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Day Trading for a Living?
- xivzgrev 7y agoIt’s not impossible, there are many people who make decent money from day trading. It might be more accurate to say “study shows it is difficult to earn a living trading stocks”
- steveklabnik 7y agoThe abstract, of course, contains more detail than the headline regarding exactly what is claimed: > We show that it is virtually impossible for an individual to day trade for a living, contrary to what course providers claim. We observe all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market, the third in terms of volume in the world, and persisted for at least 300 days: 97% of them lost money, only 0.4% earned more than a bank teller (US$54 per day), and the top individual earned only US$310 per day with great risk (a standard deviation of US$2,560). Additionally, we find no evidence of learning by day trading.
- ch4s3 7y agoThe interesting bit to me is, “we find no evidence of learning by day trading”. This implies to me that the top earners are merely lucky, and have no special knowledge or advantages.
- esotericn 7y agoIt could also imply that they simply have related experience or skills before starting. It's difficult to, for example, learn how to become a brain surgeon on the job.
- lazyasciiart 7y agoMedicine actually involves a significant amount of learning on the job in all specialties - https://www.verywellhealth.com/types-of-doctors-residents-interns-and-fellows-3157293 https://www.verywellhealth.com/types-of-doctors-residents-in...
- helpPeople 7y agoInsider info? The Longer I live, the more I see people profiting off knowledge. A personal example I see of this is in Tech. If you understand tech, you can find areas people don't understand. Those are what's worth investing or shorting. Although if you are limited to day trades I'm not sure this is relevant.
- turk73 7y agoBut it isn't that easy. I understand all kinds of incredibly complex tech. There are many more variables than that. You would have to know all the C-level execs, too, and understand what makes them tick and what their foibles and vices are, who drinks too much, who snorts coke, all of it. Then you might know whether a tech company is worth backing or not.
- smt88 7y agoWe were taught explicitly in my (highly-ranked US) business school that stock performance is a random walk and success is luck.
- ones_and_zeros 7y agoThis is an interesting concept to be teaching business school students. Doesn't this amount to telling you your education is useless?
- jmilloy 7y agoNo, because running a business and stock trading are different things.
- ones_and_zeros 7y agorunning a business is just the opposite side of the stock trading coin. If the stocks themselves are random walks, then the underlying company performance must be random walks. If your education does indeed improve the outcomes of the business you manage and run then that would mean stock performance can be influenced by things other than luck. Unless of course you are operating under the premise that company performance and stock performance are unrelated.
- jmilloy 7y agoI don't know. But a business may perform predictably from the insider's point of view ans unpredictably from the outside.
- tomatocracy 7y agoI assume this means you were taught a very strong form of the efficient market hypothesis. I believe there’s some good evidence for weak form efficient markets hypothesis in the most liquid markets, which implies you can’t make money by trading only on ‘technical signals’ in the price. This is what you might expect day traders to try to do, so in that sense it’s not a particularly surprising result this paper demonstrates. But the consensus is, I think, that the strong form of the efficient market hypothesis might not be true in real life - being good at fundamental analysis can lead you to outperform the market. Illiquid markets are a bit different again - you can potentially get ‘paid’ a lot more just for providing liquidity to the market there, which is different again.
- sverige 7y agoProbably very similar to results for people who try to make a living gambling in casinos.
- eloff 7y agoLooking at how bad these results are, the career gamblers in the casino seem to have an edge. They have various strategies that actually do work to greater or lesser degree - e.g. Playing poker which is a game of skill against other people with a house rake instead of a house mathematical edge.
- matwood 7y agoPoker isn't gambling, but a game of skill. Are there many people making a living actually gambling on something like craps or roulette.
- LargeWu 7y agoMaking a living on poker? Absolutely. Making a living on craps or roulette? Not mathematically impossible, but highly improbable. How do they get their edge?
