Day trading uses one of the biggest leveraging tools out there, the stock market/derivatives market.
Here, traders will require intense discipline in order to execute their trades with profit.
Day trading is certainly not for everyone, but if making hundreds of dollars to thousands of dollars per day sounds appealing, you can learn more about it here.
The incredible thing about trading the market is that traders can learn how to make money whether the stock market is booming or crashing.
This means that as long as you’re able to develop the skills necessary to become a consistently profitable trader, you will be able to pivot in a recession and actually make money while most of the economy faces turmoil.
Going on the offense means learning new skills and getting out of your comfort zone to be successful at something outside your 9-5.
If you’re a new day trader and are trying to figure out what are the best days to trade stocks, then I have good news for you.
I’ve beentrading optionsfor an entire year now and have figured out which days are the safest to trade, and which days are the absolute worst.
I’m also going to go over a risk management strategy that is going to allow you to have bigger wins, and significantly smaller losses.
If you’re new to the blog, make sure you join the newsletter for more content like this.
And with that being said, let’s get started!
Best Days to Trade Stocks
During my journey as an options trader, I’ve learned that stocks tend to be significantly less volatile on Monday, Tuesday, and Wednesday, making them the best days to trade stocks.
These are the days where you want to take more than one trade (should your edge present itself to you) with confidence.
Sizing down during these days isn’t necessary unless your risk management strategy demands it.
You never want to overtrade as a day trader, but you should know what days have less risk than others.
How about the other days?
Here’s my personal experience.
Thursdays tend to have moderate risk and stocks tend to gain some volatility here, but charts are typically still very much tradable.
While day trading itself presents the trader with risk in every trade, I’m merely going over which days tend to be riskier in terms of volatility in the market.
As traders, we want to trade big price action in one direction or another and refrain from getting stuck in the chop, or from getting stopped out only to see continuation in our favored direction once we exit our position.
These anomalies usually occur due to the volatility in the market.
So, how do we avoid them?
By patiently waiting for an A+ setup or not trading at all.
Remember, cash is also a position.
Fridays tend to be the most volatile trading days of the week and could even be destructive if not assessed properly.
Most novice traders end up giving all of their weekly gains back on Friday.
In my experience, traders should not trade on Fridays unless an A+ setup presents itself.
And even then, it would be wise to downsize on this particular day.
There are far more experienced traders than I who simply take Fridays off from trading and start again on Monday.
Learning how to manage your risk on these particular days is what’s going to allow you to be consistently profitable.
Below is a risk management strategy that can help you navigate the waters throughout the week.
Day Trading Risk Management Strategy
Set a fixed number of contracts to trade per new trade for Monday-Wednesday, Thursday, and Friday based on your account size.
Limit your number of trades for Monday-Wednesday, Thursday, and Friday.
Place a rule of when to stop trading.
1. Fixed Number of Contracts
Your fixed number of contracts is going to depend on your account size.
How do you identify how much you should risk?
Everyone’s account risk is different, but I would start trading with 10% of my account and only risk 10% of that particular trade should the market turn against my trading system.
This puts your overall account risk at 1%.
Set a rule for yourself to only trade ‘X’ number of contracts per trade for Monday through Wednesday, Thursday, and then lower your size on Friday by half.
This next part of your risk management strategy goes hand in hand with the fixed number of contracts you set for yourself.
#2. Limit Your Number of Trades Per Day
This rule is extremely important when it comes to managing your risk.
You’ll want to establish a ground rule of how many trades you’re allowing yourself to take per day.
Since we know Monday-Wednesday are less volatile, we can set a max of 3 trades per day, while honoring your fixed number of contracts per trade.
Because Thursday tends to have more moderate risk, we can limit ourselves to a max of two trades on that particular day.
And with Friday’s being the most volatile day of the week, we can set a rule to only make one trade on Friday, granted that our setup presents itself to us, otherwise we don’t trade that day.
This risk management strategy allows us to refrain from overtrading on riskier days, while allowing us to potentially profit largely on less volatile days.
But the goal is to have significantly larger wins than losses, so how do we tie it up altogether?
By placing a rule of when to stop trading.
#3. Place a Rule for When to Stop Trading for The Day
Placing a rule for when to stop trading for the day is going to maximize your winning potential and minimize your losing potential.
