Last Updated on 11 September, 2023 by Samuelsson
Daytrading is one of those trading styles that tend to attract the attention of most people new to the markets. Considering that it promises fast-paced action and high returns, it isn’t strange at all that so many find it alluring. With that said, it’s perfectly reasonable to wonder what realistic returns could be for a day trader.
Realistic day trading returns are anything from negative returns to 100%+ on an annual basis. The returns you get will vary greatly depending on factors like position sizing, leverage, your strategy, and how committed you are to follow through with your trading.
So if your returns will vary so much, you might want to know the factors at play. We’ll cover this right after a few words on whether day trading actually is the right form for you!
Is Day Trading for You? (Important!)
Many who are new to trading, or have given it a shot in the past, tend to see day trading as the ultimate goal for their own trading. This is also reflected in the supply of courses and other information out there. There are loads of fake trading vendors who capitalize on the dreams of the masses by luring them into fake trading courses that don’t teach profitable strategies that don’t teach profitable methods. We’ll have a look at this in just a bit, under “day trading scams with ridiculous returns”.
Now, there are two issues with day trading that most people never realize. These are:
- It’s extremely hard to master if you go for a discretionary approach (manual trading). There are several reasons for this, with the most apparent ones being the difficulty of controlling one’s emotions, the high amounts of random market noise in short timeframes, and the scarcity of real day trading edges!
- It might not even be more profitable than other, simpler trading forms like swing trading.
Obviously, the second point depends on what type of day trading you do, but in many cases, you will get better results with other, simpler trading forms.
Day trading is overrated!
To be honest, in our opinion day trading as a trading form is overrated. Of course, it’s a good trading style if done correctly, but for most people, day trading is not the answer.
Instead, most people should have look at a trading style that meets the following criteria:
- Takes little time: It’s crucial to not start off with a trading style that requires all your time just to be executed correctly. Throwing yourself into trading all too hastily usually works more as a deterrent than a motivator. Unfortunately, manual day trading doesn’t tick this box, as it requires you to be glued to your screen all day, which cannot be combined with a regular full-time job!
- Have bigger margins for error: As a beginner, you’re bound to make mistakes, and there is no way to escape this fact. As such, you want a trading form that’s leaning towards the forgiving part of the spectrum, where minor mistakes don’t tend to have as a catastrophic impact on your overall performance. Unfortunately, this cannot be said about day trading.
A trading form that does tick both boxes is swing trading. With the right trading strategy and approach, swing trading stocks won’t take you more than 10 minutes each day.
If you’re starting to change your mind about which trading style suits you best, we highly recommend that you read our guide to swing trading. Hopefully, that will clear things up a bit!
Aspects that Impact Day Trading Returns
With this out of the way, let’s return to the main topic of this article. We’ll look at some of the factors that affect how much money you can make in day trading, and how you could go about to increase your potential returns.
1. Your Trading Strategy
One of the core determinants of day trading performance will be the day trading strategy itself. After all, you’re obeying by its rules, which means that your future performance is going to be determined by how well it keeps up with the market.
Now, most traders don’t even have a trading strategy, strictly speaking. They assume that some pattern they’ve heard about works in a certain way, and therefore attempt to profit from it. In nearly all cases, the pattern or strategy they chose to follow had no edge whatsoever.
To ensure that you have a positive expectancy with the strategy you’re employing, it’s critical to make use of some sort of backtesting on historical data for validation. If you’d like to read more on this topic, you definitely should look closer at our guide to backtesting and curve fitting!
The next core determinant of the returns you’ll get is opportunity. You may have a trading strategy that is right 85% of the time, but even with big winners and small losers, that still doesn’t give you the type of returns you’d like to have if it trades too seldom. Then there simply aren’t enough trades to make the profits amass at a quick enough rate!
In contrast to what many believe about day trading, great trading opportunities are really scarce, and aren’t as abundant as many may make them look! As a matter of fact, most of the price swings and moves in the markets are just random, and cannot be used to determine whether you should enter a trade or not.
One way of mitigating this issue is to trade A LOT of markets. If you think about it, there are hundreds of stocks to choose from, and even thousands, if you not only go for the biggest corporations. Together, these may very well provide enough opportunity to keep you busy. However, don’t be surprised if you, despite having so many stocks, find yourself lacking signals at regular intervals!
The third aspect that will have a huge impact on how much money you make, is the amount of leverage you employ.
With most day trading systems utilizing so small movements in the markets, many traders use leverage to increase the size of their winners. That way they can still achieve substantial returns, despite the small price moves they trade.
While leverage WILL have a big impact on your winning trades, your losses will, of course, be magnified as well. Therefore we always recommend beginners to begin trading without leverage, regardless of the trading form. After a while, when everything goes well, you may start utilizing leverage to take bigger positions, while still adhering to strict risk control rules! For most traders, this means not risking more than a couple of percent of the account balance on each trade.
What Returns Can You Expect From Day Trading?
This question is one that we get nearly all the time.
While we completely understand that people are very keen to know what to expect from day trading already at an early stage, it’s impossible to answer. Every trader is going to not only use a unique trading system, but also employ varying position sizing and risk management techniques. In addition, it’s impossible to forecast what types of mistakes you’re going to make.
However, the one thing you should concern yourself with at the very start of your trading career is getting through the initial phase of mistakes and bad decisions. We have all been there, and still, to this date, our main objective here at The Robust Trader is to preserve our capital rather than getting the highest returns possible.
Then with time, it’s possible to achieve anything between negative returns, up to perhaps 100%+ a year. However, even professionals tend to end somewhere around 40%-60% on an annual basis.
Daytrading Scams With Ridiculous Returns (Beware!)
With day trading being the trading style that attracts most people, hypocrites and scammers quite naturally have focused their efforts on this very trading form.
One very good example of how these scammers are working hard to rip money off their victims is the work they do through Youtube. In fact, we’re surprised to see their proliferation on these platforms. You simply cannot search trading-related topics without being served videos from various scammers who promise quick money.
You cannot double or triple your account in a few months consistently. If somebody promises this or anything along those lines, just move on. You have simply come across a trading scam!
With this said, we know that it’s hard to see through scams like these when you haven’t been trading that long yourself.
That’s why we wanted to share one of the more common types of day trading scams you’ll see today.
Pump and Dump Scam
The pump and dump scam is employed by a lot of the bigger trading brands you’ll find on youtube today. In short, they work like this:
- The trading guru offers a sort of signal subscription service, or “trading room access”, where he shares what stocks he buys or shorts at the moment.
- The stocks, that nearly always are penny stocks, are illiquid, meaning that the slightest change in order flow can have a huge impact on prices.
- As the trading guru tells his followers the name of the stock he’s entering, everybody rushes to get into the stock.
- As a result, prices go in the direction of the trade, letting the trade leader exit at a profit.
- Now he notifies his followers about his move, and others follow. As a result, the stock moves back to the original price, as supply increases rapidly.
The result is that the only person who manages to make money, at the expense of all followers, is the trade leader himself. What might be even worse, is that those very trading results can be used as marketing material to make more people pay for courses and subscriptions.
Of course, there are other types of scams circulating the Internet as well. However, the pump and dump scam is quite well spread, since it works so well. Especially for those with a lot of followers!
You certainly can make a lot of money from day trading, but there are quite some limiting factors that need to be considered. A beginner, in 99% of all cases, shouldn’t even bother learning day trading in the first place, as there are much better trading forms if you’re just starting out. Swing trading is one example of just that!
For those who want to learn trading, we offer a range of trading courses here at The Robust Trader. Have a look!