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This blog post did not answer it's own question because it's conditions were not day trading (over 3 trades in 12 months). That condition selects for people ch

This blog post did not answer it's own question because it's conditions were not day trading (over 3 trades in 12 months). That condition selects for people choosing individual stocks hoping for a moonshot, for which people tend to choose riskier stocks rather than stocks actually likely to make them money. So no wonder 80% lost money. On the other hand, notice that the 20% who do make money have a large power distribution curve. A better way would have been to compare performance versus frequency of trading (I don't expect this to prove one way or another though). The fact is, there are many strategies one could take, and it's how well you execute them that counts. Personally, I don't find daytrading riskier than holding stocks. By far my biggest losses come from holding the wrong stocks for a long period. It just seems riskier because you have to confront yourself with the possibility of loss each day, rather than hold "long term" and deny that you are wrong. I now take the Doyle Brunson approach. The poker champion loved to pick up small pots and felt it was critical to do by aggressively playing small hands. That way, these little wins pay for the risk of playing bigger hands over time. I've had the same experience - my daytrading tends to be small money but it stems from work done for holding long term stocks. So why not put it to use? But, to actually make good money daytrading is still really difficult. Commissions alone can make you have to be 55/45 correct, but there is also the steamroller affect where people tend to hold on to losses and double down further. So it's also about mastering yourself in addition to your market. Otherwise, there is not reason why you can't be better: you are putting in more work than others to make good decisions, and that's how you profit. Trouble is, when are you still outgunned informationally?

