On day trading being a "scam": should we evaluate trader's or trading strategies' performances?

Discussion in 'Technical Analysis' started by andre.salmeron, Oct 13, 2019.

  1. I was just wondering, after going through extensive articles on how day trading is anything but a sure-fire way to lose money: are we looking into the right data? Let me explain.

    The overwhelming majority of academic research that deems day trading a moot enterprise, as well as news articles and whatnot, is based on the simple fact that most people who give a go at day trading end up losing all their money. Although that paints a clear-cut picture for those looking to get into this activity -- that is, the odds are definetely against you -- , what I'd really like to know is if the average day trader's performance is really what we, as finance professionals, should be looking at? Shouldn't we, instead, be looking into day trading strategies' performances?

    As any decent trader will tell you, the decisive factor in making it or breaking it in this field is not merely technical knowledge but, rather, psychological resilience. What this means is basically that notwithstanding the quality of a trading strategy or set of strategies, most people will promptly fail at executing them properly. Worst than that, they won't even subject themselves to training on a simulated market until they are actually profitable. That means that by the time they eventually master a strategy, they'll already be many many dollars behind where they started or, just as likely, will blow up their account before ever really getting there.

    This means that, when it comes to day trading, the overwhelming majority of people will fail but not because the enterprise itself is moot, but perhaps because of the way people approach it (which is also true for swing trading and longer-term trading strategies). So, if we know that the main issue with any trading strategy is improper execution, what makes day trading specifically easier to fail? Well, I argue here that it has to do with the increased psychological pressures and pitfalls: you'll be making decisions much much faster than you would if you were, say, swing trading; by that very same token, chances of you over-exposing yourself (improper position sizing, revenge trading, over-trading, etc.) is also much higher.

    However, let's put the human aspect aside for a second. Let's say we are able to define a trading strategy which focuses on a single instrument (e.g. future indexes or FX pairs) and which was designed for the specific purpose of day trading; furthermore, one which was backtested and statistically yields positive outcomes over a medium-term period. If this strategy was to be executed correctly, it'd mean that it would tend to generate consistent results in a day trading context, or would it not? If that is the case, we can once again argue that the reason day trading has such an astronomical rate of failure is due to human, namely psychological, factors. Furthermore, this would explain the fact that some people still do succeed in this field as independent day traders.

    What I would like to know, and which I think would be quite helpful for aspiring day traders to escape the endless stream of scams while also giving a concrete assessment of failure-success rate of day trading, is actually evaluating how profitable (or not) any given strategy (automated or manual) is over the short, medium and long term. That, while also making it crystal clear that such results are contingent on the actual ability to execute the strategy to the letter, which is in turn a matter of psychological resilience. Such information would contrast and enrich the data we have from individual day traders and the reasons why they are likely to fail.

    What are your thoughts on this issue? Hope to hear from you all. Cheers!

    MACD, comagnum, Peter10 and 3 others like this.
  2. Edmond


    I day trade (scalp) and never hold over a position overnight. Although one can make a huge gain by holding overnight but 80% of the time the stock will open lower the next day and scare you out. My experience anyway...
    I use tight ass stops so when I'm wrong I'm out quickly with a small loss. Not a big deal.

    Revenge trade? The term is sometime used incorrectly.

    Is my day trading worth the time I put into it? Yes. Sometimes I trade futures after hours sometimes I trade a handful of stocks that I watch during the first hour at open. If I see a set up I make a move, make some money and then stop. Other times the stock will trend all day so I'll hold it until I see a reversal. These days a lucrative and it's easy money. Some days I'll be back at 11:30 to look at my list of stocks, if I see a set up I'll buy or go short and make a few more bucks before close.

    I look at those bars and I see a bag of gold just waiting for me to take it.

    The markets need new day traders as the markets need new sheep to fleece...And believe me, they'll get it all. Basically the markets were created to take money from the many and transferred to the few.

    Like I said I'm self taught and I did learn a few great things reading this forum. Some of these guys have some great ideas and I thank them for that! Thanks guys!
    Last edited: Oct 13, 2019
  3. tomorton


    Interesting perspective, thanks.

    I'm not sure there are as many outright scams out there in trading as people make out. Traders love complicated strategies. And when they can't make money they seek a more complicated version. And if they can't buy one they will make one. This is a tendency to make your own scam and thereby scam yourself. Hard to blame the guys who sell over-complicated strategies when inexpert traders would go ahead and build the exact same thing if they couldn't buy it.
    andre.salmeron likes this.
  4. MarkBrown


    a scam is 95% winners with a profit factor of 10 and a drawdown of less than 1%
    trader99 likes this.
  5. Day trading is not a scam. Trade well, you win. Trade poorly, you lose.

    Services and schools who purport to teach you how to trade and charge a lot for their "services"... well, that's an entirely different kettle of fish.
  6. deaddog


    Is the problem the trader or the strategy?

    Have a written trading plan with specific "If/Then" criteria. If the market does this; Then I will react by doing that.

    If you follow the plan and lose money after a reasonable number of trades then the problem is the strategy.

    If you don't follow the plan; the problem is the trader.
  7. I honestly don't think there as many as well. However, the actual failure rate of traders is indeed more or less 90%+, at least in most case studies. Indeed, these often have some statistical bias or data sample issues (since they usually focus on beginners). But that's only half the picture, as these studies don't usually point the reasons for failure, rather just assuming failure as the inevitable (or almost) outcome.

    We as traders know not only what these people are doing wrong but also that it is possible - although pretty damn hard. That's why I would like to know how these figures hold up to actual day trading strategies - therefore ignoring the human factor that is usually beyond the grasp of new traders.

    As many said above, after all, trade the plan and you should be fine. You may not get rich, but most importantly, you'll not go broke.
    tomorton likes this.
  8. MarkBrown


    it's complicated cause

    1.) you have developers who know results are a scam and then prey.
    2.) you have newbs that don't understand the fallacies of building an algo.
    3.) you have accredited people who rely upon one of the above and promote.
    4.) you have an industry that only cares about how many trades were done today.
    a.) systems subscription sites
    b.) brokerage firms that promote etc.

    after many decades of systems development i can tell that most 99% are just ignorant people who lust for money overpowers their good senses and actually have no passion for truth and accuracy.
  9. Wheezooo


    A legitimate question. Do you automate 100% of your exits or do you allow for discretion? Btw. Your English is excellent for a Brazilian.

    Illegitimate question. If your Sim makes money does it send over a virtual 'marginal' to rob you?:D:D:D
    andre.salmeron likes this.

  10. yes, but

    after so long you should be long gone , retired, not haunting et

    guess it didnt work out so well
    #10     Oct 14, 2019