Do you want to make money trading so you can quit your job and do what you love (like traveling, spending time with your kids, etc.)? To replace your full-time job, trading must bring you a steady income. However, stability in trading is subjective because it can mean making money every day, week, month, or even year.
Let's focus on making money on a daily basis through trading. Is it possible or is it just a pipe dream? In today's article, we will learn about it.
Can your trading strategy work consistently?
If you want to make money every day trading, your trading strategy must work all the time. Is it possible?
First, let's take a step back and ask ourselves, "What exactly is a trading strategy?"
The trading strategy used uses certain patterns of price behavior in the market and profits from this. For example:
- Trend followers try to control trends in different financial markets.
- If most markets are trending, trend followers make money.
- If most markets are sideways, trend followers are losing money.
In other words, any trading strategy can only make a profit under certain market conditions suitable for this strategy. If the situation on the market changes, then the trading strategy will stop working and go into a drawdown .
Now you might be thinking, “If no trading strategies work all the time, then it’s impossible to make money trading every day?”
Well, there are 2 things you can do.
Use Multiple Trading Strategies
A trading strategy can only use a certain "pattern" in the markets, and when the market changes, the trading strategy enters a drawdown. But what if you adopt multiple trading strategies? Then this means that you can make a profit in various market conditions.
For example, you combine trend trading and mean reversion . Therefore, when the markets are trending, the trend-following strategy is profitable. And when markets fluctuate, a mean reversion strategy works well.
However, you need to make sure that your "winning" strategy compensates for the losses from your "losing strategy". There is no guarantee here, but it puts you in a better position than using just one strategy.
Find more suitable markets to trade
The next thing you can do is trade more markets so you have a better chance of finding market conditions that work for your strategy.
Let's say you're a trend and currency trader. Now, if there are no trends in the forex market, you can move on to other markets such as stocks, futures, ETFs, etc. In this way, you can find even more trading opportunities that your trading strategy can excel at.
However, there is no guarantee that you will be able to make money every day because trends can suddenly reverse at the same time (especially in correlated markets).
If you want to go even further, you can start trading on different timeframes.
Can you make money everyday with price action trading?
You may think that a price action trader can adapt to changing market conditions. Does this mean that you will be able to make profit in the markets every day? In theory, this sounds plausible. But in fact, everything is not so simple.
When the market is in an uptrend, a price action trader will look for buying opportunities. However, there is no guarantee that he will make a profit on every trade as the market can pull back sharply and trigger his stop loss.
Every trend will come to an end - and how it ends can be a different situation in the market. For example:
- Quick reversal
- Intermittent reversal
- Market range before reversal
As a price action trader, can you anticipate these types of reversals so you don't get caught on the wrong side of a market move? If you manage to overcome these features of the market, then perhaps you can make money every day with the help of price action trading.
Why is it impossible to make money every day through trading without the following component?
Let's play a game. If you flip a coin and it comes up heads, you win $2. If you flip a coin and it comes up tails, you lose $1. You can only toss a coin once a day
Now let me ask you. Do you think it is possible to make money every day on this coin toss? Of course not. Because on any given day, there is a 50% chance that you will hit either a head, or heads, or tails, and you will lose $1. But what if you can flip a coin 1000 times a day? How would things change?
If you flip a coin 1000 times, you will probably end up with about 500 heads and 500 tails. Every time it comes up heads, you win $2. If it comes up tails, you lose $1. So, if you do the math, you'll make a net profit of $500.
If you had this "special" coin and could flip it 1000 times a day, do you think it would be possible to make money every day by flipping this coin? Yes!
What is trading here? Because if you want to make money every day trading, the frequency of your trades plays a huge role. This is because the more trades you can make in a short period of time, the faster the law of large numbers can work in your favor.
Can a 90% win rate help you make money every day?
Look at this chart below:
The results of this trading strategy look amazing, right?
Next, look at the following chart:
You're probably wondering, "What the hell happened?" And yes, this is the same strategy you saw on chart #1.
The reason Chart #1 has a smooth upward equity curve is because of how each trade is managed. He has a small profit target and a huge stop loss.
Profit target 2 pips and stop loss 200 pips. Mathematically, you can expect this trading strategy to have a high win rate (90% or more).
However, it is only a matter of time before you hit a loss and it will undermine any gains you make, which chart #2 explains.
So, back to our question: Can a strategy with a 90% win rate make you money every day? Yes, for a while it will bring you money every day. But in the end, you will suffer a huge loss, which can destroy your deposit.
Summing up
You have learned the truth about making money daily through trading. Perhaps you are now somewhat disappointed. However, there are a few things you can do.
Manage your expectations
Trading is no ordinary job where you receive a fixed salary check every month. On the contrary, there are times when market conditions are favorable for you and you make good money. But there are also times when market conditions are unfavorable and you hit a drawdown.
So the trick is not to not try to make consistent profits every day because that is detrimental to your deposit in the long run.
Rather, one should try to earn as much as possible in good times and defend well in bad times so that you can live to continue the "battle" another day. Accept uncertainty and don't fight it.
Think long term
As you can see, trying to make money every day trading is difficult because there are many factors working against you. But if you have a longer-term perspective (for example, you try to make money every year), then things become much easier.
- You have plenty of time for the law of large numbers to work in your favor.
- It is less likely that the trading strategy will not work for the entire year.
- You will feel less stress, which will improve your trading results.
Trading should not be the only way to make money
Most of you reading this right now think that trading is a great tool to achieve your financial goals. However, this should not be the case. You can do things like start an online business, be a YouTube channel creator, invest in an index fund, etc.
Don't miss the forest for the trees.
If you ever feel that trading is not for you and you are not able to consistently earn money, then leave it - there is nothing to be ashamed of. This does not mean that you are a failure and you need to give up your dreams. Nothing like this. Because there are many options in life. Be open-minded and you will see endless possibilities in the world around you.