How to Make Big Profits from Day Trading - Trade That Swing (2024)

Whether trading stocks, forex, or futures, the key to making big profits in day trading is the same. It’s how we size up our bets relative to the risk and reward we want to take. In this article, you will learn how to add 2% to 4% to your account, in one trade, in a matter of minutes.

If we win 2% to 4% (or more), even on 40% of our trades, and we lose 1% on the others, we will make a lot of money. And if we can win 50% or more of trades, even better.

This sounds simple. Yet most people completely misunderstand the concepts that produce big day trading returns.

Most people think using big stop losses (so it doesn’t get hit) and big targets is the way to make money. But actually, to make big day trading profits we wait for small stop loss opportunities, and then place targets within typical movement with a nice reward:risk.

Here’s how to make big profits from day trading, in four steps:

1. Risk 1% of the account per trade (less when starting out).
2. Utilize the smallest stop loss the price action allows. That sounds counter-intuitive, but there is no reason to hold onto trades that aren’t working.
3. Exit winners at a multiple of (2x to 3x) the stop loss size. This assures winners are bigger than losses.
4. Only take a trade if such a target is reachable based on typical movement.

Here’s how each step works in unison to find high reward/risk trades based on what the price typically does (not luck, and no massive moves required).

You also may notice that big, or making consistent day trading profits isn’t about loads of screentime or learning loads of strategies. Great profits can be made only trading 30 minutes a day and finding nice reward:risk opportunities using only one or two strategies that you get really good at trading.

1. 1% Risk Rule

Before we can make big money, we need to control our risk. If we lose our capital, we won’t be making anything.

Utilize the 1% risk rule. This means we are only allowed to lose 1% of our capital on a trade. We can use as much of our capital as we want on each trade, we just can’t lose more than 1% of it on a single trade.

For example, if we have a $45,000 day trading account, we can use that entire amount (or even more, with leverage) to take a position, but we don’t lose more than $450 on a single trade. The same concept applies regardless of account size.

When starting out, risk 0.1% per trade. Increase the position to 0.2%, then 0.3%, etc, if you continue to profit for multiple weeks at each level.

Note that as the account size gets larger, it will be harder to risk 1% since the position sizes can get so big. But at that point, you will already be rolling in dough so it won’t matter.

2. Smallest Market-Allowed Stop Loss

We now know how much we can lose on a trade, in dollars, which is up to 1% of our account.

We now want to wait for opportunities that present us with a trade trigger with a small stop loss.

A stop loss is an order that gets us out of a trade if the price reaches a specified threshold. It is one of the easiest ways to control risk on each trade.

This is where lots of people mess up.

Let’s look at 2 traders. A Pro day trader and a Novice.

The 1-minute chart below shows a possible trade. The entry is nice. The price was trending higher in the moments after the open, then pulled back and the trader is entering as the price starts going up again. One of my favorite trend trade strategies.

The Novice trader doesn’t want to lose, so they opt to use a big stop loss. They place their stop loss below the open of the day/the low point of day so far. In this case, that puts their stop loss 5.46%, or $0.78, away from their entry.

They believe they are being smart, because they placed their stop loss below a major swing low and the price would need to drop a lot to stop them out.

Recall our trader is allowed to lose $450. They are risking $0.78 per share on this trade, so they can buy 576 shares ($450 / $0.78).

The Pro trader isn’t as concerned about losing. They know that losing trades happen no matter where the stop loss is placed, so they prefer to have a smaller stop loss, which means a bigger position size, and if they are wrong they are out quickly and don’t waste time in a trade that isn’t going anywhere.

The Pro is entering because the price is moving up, therefore, they opt to place a stop loss below the swing low that just formed. The stop loss is only 1.75% below the entry, or $0.25. This is 1/3 smaller than the Novice’s stop loss.

Stop loss size will vary by trade and asset, so the actual figures don’t matter. The important point is the comparison between the sizes of the Novice’s stop loss and the size of the Pro’s.

The maximum that can be lost is $450, but the Pro’s stop loss is only $0.25, so they can buy 1,800 shares.

Without knowing anything else, who makes more money if the price goes up?

The Pro of course, because they have 1,800 shares while the Novice has 576 shares, yet they are both risking $450 of their money!

3. Target a Multiple of the Stop Loss or Risk

Things are about to get worse for the Novice. Not only are they risking the same amount as the Pro but with fewer shares, they will also never be able to achieve the returns of the Pro.

Ideally, we want to make 2, 3, 4, or 5 times the stop loss size on a winning trade. Since our stop loss represents 1% of our account, if we can make 2 or 3 times as much, we make 2% or 3% on our account. But the larger the size of the stop loss, the harder that is to do!

