Is the daily trading investment strategy truly effective?

How about earning some extra money or even a salary on your own, without a boss or fixed working hours, and from wherever you are?

Earning some extra money or even a salary on your own, without a boss or fixed working hours, and from wherever you are, may sound appealing to many people.

This is probably the appeal behind day trading.

However, if it were so easy to do day trading profitably, we would see a lot more day traders out there. And this fact starts to give us a clue about the answer to the question in the title of this article.

But first, let’s recap what day trading is. In case you already know, you can skip this part.

What is day trading?

When people buy and sell a security within the same day for a profit or a loss, they are day trading. A day trader’s goal is to capitalize on the short-term price changes of the asset being traded.

One practice that is common but also dangerous among day traders is the use of leverage.

Leverage exists to magnify a trader’s gains when he correctly predicts the movement of some asset. On the other hand, if the trade goes wrong, his loss is magnified.

Interesting day trading facts

Here is a list that I think you should know before you start day trading.

Survival rate through the time

Nearly 40% of day traders quit within one month.
After three years, only 13% of day traders remain.
90% of day traders lose 90% of their capital within 90 days.

Having said that, I would like to make it clear that I am not here to discourage you or say that it is impossible, especially if you are a highly disciplined person who manages emotions remarkably well.

My intention here is just to help you have a sensible and practical attitude toward day trading and not have unrealistic ideas.

Day trading demographics

Right, now let’s look at some demographics, out of curiosity:

An estimated 9.6 million people around the world are active traders.
33% of traders live in Asia, 16% live in North America, and 16% live in Europe.
1 in 7 day traders is a woman.
The majority of day traders are under 35.

The latter was to be expected, given that this is an age group more prone to risk-taking.

A clue to success

Traders who trade with a higher reward-to-risk ratio are more successful. I will show you why, but first, you need to be familiar with the concept of breakeven.

Breakeven is the point at which your trades neither make nor lose money.

Loss	Breakeven
10%	11.11%
20%	25%
30%	42.86%
40%	66.67%
50%	100%
60%	150%
70%	233.34%
80%	400%
90%	900%

The more a trader loses, the more is required to get back to breakeven. Therefore, to become a successful trader, it is essential not to lose too much money.

You will manage your losses well by remembering the golden rule about not putting all your eggs in one basket. But more than that, you will need to read up on portfolio risk management.

All right, now let’s move on to the risk-reward ratio.

The concept of a risk-reward ratio will teach us something quite valuable.

It will show us that it makes little sense to establish a risk-reward ratio of 1 in your day trade operations, which implies that a trader is willing to risk $1 to make $1.

	John	Paul
Loss per trade	$1	$1
Gain per trade	$1	$3
After seven losses	$7	$7
After three wins	$3	$9
Net position	-$4 (loss)	+$2 (gain)

A risk-reward ratio of 2 means that the trader is willing to risk $1 to make $2, and so on. The higher the value, the greater the likelihood of trading successfully.

Consider two traders, John and Paul. Both take ten trades, and both win on 3 of them and lose on 7. John’s risk-reward is 1, but Paul’s is much better at 3.

Despite Paul only getting 30% of the trades right, the higher risk-reward ratio enables him to remain $2 profitable.