"Conclusions (Day Trading) There was only one successful day trading account in the 17 accounts analyzed. Fifteen of the 17 accounts analyzed had a significant risk (probability of ruin over 27.6%) of losing all funds. Eleven of these 17 accounts had a 100% chance of ruin. That is, 65% of these accounts would almost certainly lose any and all funds put at risk in them. Five of the six accounts, which realized net profits, were no more than marginally profitable and realized a large percentage of their profits from a single trade. Speculative trading is volatile. Clearly, if a trader can make most of his or her profit on a single trade, he or she can lose it on one or two trades. Moreover, it should also be noted that any profitability evaluation must be conducted on a risk/reward basis. If you have 5 times the risk, you should require at least 5 times the reward. The Sharpe Ratio compares the return from an investment with the risk incurred to earn the return. A risk/return analysis was conducted for account A30, the only account considered successful in both day and short-term trading. The Sharpe Ratio analysis (Exhibit I) clearly shows that although Account A30 was profitable, it did not produce a return commensurate with the risk to which it was exposed. The Bottom Line If this analysis is representative of public trading, it is abundantly clear that the average public investor should refrain from short-term trading. Only three (3) of twenty-six (26) accounts (11.5% of the sample) evidenced the ability to conduct profitable short-term trading. This study shows that 70% of the public traders will not only lose, but will almost certainly lose everything they invest. Day trading is particularly risky. While the study found that three (3) accounts in twenty-six (26) could successfully conduct short-term trading, there was only one successful day trading account. A Sharpe Ratio analysis of the only account considered successful in both short-term and day trading showed the trading returns were not commensurate with the risks to which the account was exposed. The most successful account in the study, A8, had limited short-term trades and no day trading. ......... "Day trading is particularly risky. While the study found that three (3) accounts in twenty-six (26) could successfully conduct short-term trading, there was only one successful day trading account. A Sharpe Ratio analysis of the only account considered successful in both short-term and day trading showed the trading returns were not commensurate with the risks to which the account was exposed. The most successful account in the study, A8, had limited short-term trades and no day trading." Footnote 1 This study will utilize Risk of Ruin tables developed by Nauzer J. Balsara author of " Money Management Strategies for Futures Traders." Mr. Balsara was featured in a December 1992 article for Technical Analysis of Stocks & Commodities, from which the Tables were taken." http://www.nasaa.org/content/Files/Day_Trading_Analysis.pdf Professional Report Ronald L. Johnson Investment Consultant 1424 Seagull Dr. Ste.107 Phone 727-771-7020 Palm Harbor, FL 34685 Fax 727-771-0980 Day Trading An Analysis of Public Day Trading at a Retail Day Trading Firm The Purpose of The Analyses Numerous market studies have concluded that accurate market timing is not possible, even for professional money managers. Day trading is the ultimate test of market timing in that the trade is opened and closed within the same day. The emergence of the Internet and the availability of almost instantaneous real-time market data have increasing numbers of public investors interested in trading on a short-term or intraday basis. Retail brokerage firms concentrating on this speculative activity frequently claim that a high percentage of their retail public clients are profitable. The purpose of this analysis was to analyze a statistically significant sample of public day trading experiences in order to determine whether public retail customers really have been successful day traders, and to identify and quantify the risks that public investors face as day or short-term traders. How The Analysis Was Conducted Step 1. The Project Group on Day Trading randomly chose thirty (30) short-term trading accounts for analysis from a retail day trading firm: Thirty accounts were analyzed in order to provide a representative sample of public short-term trading activity. The accounts were chosen without knowing either the distribution of short-term trades within the account or the profitability of the trading conducted. Step 2. A matched trading analysis, commission-to-equity analysis, and turnover analysis was conducted for each account by STZ Analytical Services. A matched trading analysis matches opening trades with closing trades and was required to identify the profitability and duration of all trades in each account. A typical matched trading analysis conducted for this report is shown at Exhibit A-1. Commission-to-equity and turnover analyses were conducted for each account to quantify the degree of activity and the costs associated with that activity in each account. Typical turnover and Page 1 Page 2 Professional Report commission-to-equity analyses conducted for this report are shown at Exhibit A-2. Step 3. This analysis addresses all of the trading as well as the day trading conducted in each account. Trading statistics were calculated and evaluated based on the matched trading results of Step 2. The typical set-up analyses conducted for this report is shown at Exhibit A-3. The analysis established important selected trading statistics for each account (shown at the top of Exhibit A-3). The individual account statistics were calculated on the basis of matched trading record shown below the heading "QTY, DAYS HELD, P/L". (Exhibit A-3 includes only the first 26 trades, sorted by Days Held for illustration). Account A7, for example, had four day trades (0), three two day trades (2), two three (3) day trades, etc. The majority of the accounts traded 1,000 share lots. ....READ STUDY IN PDF FORMAT HERE... http://www.nasaa.org/content/Files/Day_Trading_Analysis.pdf