Here’s a way you can manage your risk by knowing when to stop trading for the day:
Monday-Wednesday | 3 Trades Max
If you have two wins in a row, stop trading in order to keep that capital.
A third trade has the potential to both increase your capital, but to also eliminate your wins for the day.
If you have two losses in a row, stop trading and take the ‘L’ for the day.
While a third trade could potentially minimize your losses, the probability of accumulating even greater losses is also there.
If you have one win followed by a loss or vice versa, it’s okay to take the third trade to either end your trading day with some profitability, or minimal loss.
You may decide to not enter a third trade if after your second trade you’re still profitable or are merely facing a small loss; the choice will highly depend on whether your ‘edge’ presents itself to you or not.
Thursday | 2 Trades Max, Friday | 1 Trade Max
The same rules apply for Thursday and Friday except they are already limited to 2 trades on Thursday and 1 trade on Friday.
Since the market tends to get more volatile as the week progresses, limiting how many times you trade on Thursday and Friday will help you keep more of your gains made throughout the week.
You may decide to only trade once on Thursday and not trade on Friday.
This is good risk management as well.
By limiting the number of trades you make per day and number of contracts you take per trade on Thrusday and Friday, you eliminate big risk.
Any win you have on Thursday or Friday are merely extra gains to top off your week.
And if you have any small losses, they shouldn’t affect your bigger gains from the previous days, granted that you have a proper trading system in place.
But that’s another article of its own.
Bookmark This Page!
Be sure to bookmark this page so that you can always come back for the lesson.
Majority of options traders aren’t successful, many know that.
Becoming a successful options trader is a journey in itself that requires real-world practice and experience.
The battles one fights when learning how to trade options turns into a war many aren’t willing to persevere through.
In the end, you realize the war was always you vs you.
You are always the boss battle.
This analogy depicts why only a very small percentage of options traders end up becoming successful while the majority fall.
In this article, I’m going to break down the 3 key things that make a successful trader profitable over and over again.
By the end of the article, you will have the knowledge you need to create the income and life of your dreams.
Let’s get started!
Introduction to Options Trading
If you have no clue or any idea about what options trading are, I highly recommend reading this article on what you need to know first before getting started.
The article guides beginners on what call and put options are, as well as what ITM, OTM, and ATM mean.
But if you already know the basics, let’s keep it moving forward.
What Percentage of Traders Are Successful?
According to Investopedia, only approximately less than 20% of traders are successful with more than 80% of traders fail or quit.
Those who failed are those who blew their trading accounts and could no longer afford to fund them, leaving them with no choice but to quit day trading altogether.
Those who quit found day trading too challenging or never sought out solutions to the problems they were facing during the process.
Business Insider says only 6% of people who attempted to become ‘professional’ day traders actually succeed, claiming that those who fail is due to lack of passion.
That passion is what drives traders to continue to learn until they are no longer repeating the same mistakes over and over again.
But do you require passion to become a successful options trader?
The short answer is no, absolutely not.
I know options traders who earn upwards of $8K per day and trading is not their passion but rather the tool that provides them with freedom to pursue their passions.
What’s required is commitment and desire.
3 Key Elements That Creates a Successful Options Trader
The commitment I’ve put into trading options over the course of the year has allowed me to identify 3 key elements that creates successful options traders.
I’ve made a lot of money but have also taken heavy hits in the past.
Losses are part of the game, there’s no denying it.
It’s how we overcome these losses that allows us to sustain profitability.
And it’s the number of wins we have compared to these losses.
Big wins, small wins, and small losses will keep you consistently profitable, but big losses won’t.
Here are the 3 key elements every successful trader masters to create the income and life of their dreams.
#1. Finding a Trading System That Works
Every options trader takes the time to find a trading system that will make them money in the market every single time that system or setup presents itself to them.
Without a proven and ‘back-tested’ system that works, options traders will not stand a chance against the market.
Every trader has their own system, many are similar in some ways, but never exactly the same.
Some options traders enter a trade based on candlestick patterns, some based on supply and demand setups, and others on crossover indicators.
Because every person has a unique perspective, every trader will correspond to a different set of trading methods different from others.
