Satuki @ Home

Day Trading is tough because it requires you to have a very accurate system.  This is attributed to the fact that your stop loss is normally very narrow and you can be easily shaken out of your positions.  Because intra day moves are very small and if you have too many failed entries you will not be able to catch up before the market closes.

Accuracy required 33.33%

If your Risk-Reward-Ratio is 1:3  you can have 2 losers and 1 winner on average.  That would result in a net 1% profit.  If you can keep making 1% everyday, you would be the king/queen of the Wall Street.  Most experienced trader will never try to catch a bottom or a top.  If they want to catch a 3% mover, they might require a position to move 5-6% from bottom to top, which is not easy at all. 

Accuracy required 50%

Now let’s reduce the Risk-Reward-Ratio to 1:2. If you want to have a 1% profit, you need to have 1 loser and 1 winner on average.  One more loser, you will play the catch-up game all day long.   

Accuracy required 66.67%

Now let’s reduce the Risk-Reward-Ratio to 1:1. If you want to have a 1% profit, you need to have 1 loser and 2 winners on average.  This kind of accuracy is very hard to achieve. 

From now on, I will start to track the accuracy of my day trades.   For the 4 trades I took last Friday, my accuracy was pretty good.  I had 2 winners, 1 break-even and 1 loser.  If I could have this kind of accuracy on average, I would choose a R-R-R of 1:1 or 1:2 at most since these 2 require relatively smaller moves, which are easy to come by.