So You Want to Day Trade for $100/Day? I have Thoughts…

Boris Schlossberg

So you want to day trade for $100 per day?
I have some thoughts.

Let’s put aside the idea of strategy for the moment and discuss that topic next week.

But for now, let’s assume that you have a positive “WinSpread” and want to day trade for $100 per day – what next?

How do you actually go about making money every day?

For the better part of the past few months, I’ve been day trading stock index futures for my own account and after about 1000 trades I’ve started to generate between 75-100 bucks a day, pretty much every day and here are few things I learned.

Comfort Capital

Functionally, I need no more than $1000 dollars to make my system work. I trade only 1 or 2 e-micros per trade which carries an intra-day margin of just $50. But of course, what’s mathematically optimal can often be psychologically destructive. I need both a mental and a financial “cushion” because I inevitably “veer off” my path by trading a bigger size when I get behind. In my case, I trade with a $10,000 account which is in reality much more than I need. You may be the opposite and decide to trade with $1000 only treating it as “burn capital” (there is a lot to be said for that approach as the constraint of money will force you to lose only the capital at hand).

Regardless of the approach know your comfort capital – it’s actually more important than you think.

Trade One Product Only.

Are you a “parallel” or a sequential thinker? I am definitely the latter. I hate multitasking and I am strictly do-A-then-do-B type of guy who likes to mark off his checklist. If you are like me, you absolutely must focus on one product only. In my case, I have settled on the SP 500 (ES in futures) because it’s the perfect middle ground of high liquidity and moderate volatility. I love the action of the Nasdaq but it comes at the price of massive volatility that hurts me more than it helps. There is yet one more reason why ES is superior for the day trader. It’s is the only micro contract where just one tick move will pay for your commission. When you day trade you scratch a lot of trades and that one tick scratch really helps with the daily P&L.

Commissions Will Kill You if You Let Them.

It’s astounding at how quickly commissions can add up. (If you are trading CFDs or FX you are still paying them via spread – so be under no illusions). So I have developed a good rule of thumb for what is the maximum tolerable level of expense on a daily basis. I try to keep my commission costs to 25% of my profit target. So if I am trying to make $100/day my comms should be no bigger than $25. If they are consistently bigger than that then I know I am overtrading. That is actually an excellent metric to gauge if you are trading properly or not.

Define What Day Trading Means to You.
Are you comfortable trading up to 20 times/day? That’s basically 4-5 times in Asia, 5-6 times in Europe and up to 10 times in North America, scalping for 1-3 ES points all day long. You are pecking at the market like a pigeon. So your P/L run looks like something like this 5.00, 6.25, -26.00, 13.00, 12.50, 6.25, 7.50, 3.75, 2.50, 12.50 5.00, 5.00, 3.75, -20.00 (this is actually a small segment of my run yesterday). If that holds no appeal to you then making $100 CONSISTENTLY is actually very hard. If you are someone who just wants to lay down 2 or 3 trades per day then your P/L will look much more like this 25.00 25.00 -50.00 and you will have many scratch or negative days.

First, if you trade fewer times both your stops and targets will need to be bigger. Secondly, as unintuitive as it may sound, the less you engage with the market the less likely you will be able to quickly recoup the losses. (This is pretty much the mechanics of the HFTs, who trade so many times per day that they allow the law of large numbers to tilt the odds their way). So you may still be positive – in fact, you may be a lot more positive than me on a gross profit basis – but you will not be nearly as consistent. Your P/L will look like something like this 25.00 25.00 -50.00 25.00 25.00 -50.00, 25.0 25.00 25.00 – but you will need to assess it effectiveness on a weekly or even monthly basis.

Consistency requires failing a lot and then quickly recouping your losses. That’s why trading for income is a very different game than trading for return.

AUD/USD Breaks 100-day SMA

AUD/USD Breaks 100-day SMA

Chart Of The Day

Fundamentals

For the first time since March, AUD/USD closed below its 100-day SMA, which suggests that the currency is prime for further losses. Of course whether that happens or not hinges on fundamentals. Weaker Australian data and a steep slide in global equities sent the currency pair tumbling on Friday and tonight, AUD remains in play with Australian and Chinese manufacturing PMI reports scheduled for release along with Australian Producer Prices. We know that price pressures down under are falling but the Chinese economy is stabilizing and that may lend support to Australia’s manufacturing sector. If Australian manufacturing activity accelerated in the month of July, it could halt the slide in AUD/USD but if it slows, the currency pair could drop to a fresh 7 week low. Friday’s U.S. non-farm payrolls report is also important because a large part of the AUD/USD’s gains can be attributed to the market’s demand for U.S. dollars. If payrolls growth beats expectations and the unemployment rate holds steady, it will accelerate losses for AUD/USD but if payrolls rise by less than 200k or the unemployment rate increases, it would be significant enough to drive the currency pair back above the 100-day SMA.

Technicals

While fundamentals may be less clear, on a technical basis, the break of the 100-day SMA signals the beginning of a more significant downtrend for AUD/USD. Having consolidated above 0.9320 for the past 7 weeks, today’s move also takes the currency pair below a significant support level. At this stage, technicals point to a continued sell-off that should drive AUD/USD to at least 92 cents and possibly even 91 cents. If the currency pair finds a reason to rally, a break back above the SMA at 0.9320 would be needed to negate the downside momentum.