"The largest 1,000 share loss was $81,522" Wow. Talk about letting your losers run! Stock had to drop 81.52 before the guy said "ok, i've had enough"
My favorite part - "Conclusions (Day Trading) There was only one successful day trading account in the 17 accounts analyzed. Fifteen of the 17 accounts analyzed had a significant risk (probability of ruin over 27.6%) of losing all funds. Eleven of these 17 accounts had a 100% chance of ruin. That is, 65% of these accounts would almost certainly lose any and all funds put at risk in them. Five of the six accounts, which realized net profits, were no more than marginally profitable and realized a large percentage of their profits from a single trade. Speculative trading is volatile. Clearly, if a trader can make most of his or her profit on a single trade, he or she can lose it on one or two trades. Moreover, it should also be noted that any profitability evaluation must be conducted on a risk/reward basis. If you have 5 times the risk, you should require at least 5 times the reward. The Sharpe Ratio compares the return from an investment with the risk incurred to earn the return. A risk/return analysis was conducted for account A30, the only account considered successful in both day and short-term trading. The Sharpe Ratio analysis (Exhibit I) clearly shows that although Account A30 was profitable, it did not produce a return commensurate with the risk to which it was exposed. The Bottom Line If this analysis is representative of public trading, it is abundantly clear that the average public investor should refrain from short-term trading. Only three (3) of twenty-six (26) accounts (11.5% of the sample) evidenced the ability to conduct profitable short-term trading. This study shows that 70% of the public traders will not only lose, but will almost certainly lose everything they invest. Day trading is particularly risky. While the study found that three (3) accounts in twenty-six (26) could successfully conduct short-term trading, there was only one successful day trading account. A Sharpe Ratio analysis of the only account considered successful in both short-term and day trading showed the trading returns were not commensurate with the risks to which the account was exposed. The most successful account in the study, A8, had limited short-term trades and no day trading. ......... "Day trading is particularly risky. While the study found that three (3) accounts in twenty-six (26) could successfully conduct short-term trading, there was only one successful day trading account. A Sharpe Ratio analysis of the only account considered successful in both short-term and day trading showed the trading returns were not commensurate with the risks to which the account was exposed. The most successful account in the study, A8, had limited short-term trades and no day trading." Footnote 1 This study will utilize Risk of Ruin tables developed by Nauzer J. Balsara author of " Money Management Strategies for Futures Traders." Mr. Balsara was featured in a December 1992 article for Technical Analysis of Stocks & Commodities, from which the Tables were taken."
I'm getting fan mail. Apparently, merely posting this study is pissing some people off. I wonder why?
Let me guess, this report was made and created and backed by Investment advisors. Finacial Planners.. hmmmm,, very interesting. , Check the source. even thought maybe true, Find out if it works for you, if not move on to something else. EF
lol, I don't get why any trader would be pissed at this study. "This study shows that 70% of the public traders will not only lose, but will almost certainly lose everything they invest." Shouldn't anyone who's trading be familiar with the rule of thumb that 90% of daytraders fail? Why is a 70% number upsetting? There's even a good chance this study has skewed results from having such a small sample size, and would have found something closer to 90% if they looked at more accounts.
Obviously the guy (who just registered this month) is one of those people in the study. That type of anger does not come from someone who consistently makes money. That type of anger comes from someone who consistently LOSES money. Because we all know how pissed off we all were back when we were beginning traders and didnt know how to make money.
Exactly. The study more specifically said that only 1 in 26 traders followed 'netted' anything, and that 70% would lose everything in short order. So, one could slowly bleed to death, realize it's not working, and salvage the remains of their account by ceasing day trading - hence surviving.
You are so eloquent now, yet so hostile in private. How about analyzing the study posted rather than engaging in ad hominem attacks, like real 'thinkers' do? Dr. Jekyll, or Mr. Hyde, I presume?