Do Day Traders Rationally Learn About Their Ability?

Discussion in 'Trading' started by Evermore2017, Feb 15, 2018.

  1. From:
    Barber, Lee, Odean (2010): Do Day Traders Rationally Learn About Their Ability?

    • 80% of all day traders quit within the first two years
    • Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.
    • Traders with up to a 10 years negative track record continue to trade. This suggest that day traders even continue to trade when they receive a negative signal regarding their ability.
    • Profitable day traders make up a small proportion of all traders – 1.6% in the average year.However, these day traders are very active – accounting for 12% of all day trading activity.
    • Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor
    What do you think?
    Visaria likes this.
  2. mbondy


    Agreed. Traders are for the most part net losers, and delusional about their 'abilities'.
    Van_der_Voort_4 likes this.
  3. Xela


    Two main things.

    First, I think it's easy to present as "information" a lot of statements which can't really be objectively verified.

    Secondly, I think that in many cases the "facts" listed above are actually pretty misleading because there's no context provided for them.

    I'll mention a couple of specific examples and try to explain why they're potentially so misleading.

    My own guess (and these are only "guesses": there's no way of knowing for sure, as figures for this can't be reliably monitored or collated) would have been higher. But even so, what would be relevant would be to compare the figure with that for "other forms of trading" and "other forms of self-employment" and "other hobbies with potential to make some money". Is it low, or high? Is it better or worse than one should expect? Who knows? It's all very interpretative, isn't it? [​IMG]

    Again, the same comments apply. If you compare that 7% 5-year-survival figure with the restaurant business, for example (and there are many other available examples, too, for which information is far more reliable than is so for trading), it's actually rather a high figure. If indeed it's true in the first place.

    I think it's a mistake, in principle, to let oneself be influenced by "facts" like the ones above, which are typically offered with an agenda (sometimes an overt one; sometimes concealed, depending on the context).

    That's a different question, and one not really addressed by the "information" above. My own suspicion is that they generally don't - just as is true of almost any other kind of activity you could mention instead of daytrading.

    In other words, it relates mostly not to daytrading, per se, but more to "the human condition" in general.

    For myself, even though my own knowledge of "psychology" is admittedly close to zero, my general experiences of everyday life and especially my experiences of educational processes (of which I happen to have quite a lot!) have made me a believer in the Dunning-Kruger effect, anyway.

    Call me a skepchick, but my own impression is that there are a lot of very widespread misunderstandings about "daytrading", and that it isn't even a word that's used with the same meaning by everyone using it ... and even if everything said above is true, how surprising or indeed significant would it really be, anyway? In summary, it may or may not be true, and what does it really demonstrate anyway, even if it is? [​IMG]
    Last edited: Feb 15, 2018
  4. A well designed aptitude test would be great.

    1. Do you have a life history of not screwing up, working without direction and external motivation in a fairly complex job? Y/N
    2. Do you have money to study full time for a year or two in the live market? Y/N

    That is about it really.
    cvds16 and Xela like this.
  5. jinxu


    Did they Define Day Traders?

    I read in a trading book once (long time ago and forgot what book but it was supposed classic) that psychologist makes the best traders. I would have prefer they did a statistical analysis on day trader's IQ and personality traits. The 95% of daytraders are loser is common knowledge.
  6. qxr1011



    there is no money to daytrade with negative method even a year...

    baloney as well

    day traders do learn about trading

    idiots try learn right on their money and die soon - not enough money (time), smart ones spend years developing method before steeping onto the fray
  7. lcranston


    Based on the studies of theirs which I've read, I have no reason to believe that their findings are suspect. In fact, their protocols are far more rigorous than those used by most, if others follow any protocols at all. Those who offer thoughts that are based on little more than anecdotal evidence and impressions should at least come prepared.

    Barber and Odean were studying what has come to be known as Behavioral Economics before most people even knew what BE was. That traders reject their findings says more about the traders than it does about the findings. As for negative track records, I've known "traders" who've traded negatively for as long as 14 years; they just keep funding their accounts from other sources.

    Incidentally, the "traders don't learn about trading" is abbreviated. The quote should read "traders don't learn about trading by trading", which is then followed by “'Trading to learn' is no more rational or profitable than playing roulette to learn for the individual investor."
    Slartibartfast and Xela like this.
  8. jinxu


    I did a statistical analysis on roulette systems once. There is something that can be learned from roulette and I believe it applies well to daytrading.
  9. zdreg


    there is no such animal. there are intangibles for success that cannot be measured.

    as far as your suggestions go there is plenty of room for disagreement.
    1. people who are successful have a history full of screw ups. they are willing to take risks and persevere until they find their niche.
    "Do you have money to study full time for a year or two in the live market? Y/N"
    the question to ask is what are you willing to do if you are making no money or little money in the beginning period of becoming a professional trader?
    Van_der_Voort_4 likes this.
  10. I was being intentionally glib. What I should have written is people who don't google & read the near infinite comments on this topic before creating a new thread are near certain to fail. ;)

    I am a successful Futures trader, very successful since starting in 2014. However I was good at a lot of things, not a genius but I have mental stamina and some creativity. I studied over 14 hours a day for 18 months including weekends before I moved from 1-2 cars on e-micros and simple setups on e-minis.

    Additionally I had an injury that forced me to quit my old IT career as I could not keep driving to customer sites etc.

    Another successful trader friend (more gregarious) set up a Skype group and invited only those with some promise. Of the 12 a year later the original three amigos and two others have done well. The other two are weak because they have self-employed companies but they can trade competently.

    The rest despite having unlimited access to actually successful traders who are not holding their cards to their chest, have not progressed at all.

    I know on a case by case basis why the others have failed, each is different however the reason for the 3-5 successful? Personalities vary but they are all bright & do the work required and have always been quickly competent at anything that takes their fancy.
    #10     Feb 15, 2018
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