How Much Can You Make Day Trading?

The potential you can make from day trading varies widely among individuals, largely due to differences in capital, strategy, discipline, risk management, and markets traded.

We’ll look at the question across a variety of different variables.

Key Takeaways – How Much Can You Make Day Trading?

Capital

Starting capital significantly impacts potential earnings, with more capital allowing for larger trades and greater flexibility.

Strategy & Skill

Effective, well-refined strategies and trading skills are key to identifying profitable opportunities and managing risk.

Experience Enhances Performance

Experienced traders, leveraging insights and lessons learned, generally achieve better outcomes through superior market interpretation, risk management, and strategic adjustments.

Realistic Returns

Realistic returns are in line with broad market performance.

There’s significant variance in the returns of tactical trading styles like day trading.

There are several key factors influencing earnings from day trading:

Capital

The amount of money a trader starts with will naturally greatly affect their potential earnings.

A larger capital base allows for larger positions, a bigger capital cushion for flexibility, and the potential for higher returns.

But it also exposes the trader to greater risks if they’re inexperienced.

Strategy

The effectiveness of a trader’s strategy is very important.

Strategies that can consistently identify profitable opportunities in the market, while effectively managing risk, can lead to higher earnings.

This often involves extensive backtesting and continuous refinement.

Market Volatility

Higher market volatility can present more trading opportunities but also increases risk.

Day traders often depend on volatile markets because they need movement in order to find trades (depending on the strategy), though the potential for loss is also elevated.

Experience & Skill

Experienced traders who have honed their skills over time typically perform better.

Traders often have perspectives shaped largely by their trading experiences rather than academic learning.

For those who want to day trade, it’s a good idea to dive in in a risk-limited way, get knocked around, and use that experience to learn how to do it differently.

Costs

Trading involves costs, including brokerage fees, commissions, bid-ask spread, margin/shorting costs, and taxes.

A higher frequency of trading can lead to significant expenses that eat into profits.

Realistic Earnings Day Trading

Realistic earnings for day traders can vary, with returns comparable to those of broad market indices being the most plausible.

Nonetheless, due to the volatility of day trading and the varied skill levels of participants, there’s considerable variance in outcomes.

Consistently achieving returns that outperform the market is rare and demands a high degree of skill, experience, and meticulous risk management.

Essentially, while some traders may achieve significant profits, others may struggle to match market returns or even lose.

While most beginning traders often expect to make high returns (e.g., 10% per month), this isn’t realistic or typical.

To outperform, someone else has to lose

To achieve market-beating returns, someone has to take from the other.

The markets are full of sophisticated players, and it’s hard to compete against those with an analytical, informational, or technological edge.

It’s a lot like poker where one player’s gain is another’s loss.

Or a sports league, where wins and losses are a zero-sum game.

This is why most traders ultimately evolve to more passive, strategic styles like investing – or some trading-investing hybrid like swing trading or position trading.

These allow for more strategic allocations and portfolio-building rather than the purely tactical, zero-sum strategies of scalping and day trading.

Institutional day traders are typically algorithmic in their approach.

Related

How Much Can You Make Day Trading with $1,000? $5,000? $10,000? $25,000? $100,000? 1 Million?

Day trading is often perceived as a high-risk, high-reward strategy.

But, as we’ve covered, realistic returns are typically lower than what many aspiring traders expect.

It’s important to base expectations on historical data and realistic annual returns.

Here, we’ll look at potential earnings from day trading with initial investments of $1,000, $5,000, $10,000, $25,000, $100,000, and $1,000,000, assuming annual returns ranging from 4% to 10%.

Potential Earnings

Calculations

Initial Investment: $1,000

Annual Return	1 Year	2 Years	3 Years	5 Years	10 Years
4%	$1,040	$1,082	$1,125	$1,217	$1,480
6%	$1,060	$1,124	$1,191	$1,338	$1,791
8%	$1,080	$1,166	$1,260	$1,469	$2,159
10%	$1,100	$1,210	$1,331	$1,611	$2,594

Initial Investment: $5,000

Annual Return	1 Year	2 Years	3 Years	5 Years	10 Years
4%	$5,200	$5,410	$5,626	$6,083	$7,401
6%	$5,300	$5,618	$5,953	$6,692	$8,957
8%	$5,400	$5,830	$6,299	$7,347	$10,793
10%	$5,500	$6,050	$6,655	$8,057	$12,972

