Being able to make a living out of trading stocks is a dream aspiration for many people. With little more than a WiFi connection and the time to make and monitor your trades, it seems like untold riches, and the freedom to pursue your own destiny, are both just a few well-aimed mouse clicks away.
But the reality of trading is often much more prosaic, as most investors come to recognize – sometimes too late – the importance of being fully equipped to deal with the trading world’s demands.
Here, you’ll discover the most important things needed to successfully trade the markets – and eventually get to the point where you can answer the question: how can I make $200 a day trading stocks?
What Type Of Trader Are You?
The first thing to consider is what kind of stock trading you want to pursue. Are you more inclined to the value investing side of things, where you thoroughly investigate a company’s potential to deliver returns over the long-run, and buy stock knowing you’re going to be holding the investment for months, possibly years?
Or do you feel drawn to the excitement – and danger – of day trading, where you’ll be making high-frequency, short duration trades multiple times a day, often keeping your positions open for as little as seconds in a bid to take advantage of fast moving arbitrage and scalping opportunities?
Or perhaps you might be moved to take the middle road instead.Swing trading, for instance, mixes some elements of both value and day trading, letting you identify more short- to medium-term trends in a stock’s price movement over a time frame of weeks and months, with the intended outcome of letting winning trades run for longer, gaining more profit in the process.
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Know The Players, Know The Game
Whatever trading style you choose to employ, it helps to learn from the best. And success leaves clues, meaning it’s a great idea to research the trading strategies of investment gurus with proven track records.
A great personality to start with for value-oriented investors would be Warren Buffett, one of Wall Street’s most famous and successful stock traders, and one of the richest men on Earth.
The Oracle of Omaha is best known for following the Benjamin Graham school of investing, where investors look to find a mismatch between a company’s current market value and its actual intrinsic, real worth.
To do this, Buffett will consider a range of factors that influence a business’s performance, including its debt levels, cash flows and profit margins.
Luckily, for those new to this type of investing, Buffett’s holding company, Berkshire Hathaway, publishes an Annual Shareholder letter that details the investment firm’s actions over the last year, and can be a real goldmine of information for investors looking to glean insights into the famed Oracle’s way of thinking.
On the other hand, for those who settle on swing trading as their final strategy of choice, Mark Minervini also has some excellent material to delve into.
Minervini is the creator of the Specific Entry Point Analysis system – or SEPA – and is focused on pinpointing the common historical attributes of high-performing stocks, using that information to figure out which companies are inefficiently priced, then deciding on the best market entry point to minimize risk and maximize reward.
To find out more about this unique trading system, read Minervini’s book Trade Like a Stock Market Wizard to uncover the secrets to this investment approach that once netted Mark a 33,500% compounded total return in just five-and-a-half years of trading.
Finally, if day trading is your thing, consider following the career of 2020 US Investing Champion Oliver Kell, who documents his daily trades on his Twitter account and has a website where he goes into more detail about the ins-and-outs of his prize winning trading methods.
Now It’s Time To Do The Math
If it’s your ambition to make $200 per day from trading – or $100 or $1,000 – you’ll need to figure out what exactly your average daily returns must be given your initial capital investment.
Obviously, the more money you can put upfront at the beginning of your trading journey, the less returns you’ll need to generate every day if calculated as a fraction of your starting funds.
However, this doesn’t mean you should throw all your available capital into the pot when you’re just starting out. As a new investor, you’ll still be learning your way around the investment landscape, and if you are tempted to risk more money than you can afford when your skills are less well-honed, you open yourself up to losing more than if you just started with a small trading bank.
And this is where simulating your trading ideas with a practice account also becomes important. By “paper trading” your investment theories first i.e. using a demo online trading platform to run through mock trades without risking your real funds, you can both get an idea for how a typical trading session plays out, and also get detailed, quantitative records of how your trading model performs not just over the short-term – which can generate deceptive results – but how it fares over the long-term too.
It’s also here that you can gauge the kinds of return that different trading strategies produce, and what risks you’ll need to take to get those returns. Depending on your tolerance for risk and the profits you have to make, there’s usually a sweet spot, or optimum trading approach, that will get you to your $200 a day target.
Start Trading For Real
Once you feel like you’ve exhausted all the benefits of demo trading, it’s time to move onto the real thing. You should know which trading strategy you’re going to use, what your initial bank limit will be, and what percentage returns on your bank you’ll need to make on a weekly or monthly basis.
Now that you’re trading with your own money, it’s likely that nerves, uncertainty and bad trading decisions will play a more important and deleterious role than before. Remember not to chase after losing positions, and, conversely, don’t close a profitable trade too soon.
As you become increasingly adept at trading, there will also be the temptation to scale up your positions – especially as you see your initial capital investment grow. This isn’t a problem; in fact, it’s a nice dilemma to have. The more your funds grow, the more freedom you have to try new trading methods, as well as risk more capital with each trade.
It’s a natural progression for a successful investor to go from making $200 per day, to making $400 per day. However, don’t fall into the trap of over-leveraging your position – this will definitely skew the risk-reward profile that you’ve taken so long to hone, and may potentially open you up to larger loses if things don’t go your way.
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