How do you find a trading system that works?
There are two ways to find a trading strategy that will make you money.
By back-testing your own unique strategy on a practice account. Find out what makes money every time and what doesn’t. Take your time before you commit to trading real money.
By replicating a proven trading strategy that works from a successful options trader. Some of my readers are using my personal trading system to make money in the market. Find a trader you trust and who posts their gains for other traders to see what’s possible to achieve in the market.
A successful options trader will have their system locked down before anything.
This system will be the platform that will make you money every time it presents itself to you in the market.
#2. Trading Psychology
Trading psychology has to come next because once you find a trading system that will put you in profit every time it presents itself to you, you’ll need to understand how to execute properly and exit with profits.
Most novice options traders eventually find a trading system that works but let profits turn into losses due to a weak trading psychology.
Trading psychology often times has to do with fears in the market.
The 4 primary trading fears are:
Leaving Money on The Table
These 4 primary trading fears signal painful information to our brains which often times cause traders distress in the market which leads to painful losses.
*When you are fearful, no other possibilities exist in the market. Fear blocks all available information from the market.
Here are examples of how the 4 primary trading fears cripple options traders:
Example:Afraid of being wrong: not getting out of a trade when you should; Afraid of losing money: not buying enough contracts to make a lot more money; Afraid of missing out: chasing plays; Afraid of leaving money on the table: failing to take profits.
Options traders must learn to master their emotions in order to become successful traders.
Emotions in the market will always lose, data will not.
How do you overcome the 4 Primary Trading Fears?
Afraid of Being Wrong: If you find yourself in a losing trade, you must overcome your fear of being wrong by cutting your losses. If you are afraid of being wrong, you will let your losses grow much bigger in hopes that you are right and the trade reverses in your favor. Losses are part of trading, it’s how small you are able to keep these losses that matters.
Afraid of Losing Money: Sometimes a trader might not open a trade when their setup presents itself to them simply because they are afraid of losing money. You can overcome this by downsizing the number of contracts your purchase. Conversely, some traders might only stick to the minimum number of contracts due to being afraid of losing money if they scale up just a little. Successful traders learn to trust their trading systems and manage their risk accordingly.
Being Afraid of Missing Out: FOMO, or fear of missing out, is something every trader experiences at least once. Successful traders don’t blindly jump on a trade because they missed their setup or because price is moving quickly in one direction. If their setup does not present itself to them (or they missed it), they don’t take a trade and give into FOMO. Successful options traders always follow their setup.
Afraid of Leaving Money on The Table: When traders are afraid of leaving money on the table, they let their winners become losers. Failing to take profit (FTTP) often times occurs due to the emotion of greed, of wanting more. Successful traders overcome this emotion by always taking profits. When traders learn that there will always be money left on the table, that’s when they will begin to consistently become profitable traders.
A book I highly recommend reading on the psychology of trading is ‘Trading in The Zone, by Mark Douglas’.
The first chapter alone is enough to provide you with the clarity necessary to improve your trading psychology and succeed in your trades.
Now on to the third and final key element that creates successful options traders, risk management.
#3. Risk Management
Risk management is what keeps successful options traders from blowing their accounts and losing all their money.
I was scalping $1K per day and entering trades with nearly 50% of my account (1:1 ratio) and also scalping approximately $3K-$7K paper trading – so I know my trading system works.
However, when one weak entry combined with the fear of being wrong1 led to the inability to cut my losses short, I paid the price and lost nearly half of my account due to overleveraging.
I was forced to inject my account with enough cash to maintain above the minimum margin requirement if I was to continue day trading.
This loss was such a valuable lesson because it provided me with clarity I didn’t have before.
The capital in my account wasn’t set up for large trades like the ones I was making yet.
I scaled largely because my trading system worked, and I had learned to trust it despite the number of contracts I was purchasing.
I figured out how to exit my trade with profit, but the issue was that although I welcomed risk, I wasn’t managing my risk properly in comparison to the size of my account at the time.
Risk Management Lesson
I had to identify and choose one of the following:
Trade at a much smaller volume, or
Continue to trade with large volume, but double down on trading psychology discipline to refrain from creating big losses
But of course, the most successful traders only risk a small percentage of their accounts and gradually scale up as their account grows.
