Daytrading profit potential
- Thread starter LelandC
- Start date
I don't think y'all are speaking the same lingo. Rather than total dollars per year, wouldn't it be better to speak in points per share per day/month/year? I honestly don't know, only been seriously DTing for a bit now, and haven't quit my job yet.
When I started exploring DTing in the modern era, I ran across a chat room (free fer two weeks, 200 bucks per month after) that suggested an amazing $3/share/day for good DTers.
Holy %#$! I thought. If I could pull down 3 bucks per share per day, there's no way I'd be running some sorry a$$ chat room - no matter what the losers paid me (unless it was something ridiculous like 30000 per user per month, and I had 100 users).
Anyway, my personal experience suggests that 25 cents per share per day is a mighty high goal. But, I'm still learning.
When I started exploring DTing in the modern era, I ran across a chat room (free fer two weeks, 200 bucks per month after) that suggested an amazing $3/share/day for good DTers.
Holy %#$! I thought. If I could pull down 3 bucks per share per day, there's no way I'd be running some sorry a$$ chat room - no matter what the losers paid me (unless it was something ridiculous like 30000 per user per month, and I had 100 users).
Anyway, my personal experience suggests that 25 cents per share per day is a mighty high goal. But, I'm still learning.
The bottom line is the only thing that counts if you make your living trading. Some guys will trade more volume before lunch than others will do in a whole month, just depends on the strategy you are employing. Some guys try to make a nickel and some try to make a few dollars, but they're all aiming for the same end result.
The rent lady doesn't care how many cents/share you average.
The rent lady doesn't care how many cents/share you average.
Leland,
Great topic for a thread.
I think the main obstacles limiting the profits of successful daytraders are as follows:
1) Liquidity. Obviously, a trader that trades in 100 share lots will not have trouble with moving the market with their orders. However, as the capital under management grows, the trader is often required to take larger position sizes in order to employ the higher capital available. Trading in ~5000 share lots or more can seriously impact a traders profitability due to the slippage caused by the lack of liquidity to trade in this size. The share size that begins to impact profitability will, of course, depend of the stock traded. Some stocks will allow trading in 5000-10000 share lots without liquidity problems, while others have liquidity issues at while trading only 500 shares or less.
2) Successful trading strategies. A successful trader typically relies on one or more profitable trading strategies, which are used for the basis of most trades. As the capital under management grows, the trader may simply run out of trading opportunities, as he/she is already acting on every valid signal in every stock, to the maximum that liquidity will allow. Once at this point, the trader is prevented from increasing the level of capital being managed until he/she finds additional profitable strategies which can be used.
3) Brain Power. As the capital being traded in increased, the trader must be able to simultaneously monitor a much larger number of positions. Depending on the tools available to the trader, this can reach the upper limit on the traders brain resources (or sanity), which can limit an increased trading level (and profitability).
How can these issues be overcome? Some of the largest (by capital, not waistline) daytraders I have met generated annual returns of $10-20M per year, at least in the glory days of the late 90's. They were able to handle the large size by trading mainly baskets of stocks, which allowed them to press a single button and buy/sell dozens of stocks simultaneously, totaling tens of thousands of shares. By trading baskets of stocks, the trader is able to simply monitor the basket and avoid most of the above problems. I suppose the same concept would work by trading the extremely liquid QQQ's or e-minis.
Other traders (such as myself) seek to automate their trading strategies to eliminate the brain power limit. This still subjects the trader to the liquidity problems, but by using automation the computer can enter and track positions in numerous stocks simultaneously, with each position size limited subject to the available liquidity level in that stock. Once new strategies are successfully implemented, the task of the trader is to constantly refine and improve the existing strategies, as well as to develop new strategies. For an automated trader, the real limit on trading profits is based on his/her ability to identify and implement an increasing number of profitable strategies.
I think the number of independent daytraders making profits in excess of one million dollars per year is probably very small, perhaps less than 50. I would say that the number is likely to be much larger than most people think, as successful traders typically have no reason whatsoever to publicize their success.
Best of luck,
-Eric
Great topic for a thread.
I think the main obstacles limiting the profits of successful daytraders are as follows:
1) Liquidity. Obviously, a trader that trades in 100 share lots will not have trouble with moving the market with their orders. However, as the capital under management grows, the trader is often required to take larger position sizes in order to employ the higher capital available. Trading in ~5000 share lots or more can seriously impact a traders profitability due to the slippage caused by the lack of liquidity to trade in this size. The share size that begins to impact profitability will, of course, depend of the stock traded. Some stocks will allow trading in 5000-10000 share lots without liquidity problems, while others have liquidity issues at while trading only 500 shares or less.
2) Successful trading strategies. A successful trader typically relies on one or more profitable trading strategies, which are used for the basis of most trades. As the capital under management grows, the trader may simply run out of trading opportunities, as he/she is already acting on every valid signal in every stock, to the maximum that liquidity will allow. Once at this point, the trader is prevented from increasing the level of capital being managed until he/she finds additional profitable strategies which can be used.
