Day Trading Online: How to make $1,000 and Give it All Back; and some more!

I resumed day trading stocks last week and I had managed to make money in the first 4 working days until yesterday, when I turned a $1,000 profit into a $800 loss! In stock trading those numbers does not mean much unless I refer to my trading capital and my average loss per trade. So, the $800 loss means a 2.6% drawdown or 8 losing trades, since I usually do not risk more than $100 per trade (managing risk is paramount in stock trading). It has been the worst day trading day since Thursday that I began day trading US stocks again and reminded me some mistakes and taught me a couple of lessons. Like overtrading, sticking to the day trading strategy and always be prepared for sudden spikes that hit your stop loss orders.

When I was thinking about today’s post yesterday morning, I was expecting to be a bragging post of my day trading strategies (like scalping with indicators) that have made me money for 5 consecutive days. My day trading experience began on Thursday, July 26^th, with a $100 win trading online just 7 stocks. Not much, but it is always nice to start with a win.

Then came Friday, when my day trading strategy scored the biggest daily profit at $377. I was over the moon and fully confident of my trading future. I may have spent seven and a half straight hours in front of the computer screen, but it was certainly worth it. I had traded 12 stocks during that day and I also made a couple of dollars trading the most popular forex pair, the EUR/USD. But I’ll talk about forex at another post. And it won’t be pretty either.

Nothing compares with steady performance. I wasn’t so eager to make thousands of dollars. I was mostly focusing on keeping my day trading rules simple and sticking to the plan. That meant to pick my trades carefully and trade only when the reward-risk ratio was the highest possible along with acceptable win percentage. The following two days after the weekend were also profitable days and having day traded for 4 days and making money in all of them, made me finally contemplating about day trading for a living. My total profit rose to $800. I could now afford losing 8 trades and return to break even status. Yet, I didn’t expect that to happen on a single day!

If you are new to day trading stocks or momentum investing as I have been some years ago, you need to know that according to the stock market rules, in order to day trade you must have at least $25,000 in your stock broker’s account. As I previously said, I normally risk $100 per trade and I use a trading capital of $30,000. Some readers will jump up and say: “Oh, come on, you are risking 0.3% per trade, way too low, when are you going to have significant returns?” They would be right, only I’m not planning on risking $30,000 in day trading. My real capital that I have aside for my day trading strategies is $10,000, thus I risk 1% per trade. If I lose 10 grand, my “day trading for a living” dream will end. So, why do I need more money? To trade more stocks simultaneously would be the answer. It’s not that uncommon to tie up my whole bankroll during the day and have multiple open positions. Should the condition arises, I need to trade as many stocks as possible. That’s where the additional funds come in.

There I was yesterday afternoon (I’m 7 hours ahead of US Eastern time and trading hours are 16:30 to 23:00 here in Greece) waiting for the bell. I had already added the stocks I wanted to keep an eye on my watch list, had placed some orders that I was going to submit if the stocks opened at my designated prices and I was feeling relaxed. One of my best day trading strategies has been to look out for gap fills. The market opened and the PSX stock 1-minute chart got my attention.

I placed two buy orders at $38 that were both executed (green arrows). I was planning to exit the first at $39.50 (resistance) but the price didn’t climb that far in its first attempt (I didn’t know if there would be a strong uptrend like when I day traded the Netflix stock). I tried closing my position at $39 when it began pulling back but I was too busy trading other stocks and I missed that. By the time I returned to the PSX stock chart, the price had retraced to $38.70 and I decided to place a second buy order at $38 again, in case the pullback would be so strong that the price would retrace to that round number. That is how I initially had two open positions on this stock.

And then came the next best 2 minutes of my day trading (even surpassing day trading Agilent stock performance)! The shares literally skyrocketed in a matter of seconds. I hadn’t move my target profit ($39) of my first trade, which was executed in the next 3 minutes. My second trade’s target profit was set at $39.50, just like my initial strategy stated. And it was also executed in the next minute! I had just made $1,000! I’m talking about over-confidence; I couldn’t sit down at my desk. 4 consecutive winning days and such a start of the fifth day? Sure, bring it on! All my endless hours of studying started to have a meaning. I really believed day trading for a living wasn’t that far away after all.

Of course, I was wrong.

Day trading FIRE and IDCC stocks took its toll. During the day I lost all that PSX profit onto 2 stocks. I was being run over, nothing seemed to work on those stocks. I can’t recall even a single profitable trade. Should I had not tried day trading on FIRE and IDCC, I wouldn’t have lost $1,500 and the fifth day would also be a profitable trading day. I was honestly devastated when I logged off at 22:30, not willing to carry on my trading misery in the last half hour before the market’s close. But how did I lose it all there?

It’s called overtrading. It’s a common mistake even for professional traders, although that is not an excuse for me. Overtrading led me to trade these couple of stocks over and over again, trying to turn the loss into profit unsuccessfully. Overtrading doesn’t let you see the chart clearly, doesn’t allow you to follow the day trading rules you yourself have set and followed in the past with good results. You draw trend lines with minimal confirmation; you find support/resistance levels that are nowhere to be seen. You just need a small excuse to open your next position and recoup the losses as quickly as possible. And you promise yourself that if that red number turns into a green one, you are done with that stock. But that never happens. And your P&L screen continues to hurt your stomach.

Truthfully that was the consequence of another unfortunate event of my day trading. We all have heard of the importance of stop loss orders. They are essential to cut your losses when you are wrong. I often set a tight stop loss before an entry point. If the stop loss is hit, I usually lose $100 as I told you before. I never expect to lose more than that. Obviously I was wrong. When the market tanks and spikes are printed in the 1-minute charts, those stop loss orders will be executed at much worse prices. And that is how I lost $300 in just two single trades.

The question now is whether I’m confident to return to day trading online today after losing all the week’s profit in a single day. Maybe I’ll be much more careful now. But the damage to my confidence has already been done and it won’t be easy to regain that lost confidence. I suppose several more profitable days would do the trick. Until then day trading with scared money should be avoided at all costs. Hopefully next week’s day trading blog will be more positive. Perhaps I might find another great day trading opportunity like PSX had been yesterday.