Is there such a thing as the perfect number of trades a day trader should make?
The simple answer is no. It depends. Each person is different, and the markets always change.
HOWEVER… that isn’t to say there aren’t certain rules you can follow to find that sweet spot.
That’s what you’ll learn in this article…
If you’ve been going through myInvesting for Beginnersseries and feel ready to make a mark in the world of trading, this article is for you because figuring how many trades you should make is an important skill to master.
And it is a skill.
Not luck or anything like that!!
Theoretically, it might seem pretty straightforward to start day trading. It’s tempting to just learn the basics and move ahead, without realizing how much thought goes behind having a successful run with day trading consistently. But that isn’t a good idea.
I’m asked a lot of questions (both inside my private program,The Freedom Challenge, and onYouTube, social media, and my blog), and some of the common ones include: when’s the best time to trade, how much risk is “safe” risk, and most importantly, how often a day trader makes trades need to be answered before one even plans to start day trading.
Doing too little or too much can be detrimental to your overall trades. What you need is the right set of tactics to make decisions that will result in maximum profits. Whenever I begin a new batch of my program with newcomers, this is one of the first questions they ask.How many trades do I make? How often do I trade?
And how often should a beginner trade?That’s the question on everyone’s mind.
To be honest, there’s no set rule on how many trades you should make. There is no fixed number. It will depend a lot on you, your trading style, your risk-taking ability.
There are multiple factors to consider:
- Are you planning to trade occasionally or regularly?
- What kind of abrokerageaccount do you have?
- How much risk can you afford to take on your trades?
All this leads to a fear of undertrading orovertrading. In the beginning, it haunts everyone to some degree. Finding that sweet spot somewhere in the middle is a challenge but a challenge that defines much of your success.
Let’s go over those factors one by one to see how they can affect the number of trades you make in a day.
1: THE TYPE OF ACCOUNT
Having an onlinebrokerage accountis an obvious thing to consider if you wish to get into Day Trading. There are two kinds:
- a Cash account and
- a Margin account.
As the name suggests, a cash account requires you to make all kinds of transactions with cash or long positions. Margin accounts on the other hand let you borrow money from your broker against the value of securities in their account. While cash accounts are pretty straightforward, margin accounts can be complicated to understand.
But they do have the advantage of allowing their active traders the luxury ofshort trading…
To keep day trading in check, a PTD or Pattern Day Trader rule came into force in 2001, regulated by the Financial Industry Regulatory Authority. Fortunately, cash account holders don’t have to follow these rules since they can just keep making trades till their cash is used. There is a catch here though. Once you have made all your trades, you will have to wait for all of them to settle before being able to trade again with cash.
As mentioned previously, margin account holders have to follow the PTD rules to be able to consistently day trade. This comes with the rule of maintaining a minimum of $25,000 at all times in your account. Only then will you be considered a pattern day trader.
As a general rule with margin account holders, with most brokerages, you have the buying power of four times the amount you have in your account while obviously making sure to implement the minimum account balance rule. Since this is day trading, your buying power lasts a day (and all trades need to be settled in a day too).
This PTD rule might be a bit too much for some to uphold so there is a way for them to day trade without having $25,000 in their account. In a scenario like this, the trader can maintain a small number of trades so that the overall transaction doesn’t exceed the $25,000.
Generally, it’s recommended you make three trades overall in five consecutive trading days to keep things in check. While it is a good option for those who wish to bypass the PTD rule, it isn’t an ideal option for the ones who wish to day trade regularly.
This is why usually a lot of day traders go with cash accounts if they can’t maintain this amount.
Switching accounts with your online broker is always an option too.
2: A WELL-DEFINED STRATEGY
If a trader worries about undertrading or overtrading, it automatically means they aren’t confident in theirtrading strategy.
Having a well-defined strategy is an absolute must for anyone wanting toplan a career around day trading. You can’t proceed without a reliable strategy. At first, it might seem almost impossible to have a strategy you can confidently rely on.
But all day traders agree that having one that suits your personality and lifestyle becomes a huge advantage.
In short, it is definitely worth the effort of trying to figure out a strategy for yourself.
It will keep the number of your trades in check like nothing else.
How do you know your strategy is a good one in the first place? Simple:a good strategy makes it easier for you to decide when to enter, exit, and under what conditions you should…
There are some standard strategies that traders employ such as a trend-following strategy or a range-bound strategy. Both have their pros and cons and different traders see value in differentpatterns.
Some also choose both kinds of strategic environments to get the best possible results. It truly is up to every individual. What’s important to note is that whenever traders try to go out of their strategic plans, they don’t do as well as they would with a well-defined plan.
3: MINIMUM AND MAXIMUM DAILY TRADES
Even with a set strategy, you can fall victim to overtrading.
Many times traders can just go about trading, in a moment of lack of self-control, to keep trading in hopes of better or bigger profits.
It isn’t that simple!
The safest thing to do is to have a well-defined strategy and stick to it. As tempting as it might be to continue trading because you think it’ll give you greater profits,DON’T!
