How To Succeed In Day Trading in 2024 (How To Make Money Day Trading)
How to succeed in day trading can only partially be taught. In this article, we briefly discuss how you can minimize the hurdles to become successful.
To succeed at day trading, we believe you need to be systematic, detailed, and quantitative-oriented.
How can you become a profitable day trader? How to succeed in day trading? How can you make money day trading? We were purely day trading (profitably) in stocks and indices from 2001 until 2018. Read below for what we consider important to succeed in day trading:
The trading day is mostly noise and randomness
Day trading attracts many newcomers to the trading scene. That’s perhaps not so strange given that day trading is action-filled and fast-paced. Day trading removes the dreaded overnight risk, even though overnight trading is low-hanging fruit.
But unfortunately, day trading is very hard to master. Most of the action between the open and the close is just randomness and noise, making it extremely hard to make any significant amount of money. Only Jesus has transformed water into wine, and very few traders consistently transform randomness into a big bankroll.
As of writing, in January 2022, we’re in the 12th year of a bull market and headlines about traders and day traders raking in money pop up frequently. However, don’t fool yourself by the positive articles. Most of these traders later lose parts or all of their capital when the tide turns. Moreover, we see the current winners, but not the losers. This is explained in the opening paragraph of Rolf Dobelli’s The Art Of Thinking Clearly:
No matter where Rick looks, he sees rock stars. They appear on television, on the front pages of magazines, in concert programmes and on online fan sites. Their songs are unavoidable – in the mall, on his playlist, in the gym. The rock stars are everywhere. There are lots of them. And they are successful. Motivated by the stories of countless guitar heroes, Rick starts a band. Will he make it big? The probability lies a fraction above zero. Like so many others, he will most likely end up in the graveyard of failed musicians.
We don’t want to be negative or pessimistic, but Dobelli’s quote is just as relevant for day trading as for rock stars. We see the winners and not the losers. And the winners are few, unfortunately.
Furthermore. a monstrous P/L doesn’t mean a trader is any good – it could result from luck. There are many profitable traders at any time – just because their style happens to fit the current market. It’s easy to fall prey to survivorship bias: most traders are keen to show P/L statements when they are green, but not see eager to show their performance when red.
What is day trading?
A day trader keeps no open positions overnight. However, overnight is sometimes hard to define. Like the forex market, some markets are open 24 hours a day and the stock market is open both before and after the official market hours. The same goes for stock futures which practically trades 24 hours a day except for weekends. But no matter what, a day trader has a very short time horizon and wants to roll over his account frequently.
Why limit yourself to be a day trader?
We had never any goals of becoming day traders. We chose that path because we had mentors who showed us profitable methods that happened to be day trades. We kept going as long as day trading made money until profitability gradually dried up after the GFC in 2008/09. Markets became less predictable and the efficiencies were arbed away. It was then time to move on to other strategies and time frames.
So why limit yourself to day trading? With computers comes leverage in the form of automation.
In our opinion, it doesn’t make much sense to minimize your time frame to only day trading. Most of the best traders we know are agnostic: they trade whatever time frame that makes sense. Day trading can serve as a useful diversification strategy in a portfolio of many strategies, but it shouldn’t become a goal in itself.
Day trading is difficult – most will fail because markets are a zero-sum game short-term
Before we go on, we’d like to emphasize how difficult day trading is. Understanding why day trading is difficult makes it easier to diagnose what needs to be done to become successful.
Judging by the statistics circulating on the web as many as 95% of all day traders fail to make any money. We have no idea if this number is correct, but we believe the number is even lower if we look at the day traders who make any meaningful amount of money. Day trading is a scalable and skewed business where only a very few make most of the money. It’s practically a zero-sum game and if you want “easy money” we believe there are better options than day trading:
Day trading is hard because you most likely end up being the prey and not the predator. The markets are highly complex with a lot of noise and randomness and you are competing against some of the smartest and best-equipped traders in the world. Furthermore, in the short-term, most markets are a zero-sum game. Opposite, the stock market is, in the long-run, not a zero-sum game, as witnessed by the steady rise in value over decades.
You can do like Charlie Munger: inverse your thinking and spend your effort and focus on how to avoid the most obvious mistakes.