Initial Investment: $10,000

Annual Return	1 Year	2 Years	3 Years	5 Years	10 Years
4%	$10,400	$10,816	$11,252	$12,166	$14,802
6%	$10,600	$11,236	$11,906	$13,383	$17,913
8%	$10,800	$11,659	$12,599	$14,694	$21,586
10%	$11,000	$12,100	$13,310	$16,115	$25,937

Initial Investment: $25,000

Annual Return	1 Year	2 Years	3 Years	5 Years	10 Years
4%	$26,000	$27,040	$28,130	$30,416	$37,004
6%	$26,500	$28,090	$29,765	$33,458	$44,783
8%	$27,000	$29,147	$31,497	$36,735	$53,965
10%	$27,500	$30,250	$33,276	$40,287	$64,844

Initial Investment: $100,000

Annual Return	1 Year	2 Years	3 Years	5 Years	10 Years
4%	$104,000	$108,160	$112,486	$121,665	$148,024
6%	$106,000	$112,360	$119,060	$133,832	$179,131
8%	$108,000	$116,590	$125,987	$146,940	$215,862
10%	$110,000	$121,000	$133,100	$161,154	$259,374

Initial Investment: $1,000,000

Annual Return	1 Year	2 Years	3 Years	5 Years	10 Years
4%	$1,040,000	$1,081,600	$1,124,864	$1,216,652	$1,480,240
6%	$1,060,000	$1,123,600	$1,190,360	$1,338,321	$1,791,313
8%	$1,080,000	$1,165,920	$1,259,507	$1,469,403	$2,158,618
10%	$1,100,000	$1,210,000	$1,331,000	$1,611,528	$2,593,742

Explanation of Realistic Returns

Understanding Realistic Annual Returns

4% Return: Conservative estimate, on par with low-risk investments such as bonds or low-risk diversified portfolios.
6% Return: Moderate risk, achievable with balanced portfolios containing both stocks and bonds.
8% Return: Higher risk, typically involves a greater allocation to stocks or leveraged strategies.
10% Return: Aggressive, involves more risk and sometimes active management, often not sustainable year over year (but it can be).

4% Rule in Financial Planning

The 4% rule is a guideline used in retirement planning to determine a safe withdrawal rate from a retirement account to be sure that the funds last for a 30+-year retirement period.

It suggests that retirees can withdraw 4% of their savings in the first year of retirement and adjust the amount for inflation each year thereafter.

Key points of the 4% rule:

Make sure the portfolio lasts for at least 30 years.
Assumes a diversified portfolio of stocks and bonds.
Based on historical market performance, balancing risk and return.

Overall

Super-High Returns: Returns significantly higher than 10% annually are often unrealistic for consistent, long-term growth. While some traders may achieve these returns occasionally, it involves more risk.

Low Double-digit Returns: Returns between 4-10% are considered good, especially when sustained over long periods. Achieving these returns consistently requires disciplined trading, risk management, and a more diversified portfolio (single return streams can be lumpy).

By managing expectations and understanding realistic return rates, traders can better plan their financial futures and make informed decisions.

Let’s briefly go through some other aspects:

Psychological and Behavioral Aspects

Importance of Emotional Control

Emotional control is very important in day trading due to the high volatility and fast-paced nature of it.

Common Psychological Pitfalls

Overtrading – Excessive trading is often driven by the desire to recover losses quickly or capitalize on perceived opportunities.
Revenge Trading – Attempting to win back losses by making impulsive trades, often leading to further losses.
Impact of Stress – High stress levels can impair judgment and lead to rash decisions. Managing stress through techniques like mindfulness and regular breaks is essential.

Risk Management Strategies

Position Sizing

Strategies include the fixed percentage method, where a set percentage of the total capital is risked on each trade, and the volatility-based method, where trade size is adjusted based on market volatility.

Stop-Loss Orders

Using Stop-Loss Orders – Setting stop-loss orders helps limit potential losses by automatically selling a position if it reaches a predetermined price.
Techniques to Minimize Losses – Trailing stops, where the stop price moves with the market price, can lock in profits while limiting downside risk.

Success Rate and Failure Rate

Statistics on Success

Success Rates – Studies suggest that a large percentage of day traders fail to make a profit. For example, a study by the North American Securities Administrators Association (NASAA) found that 70% of traders lose money. They also found that only 11.5% might make money.
Realistic Expectations – Only a small fraction of day traders consistently achieve significant profits.