bvanslyke 10y ago
I'm curious - If you don't mind sharing, how long have you been day trading and what has your percentage return been?
- nicholas73 10y ago
  I started actively trading around 5 years ago, and only picked longs another 5 years before that. It's difficult to give an exact % because I'm not a day trader per se. I trade around a position I know well, but do day trades when I spot an opportunity. Sometimes you know something will happen, but only on a short time frame. For example, I went into oil stocks earlier this year, and I knew that the market was panicking over the low oil price. So some days the market would bounce back right when the oil pits close at 2:30 (since the oil correlation can't get much worse then). Take a chance to ride the way back up, why not? But you can't do this all the time, which is why I gave you this esoteric example. Well, if you still want a percentage, I'd say 10-20% might be a reasonable achievement.
jfoster 10y ago
If you ask me, daytrading seems riskier because you're essentially trading within noise. A company could rise or fall a few (and more rarely, a lot of) percentage points within a day. Is it fluctuating based on anything other than the feedback loop and noise? Usually not, I think. It seems far more unpredictable and lacking in reasoning than something like "Amazon's strategy for the next couple of years involves X, Y, and Z, so I think they will be successful/fail."
- dllthomas 10y ago
  > "Amazon's strategy for the next couple of years involves X, Y, and Z, so I think they will be successful/fail." That's not really the right question. If Amazon's strategy is hugely successful, but everyone else already thought Amazon's strategy was going to be even more hugely successful and had priced that in, then you could be 100% correct about your question and lose money.
  - IshKebab 10y ago
    Agreed. You need to ask "Is Amazon's strategy for the next years going to work better than everyone thinks it is going to work?"
    - tome 10y ago
      What other people think is only relevant insomuch as it determines the price. You need to ask "Is Amazon's strategy for the next years going to work well enough that I should buy at the price the stock is currently offered at?".
      - dllthomas 10y ago
        I think if you unpack "should", those wind up being more or less orthogonal.
  - Spooky23 10y ago
    > If Amazon's strategy is hugely successful, but everyone else already thought Amazon's strategy was going to be even more hugely successful and had priced that in, then you could be 100% correct about your question and lose money. Yet, Amazon is about 100% more valuable stock wise in 2016 vs. 2014. The strategy is about the same. The real question is: "How will stock X perform vs some baseline". I use a 90/10 VTI/BND portfolio as that baseline. If you have the time to understand how to answer that question, you can make a good return as an individual investor. (Either by identifying good investments, or reverting to the baseline) For example, if as a tech person, you used your insights into the industry and ended up picked any one of Amazon, Apple, Red Hat, Oracle and/or Google as investments 10 years ago, as part of a diversified basket of 4-5 stocks, you would have beat a safe Boglehead portfolio by a significant margin, even factoring in the market implosion in 2008/9. If you picked Apple or Amazon, you hit a home run. It depends on your needs though. If you're saving for college and your kid is 16, you need a portfolio with a lower volatility. If you're retired and need income, you want to minimize volatility and minimize tax impact. If you're a mid-career professional like me who won't need a dime until 2030, you can take more risks.
naveen99 10y ago
If your minimum bet is $1000, commissions are less than 1%. As long as you don't over leverage, the expected return should be positive relative to s&p if you sell options. But you got to hold them to collect some premium.
- nicholas73 10y ago
  This was about daytrading, where you would be lucky to find a stock that moves 10% intraday.
  - Blackthorn 10y ago
    Plenty of those stocks exist. We just talked about two of them the other day - CXW and GEO.
    - nicholas73 10y ago
      Are you saying you make 10% trades every day?
      - Blackthorn 10y ago
        No I'm not, and I don't see how that is relevant. You claimed that it was hard to find stocks that moved 10% in a day. I show that this is not the case.
        nicholas73 10y ago
        I claimed it was hard to find stocks that move 10% intraday, in the direction you want, before they have moved 10%. Trading is about profit after all.
mrchicity 10y ago
I think the individual retail trader is almost always outgunned informationally when it comes to intraday trades. Most short-term price action is driven by order flow and cross-asset correlations, which machines are very good at trading. They are often net trading cost earners due to rebates and capturing bid-offer spreads. That means their win rate doesn't need to be as high, so they can pull the trigger on a trade before you can, just by having lower fees and superior execution. In addition to that, they're faster, more scalable, have more access to liquidity, and are more disciplined than humans could ever be. For the ones who trade off statistical correlations, they have the best data and armies of PhDs working on signals. There are some event-driven fast trades still done by humans, like after news or responding to economic releases, but hedge funds have highly-educated people modeling the effects of an interest rate change or earnings release as their full-time job. This area is also becoming dominated by bots doing sentiment analysis. I think the retail trader could have an edge in a few ways. One would be an illegal edge like inside information or market manipulation. Another would be finding illiquid stocks that proprietary traders and hedge funds won't bother with and trading using similar techniques. You could also look for extreme situations that model-based traders can't understand well due to lack of data, like a merger target breaking away. Those trades would be very risky though. FWIW I'm a professional trader and never day trade my own account or pick individual stocks. My company allows it, but I don't believe I have any edge in doing so. I just buy and hold a portfolio of ETFs.
- gedrap 10y ago
  Thanks for a great answer! Similar threads keep popping up quite often here and I can see why. It probably seems romantic and all that to beat the machines, beat the armies of PhDs and make some real cash. But for a retail trader, it probably can be summed as 'don't bother, you are strongly against all odds, proceed only if it is fun to do and don't expect to make any money and lose all'.
- RubyMyDear 10y ago
  So, if you believe in this sort of analysis at all, why doesn't the individual retail trader do "week trading" or "month trading" where the effects of machine trading may be smaller? (Disclaimer: I'm a "buy and hold" guy. Of broad-based mutual funds. And I beat 80% of day traders...)
waylandsmithers 10y ago
> Commissions alone can make you have to be 55/45 correct Don't forget taxes!
- leereeves 10y ago
  Taxes reduce profits (and losses) but don't change a profit into a loss. At least, not by the usual standard for "making money day trading", which ignores fixed, nondeductible costs like rent.
- daveguy 10y ago
  Taxes are different. Taxes won't make a winning position a losing one, but commission very easily can. That is because taxes are on profit. Small profit => small tax and large profit => large tax, but that will not turn a winning position into a losing one.
  - jnordwick 10y ago
    In real dollars (after adjusting for inflation) taxes will most easily turn a winning position into a losing one. This has always been the problem with taxing capital, often you are just taxing inflationary gains.
  - nothrabannosir 10y ago
    As another commentor mentioned: you're not comparing against a 0% baseline, but against the relevant index fund. Or, at the very least, against normal savings accounts interest. So taxes can indeed turn a winning position into a losing one.
  - nicholas73 10y ago
    Tax laws for MLPs can make a losing position. Look it up!
stouset 10y ago
Most of the people I know who've been profitable day-trading have earned less than they would have in an index fund. They consider themselves successul because they're up 17% since 2014. Of course the market is up 22%, so they've actually lost money relatively to everyone else. It's also easy to make a net return when the market is up. The trick is not losing your shirt when the market tanks.
- deleted 10y ago
  [deleted]
WalterBright 10y ago
> Commissions alone can make you have to be 55/45 correct Why are taxes on short term gains never considered? Commissions, taxes, and being a small player means you don't get the best price, all make for quite a hill needed to climb just to break even.
princeb 10y ago
> compare performance versus frequency of trading The paper for this would be the famous barber/odean's "boys will be boys" [1] [1] https://faculty.haas.berkeley.edu/odean/papers/gender/BoysWillBeBoys.pdf https://faculty.haas.berkeley.edu/odean/papers/gender/BoysWi...