3) Brain Power. As the capital being traded in increased, the trader must be able to simultaneously monitor a much larger number of positions. Depending on the tools available to the trader, this can reach the upper limit on the traders brain resources (or sanity), which can limit an increased trading level (and profitability).
How can these issues be overcome? Some of the largest (by capital, not waistline) daytraders I have met generated annual returns of $10-20M per year, at least in the glory days of the late 90's. They were able to handle the large size by trading mainly baskets of stocks, which allowed them to press a single button and buy/sell dozens of stocks simultaneously, totaling tens of thousands of shares. By trading baskets of stocks, the trader is able to simply monitor the basket and avoid most of the above problems. I suppose the same concept would work by trading the extremely liquid QQQ's or e-minis.
Other traders (such as myself) seek to automate their trading strategies to eliminate the brain power limit. This still subjects the trader to the liquidity problems, but by using automation the computer can enter and track positions in numerous stocks simultaneously, with each position size limited subject to the available liquidity level in that stock. Once new strategies are successfully implemented, the task of the trader is to constantly refine and improve the existing strategies, as well as to develop new strategies. For an automated trader, the real limit on trading profits is based on his/her ability to identify and implement an increasing number of profitable strategies.
I think the number of independent daytraders making profits in excess of one million dollars per year is probably very small, perhaps less than 50. I would say that the number is likely to be much larger than most people think, as successful traders typically have no reason whatsoever to publicize their success.
Best of luck,
-Eric
Thanks for the replies guys (hello Eric)!!
Eric you bring up some very interesting points. I too have heard stories of some traders making 10-20 million per year during the great bull market of the late 90's. Unfortunately those days are gone...
I really like the idea of trading baskets of securities. This seems like a good way to employ a lot of capital very quickly. And you can simply press one button and liquidate your positions. Listed stocks are probably especially suited to this form of trading as there are many highly correlated stocks within a multitude of sectors to trade.
I know what you mean about the brain only being able to follow so many stocks. Thats the problem I often have. I am trying to watch several things at once and by doing so I miss some great entires. I am working on scaling down on the number of stocks on my radar and focusing on what I consider more high quality plays. Basically I am reverting back to the old "less is more" strategy. Watching less stocks but putting on more size when the set-up warrants it.
I must say that taking my trading to the so called "next level" has been the hardest thing I've tried to do. It's just frustrating for me to have great set-ups and just flat out miss my entry or not holding onto my winners. But I am making great progress and will hopefully join that small percentage of millionaire traders very soon!!!
Leland
Eric you bring up some very interesting points. I too have heard stories of some traders making 10-20 million per year during the great bull market of the late 90's. Unfortunately those days are gone...
I really like the idea of trading baskets of securities. This seems like a good way to employ a lot of capital very quickly. And you can simply press one button and liquidate your positions. Listed stocks are probably especially suited to this form of trading as there are many highly correlated stocks within a multitude of sectors to trade.
I know what you mean about the brain only being able to follow so many stocks. Thats the problem I often have. I am trying to watch several things at once and by doing so I miss some great entires. I am working on scaling down on the number of stocks on my radar and focusing on what I consider more high quality plays. Basically I am reverting back to the old "less is more" strategy. Watching less stocks but putting on more size when the set-up warrants it.
I must say that taking my trading to the so called "next level" has been the hardest thing I've tried to do. It's just frustrating for me to have great set-ups and just flat out miss my entry or not holding onto my winners. But I am making great progress and will hopefully join that small percentage of millionaire traders very soon!!!
Leland
There is so much hype and balyhoo surrounding daytrading, even now, about how much a person can expect to make. You can hope to make anything you want, but you can probably expect to make very little. I would tend to agree with Eric that the number of folks consistently (ie, every year for the past, lets call it 5) making $1million per year as independent traders "non professional" (off the floor, non prop, not funds etc) is probably a similar number as who get to play in the NBA all star game on any given year. Keep in mind that if you make $1 after commissions, you beat 90% of the competition 
Brandon
Brandon
Originally posted by Brandonf
There is so much hype and balyhoo surrounding daytrading, even now, about how much a person can expect to make. You can hope to make anything you want, but you can probably expect to make very little. I would tend to agree with Eric that the number of folks consistently (ie, every year for the past, lets call it 5) making $1million per year as independent traders "non professional" (off the floor, non prop, not funds etc) is probably a similar number as who get to play in the NBA all star game on any given year. Keep in mind that if you make $1 after commissions, you beat 90% of the competition
Brandon
I know a guy who made at least a mil a year for three straight. Last time we talked, he was on track for only a quarter this year. Times are tough.
Anybody know or have heard about Temple Williams?
www.sellnow.net/freesite
take a look at his (detailed) records . Since 98, he had only a dozen loosing weeks. he average 4000$/week/bigSP
that's 220k before comm in 2001, 370k in 200 etc...
Very impressive ... I'm just wondering how fair are the records..
if anybody has info..
www.sellnow.net/freesite
take a look at his (detailed) records . Since 98, he had only a dozen loosing weeks. he average 4000$/week/bigSP
that's 220k before comm in 2001, 370k in 200 etc...
Very impressive ... I'm just wondering how fair are the records..
if anybody has info..