So that’s what I decided to do.
I went from trading 60-80 contracts per trade to only 10 contracts per trade.
I then printed out a scaling system to help me identify when to scale up again based on my account size goals.
This was by far the cherry on top for my success as an options trader and has been for other successful traders too.
If you’re a beginner, start with one contract and identify how to gradually scale up later on as you gain confidence in your setup, improve your trading psychology, and understand the importance of risk management.
How to Stop Losing Money Day Trading
Losing money is part of the process when learning options trading.
The most successful options traders have lost a lot of money investing the knowledge in themselves but have succeeded by not repeating their mistakes.
It’s important to understand that big wins, small wins, and small losses are normal, but big losses shouldn’t be.
Successful options traders still lose money on trades but keeping them small is the key to long term success.
You can avoid big losses by finding a trading system that works, improving your trading psychology, and writing a plan for your risk management.
If you would like me to publish more articles like this leave a comment down below or join my newsletter.
The RSI or relative strength index is an algorithmic trading tool that measures a currency’s price action momentum change.
The indicator will take price action data and convey the information through a simple line graph.
This indicator displays the relationship between current price action and buying/selling conditions.
It ranges from 0-100, with most traders using parameters 30 – 70.
The logic of the indicator is simple: if the asset price is trending between 0-30, it is said to be oversold, thus considered cheap, while if the price is trending above 70, it is said to be overbought, thus expensive.
If you are scalping an uptrend, you want to buy “cheap” on the RSI and sell at the overbought level.
The opposite applies in a downtrend.
Additionally, watching out for divergences between price and RSI can indicate an imminent change in trend.
Another thing you need to remember is scalping requires use of platforms with high liquidity.
Therefore consider using the likes of PrimeXBT for fast trade execution.
Also, as mentioned earlier, remember, price action is king.
First of all, determine the direction the asset is headed, then use the above indicators to strengthen your bias.
This increases your confidence in taking a given position and tremendously improves your trading success.
Join the newsletter to become part of an activist group fighting for market transparency!
Receive weekly market news to stay up to date.
What is a call option?
A call option is a bullish strategy that allows a trader to profit from a trade on the upside.
The trader essentially bets that the price of a stock is going to go up by buying call options.
How does a call option work?
When you open the options chain, you will have many contracts to choose from, ITM, ATM, or OTM, which I’ll use as a quick example for now.
If you are betting on the price of a stock to go up, you might buy a contract with a strike price of a few dollars above the underlying securities’ current price, depending on your risk.
If the stock does indeed move up in price, you will begin to see gains on your contract.
You may then sell your contract and profit from your play when you are ready.
What is a put option?
A put option is a bearish strategy that allows a trader to profit off a trade on the downside.
Unlike calls, traders buying put options are betting the price of a security will drop.
How does a put option work?
I’ll use another OTM example for now and explain the other scenarios below.
You will have many options in the options chain to choose from.
Here you will be able to select a contract to buy based on the ‘strike’ price you’ve selected.
The strike price you’ve selected is where you believe the price of a security will go down to.
If a price of a stock is at $20 and you buy a contract for a strike price of $17, you’re betting that the price of the stock will fall in the future.
If the stock falls to $19 then $18, you will begin to see gains on your bet.
The closer the price of the underlying security gets to $17, the more gains you will see.
You can then close your position at any moment before the contract’s expiration date and take profits.
Both these examples are examples of an OTM contract which I’ll explain more below.
Here are other examples of how calls vs puts work.
What is ATM and ITM?
ATM stands for “at the money”.
At the money (ATM) is the current price a stock/security is trading at.
When your strike price is near the current share price this is considered to be “at the money” (ATM) for both calls and put options.
ITM stands for “in the money” and will be a little different for puts vs calls.
When a strike price is in the money for put options, it means the price is above the “at the money” (ATM) price.
Example: You’re betting the price of a stock will go down, so you buy a put options contract “ITM” for $11 while the stock is currently trading at $10 (ATM).
You contract has a higher probability to earn gains since the current share price (ATM) is already below your strike price (ITM).
The further the price of a stock goes down from your strike price, the more money you make.
When a strike price is in the money for call options, it means the price is below the ATM price.
