How significant would it be to miss a trade or two while day trading? True, you might miss that very big losing trade, or that very big winning trade. But have you stopped to think of the difference it might make to miss just one or a few trades in a given session?
Five Trading Opportunities = Twenty Six Possible Scenarios (all very different)
Here’s the scenario:
- You have a small trading account of $2,000.
- You pay a total commission plus fees of $5.00 round turn.
- You are presented with five trading opportunities on a given day.
The trading results are:
- Trade 1: -$400
- Trade 2: -$100
- Trade 3: $450
- Trade 4: $100
- Trade 5: $50
- Commissions & Fees: -$25
- Total PL: $75 | PL%: 3.8%
Not great, but not bad either. But this result is predicated on taking every single trade.
What if you miss one trade?
Depending on which trade you miss, you may get one these possible results, expressed in percentage terms (commissions and fees included):
- Missed trade 1: 23.8%
- Missed trade 2: 8.8%
- Missed trade 3: -18.8%
- Missed trade 4: -1.3%
- Missed trade 5: 1.3%
What if you miss two trades?
Let’s take a look at the varying results depending on which trades you missed (commissions and fees included):
- Missed trades 1 & 2: 28.8%
- Missed trades 1 & 3: 1.3%
- Missed trades 1 & 4: 18.8%
- Missed trades 1 & 5: 21.3%
- Missed trades 2 & 3: -13.8%
- Missed trades 2 & 4: 3.8%
- Missed trades 2 & 5: 6.3%
- Missed trades 3 & 4: -23.8%
- Missed trades 3 & 5: -21.3%
- Missed trades 4 & 5: -3.8%
What if you miss three trades?
- Missed trades 1, 2, & 3: 6.3%
- Missed trades 1, 3, & 4: 23.8%
- Missed trades 1, 2, & 4: 26.3%
- Missed trades 1, 2, & 5: -3.8%
- Missed trades 1, 3, & 4: -1.3%
- Missed trades 1, 3, & 5: 16.3%
- Missed trades 2, 3, & 4: -18.8%
- Missed trades 2, 3, & 5: -16.3%
- Missed trades 2, 4, & 5: 1.3%
- Missed trades 3, 4, & 5: -26.3%
One trading session consisting of five trades can present up to 26 different results depending on whether you miss one, two, or three trades. The range of results vary from a -26.3 return to a 26.3% return. This is a huge difference.
As a day trader, you are likely to make at least two intraday trades across multiple days. The more trades you place, the more complex it gets.
If missing a few trades in a five-trade session can yield up to 26 results, imagine how much more complex it gets if you place more trades within a day or if you trade several days in a row.
The main takeaway: if you are following a trading system or method based on backtested results, be aware of how missing just one or a few trades can significantly alter the original performance statistics that may have validated your reason to trade that system in the first place.
There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.