bvanslyke 10y ago

I'm curious - If you don't mind sharing, how long have you been day trading and what has your percentage return been?

nicholas73 10y ago
I started actively trading around 5 years ago, and only picked longs another 5 years before that. It's difficult to give an exact % because I'm not a day trader per se. I trade around a position I know well, but do day trades when I spot an opportunity. Sometimes you know something will happen, but only on a short time frame. For example, I went into oil stocks earlier this year, and I knew that the market was panicking over the low oil price. So some days the market would bounce back right when the oil pits close at 2:30 (since the oil correlation can't get much worse then). Take a chance to ride the way back up, why not? But you can't do this all the time, which is why I gave you this esoteric example. Well, if you still want a percentage, I'd say 10-20% might be a reasonable achievement.

jfoster 10y ago

If you ask me, daytrading seems riskier because you're essentially trading within noise. A company could rise or fall a few (and more rarely, a lot of) percentage points within a day. Is it fluctuating based on anything other than the feedback loop and noise? Usually not, I think. It seems far more unpredictable and lacking in reasoning than something like "Amazon's strategy for the next couple of years involves X, Y, and Z, so I think they will be successful/fail."

dllthomas 10y ago
> "Amazon's strategy for the next couple of years involves X, Y, and Z, so I think they will be successful/fail." That's not really the right question. If Amazon's strategy is hugely successful, but everyone else already thought Amazon's strategy was going to be even more hugely successful and had priced that in, then you could be 100% correct about your question and lose money.
- IshKebab 10y ago
  Agreed. You need to ask "Is Amazon's strategy for the next years going to work better than everyone thinks it is going to work?"
  - tome 10y ago
    What other people think is only relevant insomuch as it determines the price. You need to ask "Is Amazon's strategy for the next years going to work well enough that I should buy at the price the stock is currently offered at?".
    - dllthomas 10y ago
      I think if you unpack "should", those wind up being more or less orthogonal.
- Spooky23 10y ago
  > If Amazon's strategy is hugely successful, but everyone else already thought Amazon's strategy was going to be even more hugely successful and had priced that in, then you could be 100% correct about your question and lose money. Yet, Amazon is about 100% more valuable stock wise in 2016 vs. 2014. The strategy is about the same. The real question is: "How will stock X perform vs some baseline". I use a 90/10 VTI/BND portfolio as that baseline. If you have the time to understand how to answer that question, you can make a good return as an individual investor. (Either by identifying good investments, or reverting to the baseline) For example, if as a tech person, you used your insights into the industry and ended up picked any one of Amazon, Apple, Red Hat, Oracle and/or Google as investments 10 years ago, as part of a diversified basket of 4-5 stocks, you would have beat a safe Boglehead portfolio by a significant margin, even factoring in the market implosion in 2008/9. If you picked Apple or Amazon, you hit a home run. It depends on your needs though. If you're saving for college and your kid is 16, you need a portfolio with a lower volatility. If you're retired and need income, you want to minimize volatility and minimize tax impact. If you're a mid-career professional like me who won't need a dime until 2030, you can take more risks.

naveen99 10y ago

If your minimum bet is $1000, commissions are less than 1%. As long as you don't over leverage, the expected return should be positive relative to s&p if you sell options. But you got to hold them to collect some premium.

