I see the question asked around the Internet about how much a day trader makes or what is the realistic expectation if you make money as a day trader, but I never see what the criteria is to be considered a successful day trader. In poker the ability is measured by X amount of big bets (BB) per one hundred hands with 3 being considered a profitable player, 3BB/ 100 4 considered extremely good, and 5 unsustainable. It is stated that it takes 100,000 hands to truly know due to variance and probability. 2 people playing 100 hands could potentially have 100 winning hands and 100 losing hands. The 100 hand winner could play -EV (expected value) while the 100 hand loser plays +EV and loses every hand still, both due to variance. However, over the course of 100,000 hands the player playing with the higher probability will come out ahead while the -EV player busts. So what is the measurement in the world of daytrading? It's about profitability. I could play higher risk/ reward trades with more trades than the lower risk/ reward trader and if we are both good come out the same. So is it X% profitability or what not over the course of X amount of trades to be considered a profitable daytrader? What are the numbers if you were to assign a formula to it? 60% profitable over 10,000 trades? I'm just throwing out numbers as an example. What would you consider an industry standard for pronouncing a trader as being profitable and professional in daytrading? Thank you in advance.
As a former part time pro, I get where you are coming from. In a way you are asking the wrong question. The diff here is scalability. In trading, you can scale up and trade/play the same market(in a poker game, players change as you move up in stakes, tougher field). So in trading if you can make the equivalent ROI of .5 BB/100 hands, the skill comes in the form of, can you scale up that size without psychological risks.
Hmm, that's a very good point. I've played all the way from 2 cent big blinds to $10 big blinds. The funny part is the play in those 2 stakes are almost the same. 2 cent big blinds have nothing to lose while $10 big blinds is almost completely psychological playing tight and playing like you're holding the nuts based on what 2 cards you could potentially have with the range of hands in correlation with the community cards in the middle. However, aside from scaling up, a person could still make a living in poker at a set limit without needing to scale up and be considered a professional because they make a living at it. Same for daytrading. A person could never keep more than $30,000, and risking no more than 1% of their bankroll still make a living. I do believe there is some win percentage and profitability percentage that could measure it rather than the need to make a continually scaling advance to greater heights.
At the end of the year were you able to beat the return of a benchmark index with a buy and hold strategy.
In the end, you should aim for 20-40% return on your capital per month as a daytrader. That may sound ridiculous but as a daytrader you don't scale very well. You have 50k in your account and you look to grind out 10-20k each month, withdraw and do the same thing again next month. 50k gives you 200k buyingpower for stocks and plenty of margin if you trade futures so 500-1000$ day are easily achievable when you're good. When we talk about investing, you aim for 10-20% a year. Your scaling goes through the roof, but your base capital needs to be 7 figures in order to make a living out of it. This is rather an approach for handling other peoples money.
I never use margin (speaking specifically in leveraging). I use solely my own capital, and even that I may only use 10-20% of on any given trade. Even doing that a person can squeeze out 1-2% of their bankroll per session without needing to risk more than 1% on any given trade.
It seems like it should be more than that for daytrading. In daytrading that amount could be achieved in a few sessions (within reason ie a $25,000 bankroll vs a $2.5 million bankroll. It will be harder in higher amounts depending on your selection: Gap up volatile stocks vs index futures etc).
Given the number of traders who fail, beating a buy and hold strategy might be a place to start. I'm sure there are traders who manage to achieve a 50 to 100% returns. And there are hockey players who can play in the NHL, but buying a pair of skates and a hockey stick won't get you the big bucks. Granted you might make a few percentage points in a couple days, however you are going to have a loss or two of the same magnitude every so often. Kudos to the traders who are making a living trading a small account. I'm not one of them. I day traded for a few years and found I make the same returns swing trading. Stress level is reduced, and I have time for other things in my life.
There are over 2000 futures day trading rooms and all claim to be successful, to increase your financial wealth, make you financially independent,, etc. and yet none can define or measure such success. So how about this: the median salary in the US is ~$50K per year. If you were to day trade 50 weeks per year, then you would need to earn $1000/wk or $200 per day take home after $5 round trip per contact to earn the median US salary. Would that work?