The Real Answer is That it Depends on Multiple Factors:
I hear this exact question all the time: “how much can I expect to make day trading/swing trading?” But this is a very difficult question to answer. The fact is – the range of potential outcomes is essentially infinite. There are some traders who lose thousands or even millions of dollars each year, while others make thousands or millions each year. So what are the factors that determine their results?
People are often looking for a precise yearly figure like $50,000, $100,000, or $250,000, but that’s just not how the market works. It doesn’t automatically fulfill all of your wants and desires. There’s no set wage or salary like a normal job. There are a handful of variables that are within your control, and others that are not. So giving out an exact figure to expect, or even a large range, would be a lie.
It can seem counterintuitive, but profit goals and expectations are typically destructive for traders. Obsession over the outcome of every individual trade can be your downfall. When you’re consumed by potential results, the process often gets neglected. Operating effectively within the market environment requires a switch from an expecting mindset to a probabilistic one.
5 Factors That Ultimately Determine Your Trading Results:
Below I’ll share 5 main factors that dictate how much you can potentially make day and swing trading. After assessing all of them, the profit potential can become more clear. But since the market is inherently an uncertain environment, there are never any guarantees.
Some trades you will execute perfectly – and still lose. Others you will execute poorly – and still win. This is what makes trading such a psychologically challenging endeavor. But if you want to ultimately achieve consistent success, it forces you to face your beliefs about money, loss, and uncertainty. The market is the ultimate feedback loop for mental, financial, and overall personal growth.
The amount of capital you have available can have a major impact on results. For example, let’s say we have Trader John with a $100,000 account and Trader Mike with a $10,000 account. Throughout the course of the year, their accounts both grow 30%. John with the larger account makes $30,000, while Mike with the smaller account makes $3,000. They both achieved the same percentage gain, but the dollar gain was drastic – a $27,000 difference. The larger the account, the more money that can potentially be made.
This isn’t to say that small accounts can’t be built up over time, but large dollar gains are much easier to achieve with larger accounts. In our example, Mike would’ve needed an incredible 270% return just to match John’s $27,000 gain. That high of a percentage return within one year would be an unrealistic achievement for the vast majority of traders, especially beginners.
No matter the starting capital, most traders lose money and ultimately fail for lack of proper skills. Far too many traders treat the market like an opportunity to gamble – to take random trades and act impulsively. But behaving this way doesn’t produce consistent success. Erratic and irrational behavior within the market only produces inconsistent and overall negative results.
People tend to ignore the fact that durable trading success requires specific tactical and mental skills. It’s easy to open up a brokerage account, click a few buttons, and make money on a trade or two out of pure luck or chance. But achieving consistent trading success is an entirely different story. The limited barriers to entry and low physical effort required to execute trades tricks people into thinking it’s easy. But in reality, long-lasting market success requires a high level of training and real-life market exposure.
3. Trading Style
Your personal trading style can also dictate results. To provide some perspective, long-term investors are typically shooting for roughly a 10% return – that’s the historical average market return. But it’s not out of the ordinary for successful day traders to achieve returns in excess of 100% per year. In general, day and swing traders are taking a more active approach, so they want their returns to be in line with the extra time and effort they’re putting into it. Long-term investing is much more passive.
With that being said, there’s nothing stopping you from taking part in all three if it suits your schedule, lifestyle, and preferences. I personally day trade, swing trade, and long-term invest – and there are many other people who do the same. These choices are entirely up to you. But broadly speaking, short-term day and swing traders are shooting for much larger returns than long-term investors. Ideally, the more time, effort, and resources you put into it, the larger the return you receive in the end.
4. Risk Management
Risk management is something that can make or break your trading results. There are many traders that fail to respect the uncertainty involved with every individual trade, and they end up wiping out their accounts as a result. This can involve taking position sizes that are too large in comparison to the total size of their account, not having plans for stopping out of trades or taking profits, and impulsively removing stops or adding to losing positions in fear of being wrong or losing money.
In my opinion, right with acquiring the necessary mental skills, developing strong risk management techniques is one of the most critical factors in determining success. It controls your losses under adverse circumstances and it helps you develop good habits in order to keep you in the game for the long haul. The truth is that losses are an unavoidable part of trading. If you believe that you’re going to win on every trade, then you won’t feel the need to manage your risk, and as a result, you will most certainly fail.
5. Market Conditions
You have no control over market conditions – and you have to accept that. You do, however, have complete control over your reactions to those conditions. It’s like the saying goes: “You can’t control the wind, but you can adjust your sails.” Far too many traders spend their time trying to fight the market when they should be adjusting their attitudes and flowing with it instead.
This lack of control over market conditions trips up a large portion of traders. Most newbies come in searching for foolproof systems. But those simply don’t exist. There’s no system that performs exactly the same in all market conditions. For example, a trending strategy won’t work so well in a choppy market. But that same strategy can work amazingly well in a trending market. When you can align your system, skills, capital, and risk management with current market conditions, the profit potential can be immense.
More Accurately Determine Your Profit Potential With a Realistic Market Simulator:
For those of you wondering how much you can make as a day or swing trader, the most accurate way to find out is to jump right into the market. I don’t recommend that bold approach, however, because you currently lack the experience and skills necessary for consistent success. You most likely haven’t pinpointed your preferred trading style and risk management techniques either. And I’m sure you’re not interested in putting your real, hard-earned money on the line without any of these elements in place.
This is where a realistic market simulator or paper trading platform comes into play. With the functionality of TradingSim, for example, you can choose your starting account value, test different trading styles, practice risk management, acquire core skills, and experience varying market conditions in a realistic environment. At any time you want 24/7/365 and at your own pace (7 different replay speeds, plus pause and play functionality), you can virtually trade any day in the market going back up to two years.
There are a handful of free market simulator games available online that aren’t nearly as realistic. There are also some free simulators with similar functionality to TradingSim, but they typically require clunky software downloads and/or opening a brokerage account. TradingSim is realistic, browser-based, and doesn’t require a brokerage account. It costs $300 per year (breaks down to $25 per month), so the only risk is a few hundred dollars and your time. Proper preparation and training will save you thousands in the long run.
Conclusion – The Amount You Can Make as a Day and Swing Trader is Uncertain:
We crave certainty, yet the market doesn’t offer it. So many individuals go down the treacherous path of trying to blindly copy hot picks from newsletters and alert services. They see cherry-picked and distorted trade results in promotional messages claiming: “30% gain on XYZ in 2 days!” or “$20,000 profit on just 1 trade” – and they think these results are typical. They start thinking that every trade will be a big winner. They don’t want to miss out. But at some point, they realize that those results can’t be duplicated as a blind follower.
In my personal experience, there is no cheating the market. If you don’t acquire the appropriate tactical and mental skills, you have no shot at consistent success. Dependency on someone or something else is a recipe for disaster. The only path is self-sufficiency. Your thoughts, feelings, and behaviors while operating within the market environment need to be ones that serve you – not hurt you. You need characteristics like patience, balance, and objectivity so that you can be in harmony with the market instead of at odds with it.
In the end, consistent execution paired with a statistical edge is what produces profits. The tricky part is that your execution can change based on mental state and your edge can change based on market conditions. So adaptation is required for survival.
Learn More in the Trading Success Framework Course
Written by Matt Thomas (@MattThomasTP)
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