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

Upon hearing about "overtrading" and "undertrading," as a new trader you may have wondered how many trades you should take in a day. Is there a sweet spot for how much you should be trading? The answer is both simple and complex. The simple answer is to trade exactly as much as your profitably proven strategy tells you to. Although, if you are wondering about over or undertrading, you may not be at the stage of having a strategy which has proven profitable.

Therefore, the following guidelines will help you develop (or learn) a strategy that aligns with how active you want to be. 

A Strategy Tells You How Often to Trade

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 (see Create a Trading Plan in Four Steps). Since day traders take trades their strategies tell them to, the number of trades taken will vary each day. 

For example, a trend following strategy could result in many trades on a day where the asset being traded trends. On a day where an asset is rangbound or barely moving, the 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 assets moves predominately sideways.

Your strategy acts as a filter for how often you should trade.

In the case above, 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 day trades nearly every day.

This There A Cap on How Much You Should Day Trade?

As discussed, your strategy determines how often you day trade.

Overtrading is when you take more trades than your strategy dictates, often this is a result of boredom or lack of discipline. Since these trades occur outside of a tested strategy, they are more likely to perform poorly, reducing profitability and unnecessarily increasing commission costs. 

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

Is There a Minimum Number of Day Traders You Should Take?

Again, trade what your strategy dictates. When traders undertrade this typically refers to skipping signals their strategy gives them. This is often due to fear of losing, not being ready to trade or the strategy may be too hard to implement (good in theory, bad in reality). Some traders mistakenly believe that undertrading is better than overtrading. This is false. When if you have a strategy that tends to win over many trades, by skipping trades you actually reduce your chances of success.

For example, assume you have a strategy that wins 55% of the time. By skipping a trade, you are actually more likely to skip a winning trade (55% chance) than you are to skip a losing trade (45% chance).

See Day Trading Statistics for Tracking Performance. Take the trades your strategy gives you.

Developing a Strategy For How Much You Want to Day Trade

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

If you want to trade all day, work on strategies that adapt to various market conditions, as you will face these various conditions throughout the day (more volatile, less volatile, trending, ranging, lower volume and higher volume).

Then the most important thing is to test that strategy. Make sure it would have been profitable in the past, and then practice using it on real-time data to make sure you can properly implement it.

If it proves profitable, it 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 (or strategies) that tells you exactly when to trade, you shouldn't be trading until you do.