What can you do with $1,000 in your pocket? It depends on the country you are living in. In the US or EU, you can’t buy many things, but you can start a long road to financial independence by investing this amount into trading.
Forex day trading for a living with $1,000 or even less is possible. You will need to learn how to control your position size and risks but in the end, you will be rewarded if you find your way to success. For day trading stocks you need at least $25,000 to start. As for the Forex market, you can do your first steps with a lower amount keeping in mind that the minimum deposit here may start even from $100. We are going to talk about day trading for a living with $1,000 in this article.
Choose Your Trading Style
You need to define your trading style before you start trading with any amount. There are three main strategies that you can choose from:
- Long-term trading.
- Midterm trading.
- Short term trading (including intraday and scalping).
Long-term means you are going to stay in the market for 3+ months. The key timeframe for this style is daily or longer (Weekly and even Monthly).
This trading style is more appropriate for stocks market or options trading. You will spend a couple of hours per week monitoring the market and your positions as well as looking for new opportunities.
This trading style looks convenient, but there is one thing you should keep in mind. The return from those long-term strategies is always lower when compared to the others. You can earn 25% per year for example, which is $250 if you start with $1,000. This trading style offers a lower yield in contrast to the other as you are going to open a few trades.
As for the benefits, you will have more time to analyze the markets and make more weighted decisions. You will be able to conduct more careful research and study a wider range of data sources.
If you choose this trading style, you will need to spend a couple of hours per week for market research. The key timeframe is daily (which is similar to long-term trading). As for the return, it can be higher when compared to long-term trading.
What are the main features of midterm trading? You will hold your positions for up to three months. Your return may increase to 50% yearly or even higher, depending on the number of positions and the current market situation. However, if we even take 50%, you will earn $500 by the end of the year, which is not enough for a living.
Short-term Trading, Including Day Trading and Scalping
This is the most suitable method for all traders having only $1,000 as their starting deposit. If you choose daytrading with $1,000, you will hold your positions in a range from a couple of minutes to a couple of hours. This is the fastest trading style as you can see. The working time frame is hourly (sometimes you can use even minute ones).
If you are day trading for a living, you need to have your smartphone or a tablet with you at all times. Even if you have already opened a position, you need to control it and fix it in the moment when you think you have enough profit.
The expected return is far higher when compared to long-term and midterm trading styles, but the risks are high as well.
Day Trading requires higher concentration from you. You need to have an appropriate strategy and trading system. All the decisions will be taken in minutes and sometimes in seconds. You should be ready to react to changing market conditions. Day Trading also requires a very strict approach to money and risk management, especially if you are trading with high leverage.
And finally, you need to have deep knowledge of Technical analysis. You don’t need any fundamentals daytrading. Technical analysis becomes your most important tool.
Look at Your Brokers’ Trading Conditions
Can you make a living day trading? Yes, but you need to pay attention to the trading conditions of your broker. You can have a high return, but if a broker's commission is high, you will lose a lot of money. The most important is the spread (a difference between Bid and Ask price). Spread is a broker’s commission for each of your positions.
It can be fixed or floating. Fixed spreads are normally higher than floating, but they remain unchanged even during the periods of important data releases. As for the floating spreads, they are usually lower, but they can increase greatly during important events, such as market data releases.
If you want to make a living day trading, you need to choose a broker with the lowest spreads possible. Some companies offer, so-called, zero spreads, which are below 1.0 pips on average. However, you need to understand that even zero spreads may be above 1.0 pips during normal trading periods. It depends on a broker.
Another type of commission is swap. It is taken for holding a position for more than one day. If you need to hold your trade for more than 24 hours, you will pay a swap to the broker (or get a swap if it is positive).
How to Start Day Trading with Little Money: Plan Your Positions
If you want to become a full-time day trader, you need to plan your trades. This means that you should create a strategy and trading system that will allow you to forecast market fluctuations. A good trading system includes the following:
- Analytics tools. You can use indicators, price action, graphic patterns, or anything else you think is useful for your success.
- The list of assets you are going to trade.
- Money and risk management features.
Every trading system has its own trading strategy. There are plenty of analytics tools that you can use. For example, you can choose the Bollinger Bands trading indicator to plan your future trades. Some interesting Bollinger Bands strategies can be found here.
Now it the time to show you the simplest trading strategy that you can use when starting your day trading for a living with $1,000. It includes only one indicator – the Relative Strength Index.
This technical indicator is a great tool to find price corrections and reversals. How to trade with this indicator? We are going to show one examples of finding reversal points on the chart.
When the RSI signal line is above 70, this means that the price of the asset is overbought. This is a good opportunity to wait for a short position. Once the RSI signal line breaks down the 70.00 level, it is time to open a short position.
Once your order is placed, you can monitor the position until you get enough profit to close it. However, there are also several important rules that you should know about day trading with $1,000.
Risk and Money Management
You can have great return day trading with $1,000, but the risks are also too high. Day traders lose their entire deposits trying to work very aggressively. To avoid those situations, you need to think about how to protect you from excessive risks. To do that, you need to calculate how much you can lose in a single trading session. You should understand that whatever trading strategy you use, you can’t avoid losses.