Example: You’re betting the price of a stock will go higher so you buy a call option contact “ITM” at $9 while the stock is trading at $10 (ATM).
Your call option contract has a better probability of making money from the start since the current share price is already above your strike price.
If the price of that stock continues to surge, then you will continue to make gains.
“In the money” (ITM) contracts are a little more expensive to buy since your probability to make money is higher.
“At the money” (ATM) contracts which are closer to the “current” share price had a medium risk factor and are cheaper than ITM contracts.
So then what are OTM contracts?
OTM “out the money” explained
OTM, or “out the money” is the strike price above the ATM for calls, and the strike price below the ATM for puts.
Call option example: If you buy a call options contract OTM at $12 and the price of the stock is currently at $10 “at the money” (ATM), you are betting the price of a stock will rise above $10 per share.
Put option example: If you buy a put options contact “out the money” (OTM) at $8 and the price is currently at $10 “at the money” (ATM), you are betting the price of a stock will go below $10.
Remember, the closer a stock’s price gets to your strike price, the more gains you will reap.
So, the further out the money your strike price is, the higher the reward may be.
Should you buy ATM, ITM, or OTM?
Every trader will use the strategy that best tailors to their risk.
Out The Money (OTM) = High Risk / High Reward
At The Money (ATM) = Medium Risk / Medium Reward
In The Money (ITM) = Low Risk / Low Reward
Traders will need to study the performance of an underlying asset to get a feel and understanding of where the price may go.
Once you have determined whether you will be buying puts vs calls or vice versa, then you may begin to look at the contracts available.
Options contracts explained
Every 1 contract equates to 100 shares of a particular stock.
OTM contracts are usually less expensive.
With these contracts you can buy 100 shares of a stock for only cents.
ITM contracts are more expensive because they are the safest choice.
ATM contracts are in between ITM and OTM in pricing.
The options chain will allow you to choose when contracts based on short-term or long-term expiration dates.
You can go short or long on both a call and put options contract.
These expiration dates may vary from only a few days to weeks, to months, and even years.
Whether you should trade short-term or longer-term expiration options contracts is a strategy that will be highly based on your trading goals.
Where can you trade options?
The most popular platform to trade options is Webull.
Webull is where I personally began learning reading charts and familiarizing myself with the options chain and data.
Here traders will be able to purchase calls vs puts or vice versa.
Some traders use both strategies to make money during a bull and bear market.
Other platforms where you can trade options include:
If you’re already invested in stocks, you might already be using one of these platforms.
The difference between trading stocks and trading options is that you will need to open a margin account for options.
A cash account will not allow you to buy calls vs puts.
You can earn 5 free stocks from Webull when you sign up using my affiliate link.
If you choose not to keep these 5 stocks, you can sell them and fund your margin account to trade options.
Puts VS Calls: Why trade options?
Buying puts or buying calls allow traders to bulk up on stock and use leverage to make money in the stock market.
There are 4 different ways you can trade options.
All four essentially allow you to use leverage and make money whichever side of the play you want to begin trading options.
However, selling calls and selling puts from the get-go will require further in-depth explanation, which I will do in another article.
For today’s breakdown, I’ve explained buying both calls and puts.
There are a variety of things that attract investors to trading options.
Losses are limited to what you put in your contract
Quick accumulation of cash / shares
If you’re here today, it’s because you’ve probably seen people in your space talk about how much money they’ve made playing options.
And while options can yield a full-time income stream, new traders should also be aware of the risks.
Is trading options risky?
Trading options has its risks as bets aren’t 100% guaranteed to play in your favor.
However, there are a few things you can do to increase your chances at becoming profitable.
Familiarize yourself with technical analysis / chart patterns
Only buy what you can afford to lose
While traders can certainly trade based on market sentiment, it would be wise to gain some understanding of how prices move through technical analysis.
TA can help traders determine the trajectory of a stock’s price moves in the coming minutes, hours, days, and even weeks.
It’s best to armor yourself up and learn as much as you can to properly set yourself up for success.
If you’d like me to do a write-up on bullish and bearish patterns leave me a comment below.
When it comes to choosing between calls vs puts, it really comes down to adapting to the changes in the market to help you increase your income potential.
If you have any questions, be sure to leave a comment below.