Many people aim for unrealistic profit targets, as was I when I started trading. Having a goal of $200 a day is much more reasonable and also very well achievable. Over the years, I’ve tried to identify what exactly helped me to get to my profit target every day. They may seem small, but when they are combined, they have a significant impact on your everyday trading!
1. Trade higher-priced stocks with leverage
Newer traders seem to have this misconception that low-cap penny stocks are the way to go when you want to make a lot of money in a short amount of time. Many gurus still advocate penny stocks as the holy grail in trading; some of them even use their community to push the stock price.
Of course, you can make a lot of money trading those stocks, and they do get a lot of action. Those stocks are incredibly volatile and thus extremely risky. You can even find yourself being stuck in a position because a stock gets halted and opening up again 95% lower (or it does not open up at all which means all of your money is gone).
I reconned that you are far better off trading higher-priced stocks, mostly stocks above $10. Those stocks have far less volatile price moves as the companies are much more regulated and thus less manipulated. It is way more comfortable for a beginner trader to recognize trading setups, create a trading plan, and then execute it.
You have not enough money to trade higher-priced stocks?
This where leverage comes into play. Leverage is simply an increase in buying power, which means that you can buy more stock than what your account size would allow. Let’s say you have a 6:1 leverage and $1,000 in your account. That would mean you can buy stock worth $6,000.
2. Master 2-4 strategies instead of 50
I know it is tempting to learn as many strategies as possible so that you don’t miss out on price moves. But what is the point trading like 50 strategies when you are not experienced trading them?
You need to step away from the FOMO (fear of missing out) and become an expert in a few strategies before you move on. Make yourself a rule that you don’t learn another strategy until you get consistent profits from your current setups.
Always plan your trades and have a clear exit strategy. If you don’t know what strategies you should learn, you can check out my recent post on the highest profitable trading setups.
3. Avoid the mid-day-chop
Most of the significant price moves happen during the morning during the first hour after the market opens and in the last hour before the market closes. So in the middle of the day, you get less price action and more chop. What does that mean?
Big price moves are usually triggered by human beings who buy and sell stocks with large quantities. During lunch (mid-day) most of them don’t trade so you get less order and smaller price moves. But that would not explain the chop right?
HFT (high-frequency trading) algorithms cause the chop as they take over during the lunch session. So you get not only less action but also unpredictable and strange price moves.
More often than not, I missed the morning action completely and forced trades during lunchtime, which made me lose a lot of money. It is essential that you avoid this chop-fest entirely or at least be extremely picky about your trades.
The mid-day chop usually starts from 11 AM EST up to 2 PM EST.
4. Have your real-time scanners ready
Besides your regular pre-market analysis where you create your watchlist for the day, you should also consider having a mechanism that notifies you about moves in stocks you are not watching.
Many stocks don’t show price moves pre-market that take off during the day. Some of my best trades came from my scanner. Those stocks have moved less than 1% pre-market so that I would have never found them with my analysis. There are not a lot of good scanners out there, unfortunately. The one that convinced me the most was this scanner here which gives me a ton of different scan options to choose from and is also used by many other traders.
You could also join various chatrooms like the one from Tradenet where other people would make you aware of the action that is going on in other stocks. In my experience, this was semi-helpful though, as you rely on human beings notifying you completely unsolicited.
5. Your reward needs to be higher than your risk
When I enter a trade, I always have a price point in mind where I would get out of it in case it goes against me. So the price difference from my entry to this stop-loss price is my risk.
Risk management is about probabilities, and there is a good chance a trade goes against you. Every trader has losing trades. The only thing that distinguishes a good trader from a lousy trader is that the good trader keeps his reward higher than his risk.
If you risk $1, but your reward will be $2, you have a 1:2 risk/reward ratio. Like this, you can have over 50% failing trades, and you will still be profitable.
You should keep your losers tight and let your winners run as much as possible.
6. Try not to get eaten alive by commissions
I used to trade a lot back in the day. I tried to catch every trade there was. I did not even care how many orders that would take me. More often than not, I was caught having a red day even though my overall P&L was green. Commissions ate up all my profits for the day.
I guess the saying that ‘less is more’ fits perfectly here. Try not to force anything if you don’t see your setups.
If you still paying ridiculously high commissions, try one of these brokers here.
7. Avoid the first five minutes after market open
When the market opens, it is like a bomb that explodes from all the open orders that accumulated overnight. And you don’t want to be in an explosion or would you?
You have to wait until the dust settles a bit. Many other traders and I included are trying to avoid the first five minutes before we hop into any trade. It is almost impossible to see any setups within the first 5 minutes anyway, so joining it would be pure gambling.
8. Avoid pre-market and after-hours trading
Pre-market and after-hours have way fewer shares traded than during the market open. The price moves can be huge, though, and often unpredictable. Frequently the spread is also much higher than during the regular hours, which makes it extremely risky to join a trade.
I would altogether avoid trading pre-market and after-hours when you are just starting. As you gain experience, you can try trade during those hours, but I highly recommend doing it with less share size than you would typically do.
9. Master risk management with proper position sizing
Trading is all about risk management. I try to lower my risk as much as possible with increasing or decreasing my position size depending on how a trade is working out. I split up my desired position size into three chunks, which also helps me to keep my emotions under control. The lower the risk, the less emotional I trade. To give you an example of how I create those chunks:
- Divide your maximum position size by 4.
- Create three chunks: 1/4, 2/4, 1/4 For example if your maximum position size is 800, you create a 200, 400, and 200 position size.
- The first chunk is your starter position you can use to get into a trade aggressively once the trade starts to work in your favor load up with the 2nd and 3rd chunk.
- If a trade starts to work against you should reduce the chunks until it stops you out completely.
10. Never use stop-loss orders
If you think the stock market manipulated to some extend, you are right! And the best example of this is stop-loss orders.
When you put in a stop-loss order, your intent becomes crystal clear to the market makers who have control over market price and the spread. Let’s say you put in a stop-loss order right below a support zone along with many others. Market makers see that there are many orders below a support zone, which is excellent for them as it creates liquidity. So what they do is simple, they open up the spread so that everyone with their stop-loss orders gets taken out only to move the stock in the direction you originally wanted.
This process of stopping people out is also called ‘fakeout’ which comes from the word ‘breakout.’ A breakout usually happens after support and resistance zones, and price movement continues in the direction of the breakout.
That isn’t to say that you should not have a stop-loss, though! You need a stop-loss! But you should have it in your mind and not as a fixed order in the system so that market makers could see it. Get out of your trade manually in case it works against you.
Making $200 a day is easy if you are willing to learn and adapt. Create yourself rules that you need to follow every day. Identify bad habits and eliminate them. Becoming a good trader takes time as you need to gain experience reading charts and looking at price action real-time. Don’t go in with over $10k of your own money when you are just starting!
If you want to learn more about trading, check out our free trading guide.