How Often a Day Trader Should Trade

Wondered how often you should trade? Here's the answer.

Your strategies filter out irrelevant information, so you know how much to day trade.
•••

Danil Melekhin/Getty Images

As a new day trader you may worry about overtrading or undertrading – so how many trades should you make in a day? Is there a sweet spot for how much to trade? The answer is both simple and complex. The simple answer is to trade exactly as much as your proven strategy tells you to trade. Although, if you are wondering about over or undertrading, you may not be at the stage of having a strategy that has proven profitable. First look to develop, or learn, a strategy that aligns with how active you want to be. 

Strategy Dictates Frequency

A well-defined strategy tells you exactly when to enter, and under what conditions, as well as where to get out for a profit or loss. Since day traders take the trades their strategies tell them to take, trading quantity and frequency will vary daily. 

For example, a trend-following strategy could result in many trades on a day when the asset being traded is trending. On a day when an asset is range-bound or barely moving, a trend-following strategy will produce few, or no, trade signals. 

A range-trading strategy will likely produce few trade signals on days when the asset trends, but will produce many on days where the asset's prices move mostly sideways.

Your strategy should act as a filter for how often you should trade. Having strategies for both trending and ranging environments – along with a way to determine whether the ranging or trending strategy should be employed – will allow you to have at least some trades nearly every day.

Maximum Daily Trades

While your strategy determines how often you day trade, overtrading can occur when you take more trades than your strategy dictates. This is often a result of boredom or lack of discipline. Since these trades occur outside of a tested strategy, they are less likely to perform well, reducing profitability and increasing commission costs unnecessarily. 

While commission costs are often viewed as a hurdle to day traders, this is typically because they are overtrading, or aren't using a good day trading method. With a good day trading method, commissions aren't typically a major concern.

Minimum Daily Trades

Again, trade what your strategy dictates. When traders undertrade, they typically skip the signals built into their strategies. This is often due to fear of losing, not being ready to trade, or the strategy may be one that sounds good in theory, but doesn't work as well in reality and is therefore too hard to implement.

Some traders mistakenly believe that undertrading is better than overtrading. This is a false assumption. If you have a strategy that tends to win over many trades, by skipping trades, you reduce your chances for success.

For example, assume you have a strategy that wins 55 percent of the time. By skipping a trade, you are more likely to skip a winning trade than you are to skip a losing trade. Track your performance and take the trades your strategy gives you.

Develop Your Strategy

If you haven't developed, tested, and practiced a day trading strategy yet, focus on developing or finding one that suits your personality and lifestyle. For example, day trading strategies can be developed just for the opening hour of the U.S. market. Typically, you make one to five trades in that hour, and your trading day is very short.

If you want to trade all day, develop strategies that adapt to various market conditions, as you will face changing conditions throughout the day, when things can get more volatile, less volatile, trending, ranging, lower volume, and higher volume depending on the asset and time.

Once you develop a strategy, it is very important to put it to the test. Make sure it would have been profitable in the past, then practice with real-time data to make sure you can properly implement it. If it proves profitable, that will tell you exactly how much to trade. Don't trade more or less, as both can pose problems. If you don't have a strategy that tells you exactly when to trade, don't start trading until you do.