being a full-time trader gives you freedom since you can do it from anywhere.
- No commute – Most people who day trade do it from their own homes. Therefore, they don’t spend many hours per day in traffic.
- 24-hours business – The financial market is open 24 hours, 7 days a week. Therefore, you can benefit substantially since you can trade at any time. Cryptocurrencies are open every day, Monday to Monday.
- High returns – You can make substantial returns depending on how good you are.
- No retirement – There is no need to retire since you don’t have a 9-5 job (but nothing prevents us from accumulating a nest egg).
There are cons of being a day trader, including:
- Lonely – At times, trading is a lonely job especially when you are trading from your home office. To remedy this, you may decide to become an office manager.
- Risky – It is a relatively risky business, where you can lose most of your money within a short period.
- Burnout – Trading for long hours can lead to substantial burnout.
Final thoughts
Trading is an excellent thing to do. At Real Trading, we have seen so many people become successful in it over the years. In this article, we have looked at whether it is possible to day trade for a living and some of the top strategies to use.
External useful Resources
- How Much Can You Make as a Day Trader – Investopedia
- Things You Learn After 1 Year of Day Trading for a Living – Andrew Kreimer