nicholas73 10y ago
This was about daytrading, where you would be lucky to find a stock that moves 10% intraday.
- Blackthorn 10y ago
  Plenty of those stocks exist. We just talked about two of them the other day - CXW and GEO.
  - nicholas73 10y ago
    Are you saying you make 10% trades every day?
    - Blackthorn 10y ago
      No I'm not, and I don't see how that is relevant. You claimed that it was hard to find stocks that moved 10% in a day. I show that this is not the case.
      - nicholas73 10y ago
        I claimed it was hard to find stocks that move 10% intraday, in the direction you want, before they have moved 10%. Trading is about profit after all.

mrchicity 10y ago

I think the individual retail trader is almost always outgunned informationally when it comes to intraday trades. Most short-term price action is driven by order flow and cross-asset correlations, which machines are very good at trading. They are often net trading cost earners due to rebates and capturing bid-offer spreads. That means their win rate doesn't need to be as high, so they can pull the trigger on a trade before you can, just by having lower fees and superior execution. In addition to that, they're faster, more scalable, have more access to liquidity, and are more disciplined than humans could ever be. For the ones who trade off statistical correlations, they have the best data and armies of PhDs working on signals. There are some event-driven fast trades still done by humans, like after news or responding to economic releases, but hedge funds have highly-educated people modeling the effects of an interest rate change or earnings release as their full-time job. This area is also becoming dominated by bots doing sentiment analysis. I think the retail trader could have an edge in a few ways. One would be an illegal edge like inside information or market manipulation. Another would be finding illiquid stocks that proprietary traders and hedge funds won't bother with and trading using similar techniques. You could also look for extreme situations that model-based traders can't understand well due to lack of data, like a merger target breaking away. Those trades would be very risky though. FWIW I'm a professional trader and never day trade my own account or pick individual stocks. My company allows it, but I don't believe I have any edge in doing so. I just buy and hold a portfolio of ETFs.

gedrap 10y ago
Thanks for a great answer! Similar threads keep popping up quite often here and I can see why. It probably seems romantic and all that to beat the machines, beat the armies of PhDs and make some real cash. But for a retail trader, it probably can be summed as 'don't bother, you are strongly against all odds, proceed only if it is fun to do and don't expect to make any money and lose all'.
RubyMyDear 10y ago
So, if you believe in this sort of analysis at all, why doesn't the individual retail trader do "week trading" or "month trading" where the effects of machine trading may be smaller? (Disclaimer: I'm a "buy and hold" guy. Of broad-based mutual funds. And I beat 80% of day traders...)

waylandsmithers 10y ago

> Commissions alone can make you have to be 55/45 correct Don't forget taxes!

leereeves 10y ago
Taxes reduce profits (and losses) but don't change a profit into a loss. At least, not by the usual standard for "making money day trading", which ignores fixed, nondeductible costs like rent.
daveguy 10y ago
Taxes are different. Taxes won't make a winning position a losing one, but commission very easily can. That is because taxes are on profit. Small profit => small tax and large profit => large tax, but that will not turn a winning position into a losing one.
- jnordwick 10y ago
  In real dollars (after adjusting for inflation) taxes will most easily turn a winning position into a losing one. This has always been the problem with taxing capital, often you are just taxing inflationary gains.
- nothrabannosir 10y ago
  As another commentor mentioned: you're not comparing against a 0% baseline, but against the relevant index fund. Or, at the very least, against normal savings accounts interest. So taxes can indeed turn a winning position into a losing one.
- nicholas73 10y ago
  Tax laws for MLPs can make a losing position. Look it up!

stouset 10y ago

Most of the people I know who've been profitable day-trading have earned less than they would have in an index fund. They consider themselves successul because they're up 17% since 2014. Of course the market is up 22%, so they've actually lost money relatively to everyone else. It's also easy to make a net return when the market is up. The trick is not losing your shirt when the market tanks.

deleted 10y ago
[deleted]

WalterBright 10y ago

> Commissions alone can make you have to be 55/45 correct Why are taxes on short term gains never considered? Commissions, taxes, and being a small player means you don't get the best price, all make for quite a hill needed to climb just to break even.

princeb 10y ago

> compare performance versus frequency of trading The paper for this would be the famous barber/odean's "boys will be boys" [1] [1] https://faculty.haas.berkeley.edu/odean/papers/gender/BoysWillBeBoys.pdf https://faculty.haas.berkeley.edu/odean/papers/gender/BoysWi...