Day Trading Surges In Popularity, This Won’t End Well https://www.forbes.com/sites/simonm...n-popularity-this-wont-end-well/#78bcecf656c8 An increase in furloughed employees, broader access to commission-free trading and a strong couple of months in the market have increased day trading for U.S. markets. For most traders, this won’t end well studies show. Brazilian researchers studied those trading Brazilian equity futures, among the third largest market in the world in volume terms. The paper is here, the results do not make happy reading. They found that 97% of day traders end up losing money as a year approaches. In fact, a similar paper examining the fortunes of day traders in Taiwan, found that only 1% made money. Other researchers have come to a similar conclusion, researchers in the U.S. found that about a third of U.S. day traders between 1992 and 2006 had some level of profitability after costs. That’s a better outcome, but the concern is that those results pre-date the broad adoption of algorithmic trading. Either way, depending on the study you look at, somewhere between to most to virtually all day traders lose money. The Casino Effect Day trading can be likened to a casino. Those who do well trade less frequently, and may have some degree of edge when they do. However, those trading every day likely don’t have an edge, as such daily trading serves only to increase costs and risks. If you play a single hand of blackjack you may win. If you play a thousand hands of blackjack you’ll likely to lose out to the edge the casino has. As you play more hands, so your probability of winning declines. Researchers found a similar pattern with day trading, in the Brazilian study. After a single day of trading, almost half of traders were ahead, but after a year very few were. Risk-Adjustment Making or losing money is one consideration. The other is risk. The researchers also found day trading to be a risky proposition. Even the very best day trader earned $310 a day, but with a standard deviation of $2,560. Even when it works, day trading is not a predictable income stream. There’s a lot to be said for long-term investing in stocks. Historically stocks have been a robust asset class to gain exposure to, and if more are making stocks part of their long-term portfolio, then that may be a good thing. However, if new investors are getting sucked into day trading because of short-term returns and trading more frequently as a result, then multiple studies suggest this is unlikely to end well.
The study from 1998-99 (not sure why it says 1992-2006 in the article text) is interesting. They looked at a prop firm with 324 traders during Feb 98-October 99, likely to be an above-average group in a very favorable era for daytrading. 35% of the traders were profitable overall but only 4% made more than $50k, and the most profitable guy made $197k - the least profitable lost $750k! And this is before the days of HFT. Obviously BS results. Reseachers ought to study Elitetrader where there are dozens if not hundreds of traders successfully scalping index futures. Or, they can study Twitter/Youtube where there are hundreds of penny-stock traders pulling consistent 5-6 figure weeks after running their small $5k accounts up to $1mm+ (darned capacity limits!)
Could you please show us these Youtube superstars who can turn 5K into a mil daytrading penny stocks? Thanks.
Not sure what loser bucket shop they supposedly looked at but there were literally 100’s of prop/retail guys at firms in and around NYC making more than 50k a month (and they were the small guys). 197k was what some monster guys were making just on hot IPO’s (JNPR, PALM, ARBA etc) or on crazy YHOO QCOM days Now I’m not saying they all kept it lol. So many “great traders” from that era lost it all 2000-2002 because all they knew how to do was buy. But whoever says guys weren’t printing cash in the late 90’s is lying.
I have been reading ET posts since 2014 and frankly didn't see too many unprofitable day traders, except me.
Making 50k a month or 500k a month does not mean a thing if we don't know the trading capital that was needed to generate that type of income. And we don't know the risk they are taking on each trade, or even the size of their biggest drawdown. Did you notice that very few traders give their return on investment (ROI) in percentage (%)?
We had the longest bull in history, & the most hated - it lacked the public's participation until only recently. This may be just the tip of the iceberg. For years the millennial's were being bashed for being to risk intolerant, looks like they have flipped the script. I like the RH traders & WS Bets, they sure add some mojo to the market. Just don't stand in front of trains like that kid Alex did.
to be a day trader is like - going for Olympics competition we have to practice running 15 hours day, every day, week, month ... - skilled craftsman taking years to be able to craft raw gem into priceless gem many day traders thought just run occasionally is good enough or want to be skilled craftsman within days