Day trading is one of the most popular approaches that many people are using to make money online. It is an approach that has gained popularity in the past few years, especially during the Covid-19 pandemic.
Day trading has numerous advantages, such as one can do it from home, it does not require a lot of capital, and it can be highly profitable when done right. Also, there are many assets available in the market, including thousands of stocks and cryptocurrencies and hundreds of forex pairs.
All day traders want to become profitable in the industry. An as you become more skilled, it’s ok if you want to scale your income.
But the reality is another. While many people become successful day traders, they struggle to scale their operations. The reasons for this challenge can be various, but often it is a matter of using the wrong method (to scale, not to make some profit).
This article looks at some of the best ways to help you to scale your trading business.
Ways to scale your day trading business
Start a trading floor
In most cases, many people start their trading journey as retail traders. In this, they create a retail trading account with companies like Robinhood, Schwab, and TD Ameritrade. These companies provide them with all tools that they need to execute their trades either in their smartphones or desktops.
Being a retail trader can be a highly profitable approach. However, we believe that starting a trading floor is one of the best strategies to grow your operations. A trading floor is a place where several people work together to trade and generate profits.
Prop trading is one of the best approaches to starting a trading floor. As a prop trader, you will benefit by trading using a company’s funds and letting your staff trade in shifts, and taking most of the profits.
Starting a hedge fund
Another approach to scaling your day trading strategy is to start a hedge fund. A hedge fund is a company where the manager raises capital from other people and trades or invests for them. These companies make money by taking a small administration fee (often 2%) and an incentive fee of 20%.
If you are successful as a retail trader, you have a high possibility of raising capital from external investors. The only con of a hedge fund is that you will need regular disclosures with the SEC.
Start a home office
Another way to scale your operation is to start a home office. A home office is structured like a hedge fund. It’s only difference is that one is only required to raise capital from their close family members.
The benefit of a home office is that it does not require substantial disclosures to regulators. As a result, some home offices achieve to manage billions of dollars.
So, how can you scale your trading business to grow your income? Let us look at some of the top approaches to achieve this.
Avoid the comfort zone trap
One of the most popular quotes by Henry Ford goes like:
“If you go on doing what you’ve always done, you’ll go on getting what you’ve always got“Henry Ford
This quote simply means that you should always work hard to change and improve the current situation. In other words, you should avoid the comfort zone trap.
The comfort zone trap is a situation where you feel comfortable about your current state. For example, if you make $10,000 per month trading, you can get comfortable with this for a long time.
Similarly, if you have a $5,000 account and constantly make $300 per month, you can be comfortable with it. Further, you can have a 9-5 job and make some cash every month day trading.
Therefore, in all this, you should avoid feeling comfortable about this. Instead, you should focus on improving yourself!
For example, if you have a track record of making double-digit returns, you can take a leap of faith and start a home office, a trading floor, or even a hedge fund.
There are other ways to get out of your comfort zone. For example, you can expand the assets you trade and the strategy you use. For example, if you are successful in day trading tech stocks, you can try other assets like consumer discretionary and financials.
Similarly, you can expand to other assets like cryptocurrencies, forex, and commodities like crude oil and silver.
We do not mean this is an easy process. Stepping out of your comfort zone forces you to deal with the fear of what you will find outside and the uncertainty over these changes. But do not worry; in these cases a demo account will always be your best ally.
The need for change in trading
In addition to changing/refine your trading strategy and focusing on assets, there are some other things you need to work on.
First, think about the changing regulatory framework in the US and other countries. Regulators like ESMA, Fed, and ASIC have made several important regulatory changes in the past few years. For example, ESMA introduced the MIFID regulations a few years ago that applied numerous changes to the industry.
Similarly, the SEC has introduced numerous changes across most sectors like stocks and cryptocurrencies. It has also intensified its legal actions against many companies in the financial services industry. Therefore, it is always important to be aware of these changes since they can impact your results.
Second, you should be aware of technology advancements. Some of the most recent top tech stories to watch are artificial intelligence, electric vehicles, quantum computing, and machine learning.
Further, you should also focus on macro factors like interest rates, geopolitics, and politics among others.
Adapt and evolve your strategy
The other approach to scale your trading strategy is to adapt and evolve your trading approach. As you already know, having a good strategy is a must have thing to do if you want to succeed in the market. Some of the most popular trading strategies are scalping, trend-following, reversals, and breakouts.
Perhaps you have become a successful trader by following a certain strategy, say reversals or scalping. If this approach works well for you, then we recommend trying other strategies in the market.
For example, if your trend-following strategy works well for you, you can attempt to use scalping or breakouts. The benefit of having two or three approaches is that you can make money when conditions change. As such, it can help you make money when the market enters a consolidation phase.
Another approach is to use the SWOT analysis. SWOT stands for Strength, Weaknesses, Opportunities, and Threats. Looking at these factors can help you improve your trading strategies.
Why do we recommend this? When you invest a significant amount of time in research but find that your returns are consistently low or falling below your expectations, it’s natural to become frustrated. This frustration can lead to making mistakes.
If this situation sounds familiar to you, it’s time to reconsider your approach.
Recognize the warning signs that indicate a change is necessary. Understand the weaknesses in your current strategy and actively seek out better opportunities in the market.
For instance, lower profits may be the result of exiting trades prematurely or, conversely, waiting for too many confirmation signals before trading an asset. Learning to identify and address these issues can potentially double your income.
Benefits of scaling your operations
There are three main benefits of scaling your trading operations. First, it will help you make more profits as you improve your trading approach. For example, moving from retail to prop trading will give you access to more money. The same is true with other approaches like a home office and even a hedge fund.
Second, it will transform you into an all weather trader, where you are able to make money in all market conditions. Further, it will give you peace of mind, and the ability to have a successful work-life balance. It can also help you boost your resilience in the market.
In conclusion, continuous learning is an important aspect in the financial market. It can help you boost your profits, strong psychology, and emotional intelligence.
Recognize and control emotions like fear and greed will help you to prevent impulsive trading decisions. Use emotional intelligence to build disciplined, patient trading habits for consistency and success. Using these approaches can simply make you a more holistic trader or even an investor.
External useful resources
- When to change your trading strategy – TopStep