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Are you an efficient Trader?

Most traders start out with a dream. And usually part of that dream is that once you’re a successful trader you’ll have a lot more time for the things in life you enjoy spending time with. Your family, friends, hobbies, spend time in nature and start other business opportunities you’ve been dreaming of realizing. Besides making money, for many the main reason to start trading is actually that they no longer want to spend 40 hours a week sitting in a office staring at a screen.

Unfortunately many traders end up doing the exact opposite of that. Staring at their screens for hours each day, looking at charts and quotes. They don’t really have a precise plan of their trading day. Instead they wake up, turn on their charts and wait for what they perceive as a trading opportunity. No need to say that this often leads to overtrading, but let’s say our trader has matured enough to be mostly free from such flaws.

Still being an active day trader he’s trading a lot in and out during the day, but being very talented he usually comes out ahead at the end of the trading day. Trading the E-Mini S&P 500 he manages to make a profit of 2 points a day on average. He’s trading two contracts so that’s 2.0 x $50 x 2 = $200. Doing 10 trades on average each day, paying $5 round turn per trade, that’s 10 x 2 x $5 = $100 commissions we have to subtract. So his actual profit after commissions is $100. Trading for 8 hours each day, that’s $12.50 per hour…for doing a quite exhausting job! Ouch.

Let’s have a look at our second trader. He knows his business very well after having invested a considerable amount of time and money to learn about the markets. Our second trader trades a system with precise trading rules, also in the E-Mini S&P 500. Let’s call it Ambush. He knows exactly at what times of the day he has to take action. In his case, when to place his entry order and when to exit his positions each day. This way he can easily plan his day, knowing that he won’t have to watch the markets at all. Being a professional he takes his trading business very seriously and religiously tracks each trade, checks his fill prices and so on. Still he doesn’t need more than 10 minutes each day to run his trading business. On average he makes about $105 per trade per contract. Never making more than one trade a day, he just has to subtract $5 commissions which leaves him with $100. As he just needs 10 minutes each day to place his orders, that’s $600 per hour on the days where he actually trades! For doing a not very exhausting job…

What a difference compared to our chart watcher! Hope you see the light here. This is huge, and once you realized this truth you can make a big step forwards in your trading career. Herein lies the reason why I decided to move towards systematic trading many years ago. First of all watching charts all day does get really boring once you no longer trade for the excitement, and I had a very different dream of what my days would look like as a trader. But even more importantly I can use all that freed up time for other business ideas, hobbies, to create new systems and to write articles like this one and make additional money helping other traders.

At least I’d suggest that even if you’re day trading discretionary, take your time to really learn about the markets you’re trading. Get some statistics and you’ll discover that every market has times during the day where it makes most sense to trade. Focus your trading activity on these time periods. They’re hardly changing over time so you can plan your trading day nicely. Truth is that most of the time it simply is a waste of time and money to day trade. I can almost guarantee you that you’ll make more money this way than trading all day long, especially after subtracting trading costs.

Happy Trading!



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Saturday, 25 March 2023

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.