Longevity in Trading

Average Duration – Many day traders leave the market within a year, often due to financial losses or the realization that consistent profitability is challenging.
Reasons for Leaving – Common reasons include insufficient capital, high stress levels, and the inability to develop a consistently profitable strategy.

Related: Day Trading Statistics

Technological Edge

Algorithmic Trading

Institutional Advantages – Institutional traders use sophisticated algorithms and high-frequency trading (HFT) strategies to gain a competitive edge, often making it challenging for retail traders to compete.
Impact on Retail Traders – The presence of algorithmic trading can lead to faster price movements and increased market volatility, affecting retail traders’ ability to execute trades at desired prices. For instance, algorithmic trading prices in data and news events very quickly, which makes it very difficult for discretionary traders.

Tools and Platforms

Charting Software – Tools like TradingView, MetaTrader, and ThinkorSwim offer charting capabilities and technical analysis features.
Automated Trading Systems – Platforms like TradeStation and NinjaTrader allow traders to develop and test automated trading strategies.
Mobile Trading Apps – Apps that most brokers now offer provide flexibility for trading on the go.

Regulation and Legal Considerations

Regulatory Environment

Pattern Day Trader Rule – As we mentioned earlier in the article, in the US, the SEC’s pattern day trader rule requires traders with less than $25,000 in their accounts to limit their trades. Similar regulations exist in other jurisdictions to protect retail investors.
Compliance – Traders must adhere to various regulations, including anti-money laundering (AML) and know-your-customer (KYC) requirements.

Educational Resources and Support

Training Programs

Reputable Programs – Programs like Online Trading Academy and courses from Udemy or Coursera can provide structured learning paths for aspiring day traders. DayTrading.com has lots of free-to-use resources.
Certifications – Certifications such as the Chartered Market Technician (CMT) designation can help traders develop a deeper understanding of technical analysis.

Mentorship and Community

Benefits of Mentorship – Having a mentor can provide guidance, support, and real-world insights that are valuable for learning the ins and outs of day trading.
Trading Communities – Participating in online forums, social media groups, and trading clubs of various forms can help traders share knowledge, strategies, and experiences.

FAQs – How Much Can You Make Day Trading?

What factors determine how much you can make day trading?

The potential income from day trading depends on:

the amount of capital invested
the effectiveness of the trading strategy
market volatility
the trader’s experience and skill level, and
the costs associated with trading such as fees and commissions

Is it possible to predict exact earnings from day trading?

No, it’s not possible to predict exact earnings due to the inherent unknowns and fluctuations in the financial markets.

Traders’ incomes can vary widely day-to-day and month-to-month based on market conditions and individual performance.

What is a realistic return expectation from day trading?

Realistic return expectations can vary, but traders might aim for returns that are commensurate with what would be expected from broad indexation to the market.

But given the nature of day trading and the differences in skill of the participants, there’s a lot of variance around that.

Consistently outperforming market returns is uncommon and requires significant skill, experience, and risk management.

How does starting capital affect day trading income potential?

Starting capital is a big factor.

More capital allows for larger positions and potentially higher returns, but also increases the risk of significant losses.

Traders with larger capital have more flexibility in their trading strategies and can diversify their trades to manage risk better.

Can everyone achieve profitability through day trading?

Not everyone can achieve profitability through day trading.

A significant number of day traders incur losses, especially beginners who might lack the necessary experience, strategy effectiveness, and risk management discipline.

Success in day trading requires considerable skill, knowledge, and emotional control.

How do trading costs impact day trading profits?

Trading costs, including brokerage fees, commissions, and possibly taxes on trading profits, can impact net earnings from day trading.

Higher-frequency trading, which is common in day trading, can lead to substantial costs that reduce overall profitability.

How does experience impact day trading success?

Experience is important in day trading success.

Experienced traders are generally better at interpreting market signals, managing risk, and adjusting their strategies – or simply having a wider variety of viable strategies.

They have also often learned from past mistakes (of which all experienced traders have plenty) which can improve their overall performance.

Conclusion

It’s important to approach day trading with caution, understanding the high risk involved.

Many traders experience significant losses, particularly in the early stages of their trading careers.

Day trading requires extensive knowledge, skill, and discipline.

By understanding the psychological aspects, managing costs, employing effective risk management strategies, and leveraging technological tools and educational resources, traders can improve their chances of success.

It’s nonetheless essential to approach day trading with realistic expectations and a plan to trade markets well.

Adequate education, a well-tested strategy, and robust risk management practices are vital for those looking to pursue day trading.