.5 - .75 points per trade
1.5 + points per session
Monte Carlo simulation
5-6 trades per session
60 - 80 % successful trades
Day Trading Income Potential For Index Traders
By Lawrence Chan on 2013 Mar 13 Wed 18:36:23 .
golden egg"How much money will I make trading emini S&P?" is one of those questions often asked by people interested in learning to trade. It is not a simple figure that I can just toss out because it depends on many factors. However, I can provide a good overview here on the income potential why trading emini S&P is better than most regular jobs.
I wrote about the account requirement on trading the emini S&P quite some time ago. That information is crucial because it limits who has a better chance to make it in trading emini S&P. So if you have not read that please do so later so that you have a better understanding of the context of this article.
The development in CFD (Contract for Difference) markets has somehow changed the barrier to entrance for people interested in trading the index markets. CFD on worldwide stock market indices is not something new. In fact people in Europe and Asia has been trading that for well more than 15 years. I will discuss about that in a separate article in the future.
A Typical Emini S&P Day Trader
A typical beginner who day trades emini S&P may average around 3 trades a day, 65% winning rate, winners taking 2 points while losers dropping 2 points. That is someone who paid the dues in learning to trade already and have mastered one basic trading setup. For those articulate minds, please forget about commission or slippage for now. The details of his performance actually does not matter because that varies from person to person. What matters is the expectancy.
The expectancy for the example given is that this trader can net 0.6 point profit per trade per contract. It is not much consider each emini S&P point is $50. So he is expected to make just $90 a day on average. So yearly he is expected to make 378 points (1.8 points over 210 trading days) or $18,900.
$18,900 a year may not sound like a lot comparing to a low paying day job. To those with a closed mind or brainwashed by MSM beliefs, they would take this as the reason why one should not think of trading and do a dead-end job instead. They are totally wrong because regular jobs are not scalable. Bluntly, I may also add that many dead-end jobs are exploited so badly by the employers and the management, it is hazardous to one’s health.
Now let’s look at the power of scalability. Given that the trader does not touch the money from the account and increase the trade size by one (1) contract on increase of $15,000 capital at the end of each year. Following table shows the yearly income changes.
Year Contracts Per Trade Yearly Income
+0.6 pts / contract / day
1 1 $18,900
2 2 $37,800
3 4 $75,600
So for someone who never improves his skills beyond the one single trading method he knows, and that the trading setup only produces positive expectancy of 0.6 point per trade. This trader will still be looking at more than $75,600 a year income from trading after 3 years. As long as this trader continues to do exactly what he knows that work, his yearly performance will continue to grow. This is the power of scalability.
You cannot say the same thing when you are doing a dead-end job with minimal chance of career advancement.
What I am trying to show here is that even if your performance is just marginally positive with daytrading, you will come out ahead, way ahead, of a dead-end job. Of course, it will take hard work and persistency at your end. But if you do have these qualities why waste them on a dead-end job that will not reward you for your effort?
A Better Trader
Let’s look at a better trader. One who can produce positive expectancy of 1.5 points per contract on average. You will be surprised how big a difference it is.
Year Contracts Per Trade Yearly Income
+1.5 pts / contract / day
1 1 $47,250
2 4 $189,000
3 16 $756,000
Notice that I am not talking about a star trader who can pocket 3 points (or more) per contract. I am taking this straight from the mechanical/discretionary hybrid methods commonly used by firm traders in engaging the emini market.
It is true that trading a single lot in the beginning does not produce a lot of money in the first 2 years. But once the trader has enough money to go 5 lots or more, you start to see the real power of scalability.
Legendary Traders
There are several well known traders who start out with single lot trading and made over 1 million dollars within a year. Many people mistaken that they made it with big swings and assuming huge risk. That is not true.
What many of these guys did was essentially a turbo charge version of the scenario mentioned above. Instead of increasing size every $15,000, they increased size aggressively with much higher trading frequency than just 3 times a day by having multiple good trading setups. Hence the per contract risk taken stays the same.
As mentioned in Essense of Trading: Trading Is Easier Than Most People Think, it takes time for people to adjust their minds to trade size. For these legendary traders, their personalities also play a huge role in their accomplishments. Not everyone can adjust their mindsets to handle large equity swings that quickly and efficiently.
I know I am not one of them for sure. I have accepted the fact I am a slower person in this aspect. The important thing to remember is that there is no shame in not being able to handle as many contracts as another trader. The only thing that really matters is that you are pulling in good money from trading.
Aim For The Stars
After spending so much time in warning people to be careful with trading, I guess it is about time to talk about the income potential objectively. I think I am painting a fair picture here on what to expect from trading the emini S&P if you focus on consistency and profitability. Day trading emini S&P is a good career path provided you have what it takes to stay consistent in this highly competitive game.
My advice to young guns has always been the same, "Aim for the stars! You know it is possible because you have seen others doing it. Give it your best shot. Even if you do not rise to the top, reaching half way through you will still be way ahead of other career choices."
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