Is it really worth it? Can you become a millionaire? Should you hold cryptos and stocks longer? Or should you not buy any to begin with?
We see many day traders living their best lives on Instagram, taking long vacations, working remotely, driving fancy cars, living in massive Villas and getting paid in their sleep…the lifestyle looks great. We hear them all the time talking about day trading, working at your pace and some even promise that you can work from your couch and in your pajamas.
Doesn’t that sound like the life?
Although, we need to get back to reality and examine statistics to see if that is truly possible. Dr. Alexander Elder, author of ‘Trading for a Living’, and mentor to Warren Buffet, the Billionaire investor, says that you should invest 2% of your capital into day trading. Any more than that, Elder considers gambling.
I would like to personally say, ‘Trading for a Living’ is a magnificent book and infromative to any reader on all things a day trader should know. I am not writing about the book itself, just merely taking the 2% rule that Elder implements religiously.
Usually, day traders are very short-term holders of their shares. They will dump all their shares once they achieve their desired price goal.
It is extremely unlikely, for a stock that is worth $1 USD in the morning, to be $100 USD in the afternoon.
My definition of a good trade is any trade that ends with you profiting, whether it is by a penny or a million, it can be considered a good trade.
Let us look at a scenario where we buy a certain stock or crypto at $0.50 and sell it at $0.75. We will examine a few possibilities without using too much mathematics, only enough to help with our scenario.
If we apply the 2% rule and add $1,000.00 USD funds to our respective trading platform, we are only allowed to make a trade of $20 per trade, no more and no less.
Let’s take a look at a few trades and examine a 2% rule, a 10% scenario, and a 100% scenario.
2% rule: Buy stock or crypto at $0.50 and sell at $0.75
Buy = $20 USD / $0.50 S/C = 40 stocks or cryptos
Sell = 40 stocks or crypto x $0.75 USD = $30 USD
Therefore, with the 2% rule, you would profit $10.00 USD per successful trade.
10% scenario: Buy stock or crypto at $0.50 and sell at $0.75
Buy =$100 USD/ $0.50 S/C = 200 stocks or cryptos
Sell =200 stocks or crypto x $0.75 USD =$150 USD
Therefore, in the 10% scenario, you would profit $50.00 USD per successful trade.
100% scenario: Buy stocks or crypto at $0.50 and sell at $0.75
Buy =$1000 USD/ $0.50 S/C = 2000 stocks or cryptos
Sell =2000 stocks or crypto x $0.75 USD = $1,500 USD
Therefore, in the 100% scenario, you would profit $500.00 USD per successful trade.
All these scenarios are profitable of course because we are anticipating that it will absolutely hit $0.75 when we bought at a lower price. Many times, stocks and cryptos are volatile, they crash down and rise up daily. Sometimes you will buy in at $0.50 and then suddenly it tumbles down to $0.32 a few hours later. You need to be comfortable with the STOP LOSS function. This function is meant for you to control your losses by setting a price to sell your stock or crypto, saving your from losing even more money.
Let’s talk about it:
- Is day trading really the key to making millions in the comfort of your own home?
- Would you stick with the 2% rule or prefer another strategy?
Let us know your thoughts!