# Example of a Day-Trading Strategy in Action

Consider a strategy for day-trading stocks in which the maximum risk is \$0.04 and the target is \$0.06, yielding a risk/reward ratio of 1-to-1.5. A trader with \$30,000 decides that their maximum risk per trade is \$300. Therefore, 7,500 shares on each trade (\$300 / \$0.04) will keep the risk within the \$300 cap (not including commissions).

Here’s how such a trading strategy might play out:

• 60 trades are profitable: 60 × \$0.06 × 7,500 shares = \$27,000.
• 45 trades are losers: 45 × \$0.04 × 7,500 shares = (\$13,500).
• The gross profit is \$27,000 – \$13,500 = \$13,500.
• If commissions are \$30 per trade, the profit is \$10,500, or \$13,500 – (\$30 × 100 trades).

Of course, the example is theoretical. Several factors can reduce profits. A risk/reward ratio of 1-to-1.5 is used because the number is fairly conservative and reflective of the opportunities that occur all day, every day, in the stock market. The starting capital of \$30,000 is also just an approximate balance to start day-trading stocks. You will need more if you wish to trade higher-priced stocks.