When I trade forex, I like to put a target at 2.5x my stop loss. For stocks, I put a target at 2 to 3 times my stop loss. Let’s look at how this would have worked out for the Pro.

It worked great. The stop loss size of $0.25 was relatively small compared to the movement of the day, so the price moving $0.62 to $0.63 (4.37%) to hit a target (2.5 x 0.25) wasn’t too tough. We’ll look a bit more at what we can reasonably expect out of a profit target in the next step. But for now, our pro is up 2.5% on their account and the trade took 14 minutes in this case. They could have made 2% in 5 minutes.

The Price Action Stock Day Trading Course reveals methods for finding trades like this, what stocks to trade, and tactics for putting the odds even more in your favor on every trade.

And for the Novice…

Not so good. In fact, even though the stock went up, and they were theoretically right about the direction, their account never would have shown a more than 1% profit, before the small gain evaporated.

The novice walks away with a loss, or maybe a small profit that is a fraction of what they were risking. Maybe $100 to $300 (after risking $450) if they got out somewhere before the price dropped to their stop loss.

The Pro walks away with $1,125 free and clear and is out well before the price starts dropping again.

The Novice, by trying “not to lose” and using a bigger stop loss, made it basically impossible to make a big percentage profit on their account.

The Pro used a smaller stop loss, making it much easier for the price to move a multiple of their stop loss, and thus they make 2.5% on their account in a few minutes (on a trade that only used a little more than half their capital…another trade in another stock could have taken with the remaining capital).

4. Only Trade When Target/Multiple is Reachable

How do we know what a reasonable target is?

Was the Novice’s target reasonable? Since the stop loss size was over 5%, the price would need to rally 10% just to reach a 2:1 target. How often does that happen? And if it does, does it usually occur within a few minutes?

What about the Pro’s target, was it reasonable? For that stock, it was. At the time of writing, MARA was on the Best Day Trading Stocks List, typically moving about 12% between the open and close. The Pro capturing a movement of 4.37% is easier than the Novice trying to capture a 10% or 15% move.

The pro could potentially capture 3% or 4% price moves multiple times within the day on a stock like this.

Even simpler, look at how long the price waves are so far in the day. That will give you an estimate of how far price is running, then be conservative with our profit target and go for less.

MARA moved up $1.23 or 9% on its initial rally. It then pulled back and started to rally again. If we are taking a trade, we are assuming the price will make another wave up, but to be conservative, we want our target inside of what the prior waves did (less than 9%).

The Pro target, which was 2.5x the stop loss, only required a move about 2/3 the size of the last up wave. Therefore, the Pro actually used a conservative target and still makes 2.5% on their account. The Novice used an outlandish target, way outside the typical wave movement so far in the day, and they made very little or lost money because of it.

For stocks, the first few minutes are often the most volatile, so the price waves that follow may be smaller than the price waves that occur in the first few minutes.

For Forex, I use price wave measurements throughout the day (London and US sessions) to help establish what profit target I can use.

If recent price waves are big enough to easily hit a 2x target, then I trade. If not, then I don’t take the trade no matter how delicious it may look. 2x is the minimum I will take; 2.5x or more is better.

IF A 2X (SL) TARGET IS OUTSIDE OF HOW FAR WAVES TYPICALLY MOVE, THEN I DON’T TAKE THE TRADE.

As the trading day progresses, so will the size of the price waves, letting you know the current conditions. The same rules apply…if the price waves are no longer big enough to easily reach a 2x (SL) profit target, then don’t trade.

Another Day Trading Example of Quick Big Profits

Quick big profits…based on normal, everyday movement, that’s the key.

We want to be able to make big returns whether the market we’re trading is quiet or volatile, and it shouldn’t really matter that much. Unless you are paying larger commissions and thus can’t trade in quiet conditions, we should be able to produce big day trading regardless of conditions (although we may personally prefer trading in certain conditions over others).

Let’s look at a forex day trading example.

I typically use a stop loss of 2 to 3 pips. That means a profit target of 2.5x can be placed at 5 to 7.5 pips from the entry. As long as price waves are typically moving that much, then it is possible to make 2.5% on the account in a matter of minutes. In smaller movement, stop losses may be 1.5 to 2 pips (target at 3.7 to 5 pips). In bigger movement, the stop loss may be 3 or 4 pips (target 7.5 to 10 pips).

Since a 2 or 3 pip stop loss is a very small amount of movement, leverage is required to translate that into risking 1% of the account.

On the chart above, I noted that I was using a stop loss size of 2 pips to 2.5 pips. Targets were therefore 5 to 6.3 pips.