Overtrading is a common problem that traders tend to come across but undertrading occurs sometimes too. It comes from a place of not wanting to lose or just not being ready to trade more. While it’s understandable, it isn’t feasible in the long run considering the amount of time and energy you put into your trades.
Many believe that undertrading is a smaller sin than overtrading because you’re decreasing your chance of losses but that isn’t true. Both are a big no-no and something you should avoid at all costs.
While you won’t lose money if you make fewer trades, you will lose plenty of opportunities and this harms your potential for success.
Over the years, with experience and with carefully observing statistics, I have come to the conclusion that around 15-20 trades a month is a good number to target.
Now, of course, this number can vary from trader to trader.
You need to make all “this” work for you. Come up with a strategy and stick to it.
That’s really what much of this comes down to!
The best way to come up with a strategy for yourself is to develop one that suits your lifestyle.
Consider factors such as the amount of time you can give to trading and how your strategy would react to constantly changing market conditions. With these conditions in mind, making a strategy and sticking to it becomes easier.
Once that’s set, it’s easier to determine how many trades to make in a day or a week.
Strategy is so significant. Even though I make fewer trades than what the norm is in the market, I get away with handsome profits because of my strategies.
In myflagship program, I go through some strategies that took me years of practice to create.
You will not find effective strategies for free on the internet. You have to work towards them or learn from someone who discovered some themselves.
4: OTHER MISCELLANEOUS FACTORS
If you’re new to day trading, here is something you need to determine before you can truly commit…Does your reward justify the risk?
If the answer to that question is yes, day trading is the way for you to go.
Various opinions surround this but successful day traders always insist on certain factors (like having the right account or strategy). But they also believe that good luck and good timing play a role in helping you make decisions regarding your day trades too.
With time and enough experience under your belt, you start to have instincts regarding how well you think a certain trade will pan out or when you should stop trading. s.
If you think you’re having a lucky day and the timing feels just right, it’s okay to go beyond your strategy and keep trading. It can be risky (and you shouldn’t do it often) but when approached with the right mindset, such decisions can lead to good results.
YOUR NEXT STEPS…
The world has gone through a lot in the last year and a half.
The need for having a side income has become an essential need for many.
With the rightguidance, anyone can learn to day trade efficiently over time. Knowing how many trades to make in a day or a week and knowing when to stop are skills you can work on.
If you begin day trading responsibly with the right kind of strategy and techniques, the sky’s the limit in terms of how much profit you can earn while day trading.
If you are truly serious about a career in day trading and desire to make it your primary source of income, check out my flagship educational program,The Freedom Challenge.
I also encourage you to subscribe to myYouTube Channel, where I share weekly tips and insights into the world of trading.
In addition,join my newsletterwhich has exclusive insights specifically designed for those getting started in Day Trading.
I hope you’ve found this article valuable, and that you will get to a point where you know how many trades to make. Eventually, it will become instinct.
As a seasoned expert in the field of day trading with extensive experience in both trading and educating others through my flagship program, The Freedom Challenge, I can confidently share insights into the crucial aspects of determining the perfect number of trades for a day trader. My expertise is not only theoretical but grounded in practical experience, as evidenced by the success of my strategies that have taken years to develop.
Now, let's delve into the key concepts discussed in the article:
1. Individualization of Trading Frequency:
- There is no universal answer to the perfect number of trades, emphasizing the need to customize your approach based on individual factors.
- Acknowledges the dynamic nature of markets and the unique qualities of each trader.
2. Factors Influencing Trading Frequency:
- Identifies several factors that influence the number of trades a day trader should make:
- Trading style.
- Risk tolerance.
- Type of brokerage account.
3. Types of Brokerage Accounts:
- Distinguishes between Cash accounts and Margin accounts.
- Explains the Pattern Day Trader (PTD) rule, its implications, and how it affects trading frequency.
- Highlights the minimum $25,000 balance requirement for pattern day traders using Margin accounts.
- Discusses the buying power and limitations associated with Margin accounts.
4. Well-Defined Trading Strategy:
- Stresses the importance of having a well-defined trading strategy to avoid undertrading or overtrading.
- Recommends having a strategy aligned with one's personality and lifestyle.
- Mentions common strategies like trend-following or range-bound strategies.
5. Minimum and Maximum Daily Trades:
- Advises against falling victim to overtrading or undertrading.
- Recommends adhering to a set strategy and not deviating in pursuit of perceived greater profits.
- Suggests a target range of 15-20 trades a month based on the author's experience.
6. Miscellaneous Factors:
- Emphasizes the need for the reward to justify the risk in day trading.
- Acknowledges the role of good luck and timing in decision-making, particularly for experienced traders.
- Encourages the development of instincts over time through experience.
7. Next Steps and Resources:
- Advocates the importance of a side income and positions day trading as a viable option.
- Recommends responsible day trading with proper guidance, strategies, and techniques.
- Promotes the author's flagship educational program, The Freedom Challenge, as a valuable resource for serious day traders.
In conclusion, the article provides a comprehensive overview of the nuanced factors influencing the optimal number of trades for day traders, combining theoretical insights with practical advice derived from the author's extensive experience in the field.
