By day trading only 1 to 2 times per week, you can turn $2,000 into $514,172 in only 5 years. If you start with a larger amount of money, imagine how quickly you could start living from just day trading (or even make yourself a millionaire).
Long-term day traders are able to maintain a high success rate by achieving small percentages on their daily trades. Most successful day traders only gain 1% on their trades. Even traders who claim to make $1,000 in one day are trading with roughly $100,000 by buying and selling thousands of shares of stock. This 1% strategy is simple and effective. Enter the trade of a volatile stock while it is going up, get your 1%, then get out of the trade.
By only trading once per week, with a 1% gain per week, that translates into a 68% gain in one year. However, if trading in a margin account these gains can actually amount to 340% increase in one year!
While there are 52 weeks in a year, rather than a gain of 52%, the effects of compounding actually results in a 68% yearly gain. Here's the math: 1.01^52 weeks = 1.678
For those foreign to math, you would get 100% of your money plus that 1% per week. As a decimal this would be 1.01, so imagine multiplying your money by 1.01 each week: 1.01 x 1.01 x 1.01... (52 times). That is what 1.01 to the 52 power means: 1.678 = 68% increase.
Related: Stocks vs Forex: Why Trade Forex?
Trading in a margin account essentially allows you to trade with up to four times your money. Those who pattern day trade (trading more than 3 times per week) are required to have a minimum balance of $25,000 in their margin accounts. However, if you day trade less than 3 times per week, then the minimum balance is only $2,000.
The following gains are based on trading once or twice per week in a margin account using only three times your account value, which is 3/4 your buying power (triple your money):
In only 5 years, we turned $2,000 into $514,172! That's a 25,709% increase overall! After year 4, by trading on margin you are making $344,702 profit in one year just by day trading once or twice per week. And that is only using 3/4 your potential buying power, since you are often able to buy up to four times your margin account value.
In only 3 years you could be making $113,613 yearly from a trading account of $55,857.
These calculations assume a 1% gain per week, which would be a 100% success rate if you are only trading once per week. A 1% gain per week is very realistic and these numbers are accurate as long as you achieve a 1% gain per week. However, a 100% success rate is unrealistic.
If you trade once per week, even with a 75% success rate, which means 50% of your trades were profitable, it is possible to turn $2,000 into $226,759 in 6 years when trading with your full margin buying power.
Notice that we are multiplying by 1.3 instead of 1.678, because with only 50% profitable trades rate your effective yearly gain would be about 30%. These numbers also assume that you are a skilled day trader and effectively know how to use stop-losses.
Now, let's see what happens if we don't trade with margin, and only trade our own cash:
Without using margin, in only 8 years we turned $2,000 into $125,709. From this point on, in year 9 you would be able to turn that money into $210,939. Compared to year 8, that's a $85,230 gain which means that if you spent that $85,230 (because you decided to quit your job and just day trade once per week instead), then you would be able to generate that $85,230 every year from your $125,709 account balance.
And this is without using margin!
While actual results will vary significantly, theorizing day trading gains with an effective strategy like aiming for only 1% gain per week shows how long-term professional day traders are able to make a living and earn a significant yearly income just from day trading.
Most brokers charge anywhere from $5 to $10 per trade, which would reduce how much you actually gained on the trade (it would be less than 1% once you took out the fees). However, these calculations ignore the cost of trading fees because there is a broker that offers $0 Commission.
Stocks vs Forex: Why Trade Forex?
Download this easy-to-use Stock Profit Calculator. Just type in the stock price and it will automatically fill with stop-losses and profit goals. You can also change the percentages to match your personal needs, as well as enter in your margin use in order to keep your stop-loss at -1% of your account value.
The cost is only $1, which is just to help cover the costs of the automated system to send you the Calculator.
Get the Stock Profit Calculator now.
How to Day Trade with Daily Volatility (Stock Selection)
How it Actually Feels to Day Trade
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