Not all trades are winners, but as you can see, if the price changes direction it will usually hit a bigger stop loss anyway (the Novice approach), so it’s better to keep it small and be out right away. That way you can still get a good reward:risk and the price doesn’t need to move very far to hit the target.

The price was in a downtrend, so I took a short and was stopped out…quickly. The price then formed a reversal pattern and I was able to go long and make 5% or 5R very quickly (2 trades at 2.5 reward:risk).

If I had used a bigger stop loss on that first short trade, I would’ve still been losing money and in a short trade instead of making my money back. Big stop losses will often mean being stuck in trades longer than necessary, which costs time and may mean forgoing other opportunities.

After that the price started dropping again, I took two losses (I closed them a little early when they didn’t work right away). I then went long and had another loss. Novices hate this, but Pros don’t care. I got into another long trade and made 2.6%.

In less than an hour, the account is up more than 3% with winning less than 50% of the trades.

How to do this every day, including what to look for and where to enter, is covered in the EURUSD Day Trading Course.

Final Word on Making Big Profits from Day Trading

The same concepts apply whether day trading forex, stocks, or futures.

If an asset doesn’t move as much—for example, the EURUSD only moves about 1% per day, whereas crude oil or some stocks may move 5% or more per day—then leverage may be required to risk 1% of the account on a trade. In a volatile asset, we may only be using a portion of our capital to risk 1%. Yet it all evens out, which is why one market isn’t better than another. They all offer equal profit potential once you understand the concepts discussed in this article.

Big daily profits are possible from only taking one trade a day. That trade may only last a few minutes. Big profits aren’t about putting in loads of screentime…although we do need to put in some to see the opportunities.

Rather, big profits are about establishing our risk limit, waiting for the market to provide a small stop loss opportunity (the smaller the stop loss, the larger the position size while still risking 1% of the account), and then taking profits at a multiple of that stop loss that can reasonably be hit based on the action of the day or the tendencies of the asset.

Try it out in a demo account. It takes time and practice to get the proper position size on each trade, place orders properly, and assess which opportunities to take.

MyEURUSD Day Trading Courseand Price Action Stock Day Trading Course guide you through trading a few powerful patterns that tend to occur multiple times per day, providing loads of opportunities to capitalize.

Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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I'm an experienced day trading enthusiast with a deep understanding of the concepts discussed in the article. My expertise lies in effective risk management, optimizing trade sizes, and maximizing profits in day trading across various markets such as stocks, forex, and futures.

The article emphasizes the key principles for making substantial profits in day trading, focusing on risk and reward ratios. Let's break down the concepts used in the article:

  1. Risk Management:

    • The 1% Risk Rule is highlighted, stating that only 1% of the trading account should be risked on a single trade. This ensures capital preservation and controlled risk.
    • Gradual risk increase as profits accumulate, starting with 0.1% risk and progressing to higher levels.
  2. Stop Loss Strategies:

    • The importance of utilizing the smallest stop loss allowed by market conditions is emphasized. This involves identifying optimal entry points with minimal risk.
    • A comparison is made between a Novice trader using a larger stop loss and a Pro trader using a smaller stop loss, demonstrating how position size can significantly impact profitability.
  3. Profit Targeting:

    • Exiting winning trades at a multiple (2x to 3x) of the stop loss size is advocated to ensure that profits outweigh losses.
    • The article suggests making 2%, 3%, or more on the trading account by achieving multiples of the stop loss.
  4. Target Reachability:

    • Only taking a trade if the target is reachable based on typical market movement is crucial. The article discusses the importance of setting realistic profit targets within the context of the asset's typical price action.
  5. Trade Timing and Frequency:

    • Contrary to the belief that extensive screentime is required, the article suggests that substantial profits can be made by trading only 30 minutes a day.
    • Emphasizes the significance of waiting for high reward-to-risk opportunities and the effectiveness of mastering a few well-defined strategies.
  6. Market Conditions and Instruments:

    • Consideration of market conditions, such as volatility, is discussed in relation to setting appropriate profit targets.
    • The application of the outlined principles across various markets, including forex, stocks, and futures, is highlighted.
  7. Real-life Trading Examples:

    • The article provides practical examples of day trading scenarios, comparing outcomes for Novice and Pro traders based on their risk management and trade execution.

In summary, the key to achieving significant day trading profits lies in meticulous risk management, strategic entry and exit points, and a disciplined approach to position sizing. These principles are applicable across different markets, and success is attainable with focused, well-practiced trading strategies.

How to Make Big Profits from Day Trading - Trade That Swing (2024)
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