Day Trading: How To Set Realistic Expectations

Day Trading: How To Set Realistic Expectations

Snake oil salesmen and “miracle traders” are a seedy bunch. Anyone who promises you a 100% return in your first year is lying to you. However, the earnings potential of day trading is very real, and knowing what to expect in an average day or year is a crucial component of any traders toolkit, tempering enthusiasm when a pick takes a sharp rise, and calming minds when a “sure thing” goes bust. Evaluating your potential is a matter of knowing your circumstances, both the ones you control, and the ones you can’t, and constructing a reasonable picture of expected loss, profit, and performance.

Knowing The Statistics

When it comes to understanding your potential, historical precedent is an excellent start. In the realm of day-trading, however, a number of myths have cropped up, including the unfounded assertion that “95% of traders lose money”. These popular rumors have taken on a life of their own and shaped the expectations of myriad individuals in unfortunate ways.

Perhaps the most revealing study on the subject comes from a grad student at Berkley in the 1990’s. Terry Odean, for whom the study is named, and his professor Brad Barber researched the accounts of 10,000 brokerage traders between the years of 1987 and 1993. Later on, Odean repeated the study for over 66,000 households from 1991 to 1996, accumulating a profound quantity of data in the process.

The results were nothing short of revealing. The study found that amateur traders underperformed the market by an average of 1.8 percentage points. This may seem like reason not to trade, however the reasons for these low returns were tied most closely to high brokerage fees and high-turnover of stock trading strategies. In short: those who went with traditional discount brokerages, instead of, say, hedge funds, were mired in fees, and hampered by their own unwillingness to find an effective strategy and stick with it for the long haul.

Testing Your Mettle

With this understanding, it’s important to determine what kind of return your particular strategy can see. Online forums and statistical accounts of trading performance will offer generalized estimations of anticipated returns, but what’s lost in those numbers is the fact that individual strategies are what account for profit, not general market forces and uncontrollable trends.

This means that your returns will depend greatly on your individual ability as an investor, and that knowing that ability prior to entering the market can help temper your expectations. Stock simulators exist online to give you a real-time picture of your capabilities, but our comprehensive trading simulation can provide unparalleled insight into the potential of your strategy, smarts, and signals.

What’s vital to keep in mind is that no two traders are identical, and that setting expectations means understanding your own potential before taking the plunge.

Tracking Your Progress

History is written. There’s nothing we can do about that. The cautionary tales and blazing success stories of traders gone by are testament to individual circumstances that have passed, never to be replicated again. So what does this mean for you? Simple. Your situation, decisions, strategy, and profit are all exclusively products of your picks.

Instead of continually referencing old charts and message boards, build your own historical record. If you employ one strategy and record that its expected return is 25%, then you can obviously expect something similar should you decide to execute that strategy in the future. Keep a trading journal of positions, signals, and outcomes and know thyself in doing so.  I have taken over 50,000 trades in the last 5 years and every single one is tracked and archived to mine for data.  If you ask me what my win ratio is I can give it to you.  If you ask me what my win ratio is in the first hour of trading vs lunch hour I can give it to you.  I even narrow it down to the individual setups and what my metrics are for those that way I am getting in bigger in my best plays and keeping my risk small in the trades that I historically dont trade as well.  Thats the way you get next level results by really tiering your risk parameters and adding risk as the probabilities for success are higher.

Setting Firm Boundaries

It’s not uncommon for detractors to refer to day trading as “gambling”. The reasons for this vary: from the challenging odds, to the “randomness” of the marketplace. While these minds miss the very calculated nature of good trading practices, their assessment is a not-so-inaccurate portrayal of poor trading and erratic investment behavior.

When you have a typical 9-to-5 job, you make a certain amount of money each day. It’s impossible then to increase or decrease the amount of money you make by leveraging the funds you already have in your bank account. Day trading, on the other hand, allows you to do precisely that.

This means that good traders understand the importance of setting firm boundaries for capital ventured and acceptable losses. Naive traders who assume they can make back a loss may go so far as to leverage their own home in order to right the ship. Ventures like this are patently destructive, putting well-being, wealth, and family at risk.

The downside of these measures is that they limit the amount of money you can make on any given day. The upside is that they help you establish realistic expectations, protect your vital assets, and force you to work within your means, all of which are paramount to profit.

Removing Your Ego

In the aforementioned scenario in which a trader effectively bets their home in order to mitigate trading losses, several things may have happened leading to that decision. Their trading strategy may have led them to the wrong pick, entry point, or exit point, but what’s most likely is that their ego caused them to stay in that bad trade well beyond their acceptable loss threshold. Compounding a problem, their damaged pride led them to “bet the farm”, so to speak, on an emotional gamble with no guaranteed chance of success.

The common thread through all of these mistakes is pride, and the implications of an overly emotional approach to trading cannot be overstated. Market movements are challenging to interpret, difficult to harness, and profitable to leverage, but all of this relies on calculation, strategy, and a cool head. Introducing emotion or ego into the equation turns an otherwise numerically motivated endeavor into an emotional one, derailing any hope of sound judgment.


For this reason, setting realistic expectations is fundamentally a matter of taking the information you’ve gathered over the previous several steps, and combining them with a level head. Can you squeeze a 40% return from the market in your first year? Yes. Is it likely? Without a strong trading education, realistic standards for performance, and a calm demeanor, no.  Trading is a profession just like being a doctor or lawyer. It takes an education then thousands of hours of studying and repititions to build your skillset before you ever even make a dollar.  Trading is something very similiar.  For our students we put them in a 90 day class.  The first 30 days is straight coursework.  The 2nd month we are having review sessions where we are disecting my personal trades each day and reverse engineering them so they can see what I see in realtime.  Then the 3rd month we put people on a trading simulator and monitor their trades and give feedback so people can hone their skills. From there all your trades have to be tracked so you can start to figure out your strenghts and weaknesses. Once your able to be profitable 4 out of 5 days a week on simulator you can go live. Even then you havent made it often folks will see other trades talking about their gains in the thousands and unrealistic expectations pop up where now you think your 50 dollars or 100 dollars is not good enough and then the losses mount.

Your first goal as a trader is to just finish in the green.  Learn to make a dollar. That is single handedly the biggest hurdle for a developing trader learning to just finish positive even if its a dollar.  Once you do that consistently then you can add a bit more size and frequency to your trades and try to make 50 dollars or 100 dollars a day.  Once you can do that its very easy to scale higher and book bigger days as winning is a habit and you have built one.

Read this blog if you want to know if your READY TO TRADE LIVE

Knowing what to expect in the market is a simple matter of observing historical precedent, evaluating your trading potential, tracking your performance, setting reasonable boundaries, and taking your emotions out of the picture. The combination will give you clarity when approaching the market, and peace of mind when returns fall within your forecast. Know your capabilities and understand the basics of good trading, and your financial future will be both bright, and realistic.

Hope this helps if you have any questions on trading email me  we have a class starting in March email me for details . TRADING BOOTCAMP



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