What risks can you accept? This is a personal question that you need to answer for yourself. This can be, for example, 10 pips per trade or 20 pips. You can set a risk amount equal to 100 pips per day. We recommend that your risks per trade do not exceed 5% of your total balance amount. This means that if you day trade with $1,000, your risks per first trade should not exceed $50. This amount may be even lower if you are planning to open several positions using various financial assets.
How to protect your risks during trading? There are two main ways – by closing your position manually when it hits the level of losses that is unacceptable for you or by using stop losses.
The second way is better as you can place a stop order once you place your normal order. The stop loss is transferred to the broker’s server and will be there until the price hits it or you close your position. This is a great way as if you have connection problems (this may sound ridiculous, but this may occur even in 2020) your stop loss will be in the game.
There is another type of order called Take profit. You can use it to establish a level on the chart where the order will be closed automatically by reaching a certain amount of profit. By placing both stop losses and taking profits, you can automate your trading a bit. You don’t even need to monitor the position as once you have placed both stop losses and take profits, your position will close automatically.
Can you Day Trade for a Living with $1,000? Trading Expectations
This is a very important question and, now, we are going to show you how much you can earn trading a couple of orders per day. Suppose your trading strategy gives you 6 out of 10 positive results and 4 losses. You earn 30 pips in each positive trade and lose 10 pips in each negative. The number of positions you open per week is 10.
You will earn 180 pips against losing 40 that is equal to 140 pips in total per week. If one pip equals to $1, you will get $140 per week. Multiplying this result by 4 you can calculate your monthly profit, which will be $560. You will earn less due to the spreads, but you can see that this amount is half of your initial investment. You will be able to increase the amount you put in one trade, while your balance is growing. This means that in a couple of months 1 pip may be equal to $2 or even more. However, if your strategy fails, you will earn less per each trade.
This is a very optimistic scenario for day traders, who have great experience and skills. Your first months may look not as positive as you are going to test your strategy and learn more about trading.
Day Trading Stocks for a Living
We have already mentioned that you need at least $25,000 to start day trading stock via stock brokers. However, there is another way to buy and sell your preferable securities. And we think that this way is even easier to follow.
Most Forex brokers offer, so-called, Contracts for Difference or CFDs for stocks and indices. What are those contracts? They are a kind of derivative that you are buying with an underlying asset. You can buy, for example, a CFD for stocks without purchasing stocks in reality.
What is the main advantage of a CFD as compared to the clean buying of stocks via stock brokers? You can purchase securities and sell them right away without waiting for those stocks to be added to the depositary. CFDs are similar to Forex trading. You don’t have any obligations and you don’t even own security. You are trading the price of it. Apart from this, there are also some important advantages of CFD trading including:
- Leveraged trading allows you to earn more.
- You can go short or long anytime without borrowing stocks from a broker.
- You don’t need to have $25,000 on your trading account.
- It is easier to hedge your active trades by adding new positions.
The Pros and Cons of Day Trading
What are the advantages of day trading for a living?
- Day trading gives you more independence. You are your own boss. You can trade whenever you want and have more free time to spend.
- You have your own schedule. You can have a day off on Monday or Tuesday if you want. You don’t need to ask someone’s permission anymore. You can even trade in the morning and relax in the afternoon.
- Trading is an intellectual activity. You need to apply math to succeed. You will have to do many calculations during your trading career. You will also need to search for information to get higher rewards.
- You can organize your office in any place in the world. All you need is a device, where you can install a trading platform and a stable internet connection. This means you can trade from any country.
- Trading is a prestigious profession. If you are in this lucky 10% of profitable traders you will improve your financial situation significantly. This will help you to reach a better social position.
- There are no salary limits. When working in the office, you have a salary. When trading for yourself, you don’t have any limitations. You can earn much more money.
However, along with those great benefits, there are also some limitations that you need to bear in mind. They are as follows:
- You can lose all your invested money. Yes, this happens, especially to unskilled traders. They are trying to start trading right after creating their accounts searching for fast money. They end up losing their initial investments in most cases.
- Loneliness. This is a common problem for all traders and those who have remote working places. You can’t talk to your colleagues as you have none. Some traders visit special forums and talk to other traders, but that can’t substitute a face-to-face interaction.
- Day trading takes a lot more time than you imagine. This depends normally on how many financial instruments you trade. If you open a couple of positions per day, it will take a couple of hours for trading. However, if you want to trade more, you need to spend more time in front of your trading terminal.
- Day trading requires cold blood. If you are not ready to be tested every day, it is better to choose another trading style and invest more money. However, if you think you can overcome all those obstacles and difficulties, day trading may offer all its benefits to you.
- You need money. You can day trading for a living having $1,000 on your trading account but you need to understand that this amount will be invested. You need something to eat, to pay your bills with, etc. You can’t leave your current job to do trading with this amount in the pocket.
Forex day trading with 1,000 dollars is more than possible. However, there are some serious things that you need to keep in mind. You can’t make much money at the beginning. You need to also understand that you can lose all your investment trying to become financially independent.
With that in mind, many newcomers are cautious and that is the reason why they earn less when trying to minimize their risks. And this approach is great as you can’t earn suffer from a lot losses. By investing $1,000, you need to prepare for a long road to success. You can walk until the very end, but you will never know how long it is going to take.