This is the question I have pondered over the years. How much trading is overtrading? At which point should you stop for the day?
There are literally dozens of scenarios you can dream up which ultimately determine how many day trades you can make in one day.
The straightforward answer to this question for me is one.
That’s right – just one trader per day.
Well, in this article I’m going to make the case of why placing only one trade per day may help your bottom line.
Learn Your Trading Edge
The first thing in the market you need is a system or strategy that works. You as a trader are nothing more than a scientist attempting to run tests to see which method works the best.
Now you have a few ways you can figure out what works for you. You can use Tradingsim to run hundreds or thousands of tests, depending on how much time you have to perfect our craft.
You can buy a course from a “trading guru” and then tweak to match your trading style.
Another option is you can place real day trades in the market to see how it feels. Well speak with any winning trader and they will tell you that at one point or another they actually blew up their account.
Or you can just do a combination of all three.
Regardless of what you decide to do, the most important thing is for you to learn how to win consistently and not placing trade after trade.
To this point, by placing just one trade a day, you are able to build up your skills while reducing the risks of blowing up your account.
As you place more trades, you can begin to track the results to see what makes you money.
Focusing on Your Daily Profit/Loss
I can say this with 100% certainty, whenever I try to make money back that I lost earlier in the day, I end up losing more money.
You might hear from your trading guru that they were down some huge amount but managed to claw back their losses by end of the day.
For each one of these hero stories, I can tell you that I have managed to reach my daily stop-loss limits trying to make money back.
Now it is not always about making back what you lost in the morning, but there is also the harsh reality of trying to make more.
If you have been trading for a while, you will realize that if you have a big win in the morning, it’s unlikely you will have greater success in the afternoon. Call it not being able to strike lightning twice in one day.
It could be the fact you are up and begin to relax on your rules or how selective you are with which stock you trade.
Regardless of the reason, things just get trickier with that second, third and fourth trades of the day.
Honoring Your Rules
Judgment based trading is really difficult. I can think of 6 key things I look for in a setup off the top of my head. Since you are not using a computer to place your trade, these rules are all items you could mistakenly overlook.
Now take this and multiply it across three or more day trades in a day. This just raises the odds you are going to make a mistake as the day goes on. It doesn’t mean you are a bad trader, it just means human beings are not meant to have hyper focus looking at computer screens for over 6 hours a day.
Less Trading Commissions
The only thing certain to happen when you place more day trades is you will pay more trading commissions. If you begin to trade heavily you can easily rack up commissions in the thousands over the course of a year.
By placing one trade a day, you can likely limit your daily commissions to under $10 dollars. This number could be even lower if you trade with an online discount broker.
Now take that same scenario and multiply this by 4 trades a day over 20 days. You are now up to $800 dollars a month on just commissions.
If you have an account that is barely over $25,000 dollars, which is required to avoid day trading pattern rules, you could be losing 3.2% of your total account value a month.
When trading you need to focus on what is in front of you. I have been in winning trades and losing trades for that matter but did not take the necessary precautions to protect my equity because I was busy looking for the next trade.
If I wasn’t looking for the next trade I was busy managing two or three positions. When you are looking for more or managing too much, it opens you up to missing the small things which separate winning day trades from losing day trades.
You also run the risk of being up on one position and by having that profit secured, letting losers run further than they should.
Now please do not mistake this to mean you should get in one stock and stay married to it no matter how it performs. What I am recommending is that you give the stock your undivided attention since we are talking about your hard-earned money after all.
Learning to Lose
I am a sore loser. This goes back to my childhood where I punched a hole in my parent’s insulation of their unfinished basement because my Dad beat me in a game of table tennis.
I’m still that same 12-year old kid wrapped inside the body of a grown man.
So, for me placing one trade a day forces me to take the loss. It forces me to say out loud – I loss today. Not I’m going to get it back or let me just try this one quick trade before lunch.
So, if you also suffer from the need to win or be right – learning to lose is a blessing. What you will realize is that a losing trade is actually a winning trade.
If you can avoid the big losers, you will in time make more money than you can count.