- eloff 7y agoNot likely. But there are some strategies that amount to exploiting casino promotions and perks. There used to be some tricks around slot machines - like those near the door had a payout ratio above 1.0. There are probably still tricks along those lines, but if they become well known the casino's change them. You'd be much better of sticking to games of skill.
- LargeWu 7y agoFair enough. I've heard of craps players teaming up to play huge on both sides of the pass/don't pass, which would still have a negative EV. But they racked up comps pretty quickly which supposedly gave them a slight overall return when factoring that in. This might be good for a while to accumulate free rooms and whatnot, but not sure how one would actually make a living doing this.
- mattkrause 7y agoAnd the article even moreso: > "We follow all individuals who day traded mini-Ibovespa futures contracts for their first time from 2013 to 2015, a total of 19,646 individuals." I know nothing about the Brazilian equities market, but it seems like it might be harder to for individuals to reliably make a profit on something heavily traded and fungible (Ibovespa is an index), where you're competing with much bigger players. Smaller stuff might work better--for one person--because it doesn't scale.
- DennisP 7y agoThe trick with a lot of smaller markets is that they're easily manipulated. You try to trend-follow and just get exploited by pump-and-dumps.
- PaulRobinson 7y agoI don't know much about the Brazilian equities market per se, but I do know about trading in other markets. Liquidity is a very important aspect of any market. If you are the largest player in a small market (i.e. it has low liquidity), you are market making, and the problem with that is information asymmetry comes into play: you're trading against people who know stuff you don't know, and they will only trade against you when you're wrong. If you are in a highly liquid market, the market represents all the information out there, so you need to think about where your informational edge comes from. Most day traders seem to focus on technical analysis in the belief that there are underlying probabilities that drive market movement and this alone is enough to find an edge. The linked paper is not one I have read completely yet, but it seems to align with my own experience and those observed elsewhere: that might be true, but you need to find the edge nobody else has seen yet, and that seems to be very difficult and carry some risk.
- mattkrause 7y agoExactly. The odds that any random person (or worse, those with <2 years of day trading experience), has a meaningful edge on an index covering 80% of the Brazilian stock market are....not great.
- stanski 7y agoNot impossible but highly unlikely probably means impossible, practically speaking. Unfortunately this falls into the "too good to be true" category. A very unscientific categorization but surprisingly accurate in real life. To me the worst conclusion is that "Additionally, we find no evidence of learning by day trading." Which leads me to believe that despite your best efforts at obtaining knowledge, luck in timing still plays too much of a role in the outcome. That doesn't add up to a viable alternative to a regular day job.
- faet 7y ago"Making decent money" doesn't mean crap it's about risk, expected value, and opportunity cost. If you've got a million dollars and put it into an index fund you'll make ~$100k/year. If you day trade and make "Decent money" of say $70k/year you're still at a loss vs if you took the less 'risky' approach. Even if you made $150k (50% over the index) it's still a loss due to lost opportunity cost. As the $100k index + a job at McDonalds making $30k/year still puts you ahead due to long term vs short term capital taxes. And if you've got the knowledge to day trade and earn more than 50% over an index you can probably command a better job than fast food. If you don't have a million in capital it becomes harder and harder the less money you have. Your friends would need to consistently beat the market by a percentage of their capital for it to be considered a 'win' imo.
- davidu 7y agoI don't doubt the headline, but "We observe all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market" seems like a weird way to come to that conclusion.
- rolltiide 7y ago20,000 people trading a broad based equity futures market over two years isnt a bad study But yes a study of individual stocks and certain sectors would be better Or following those individual accounts to see how they grew based on everything it traded would be interesting
- soneca 7y agoWhy weird?
- ineedasername 7y agoBecause it would represent an extremely narrow slice of traders. It's possible traders of these equities find it quite hard to make a living but a larger number of other day traders do just fine. Also it says "impossible" but the article actually shows it's difficult and rare.
- peteey 7y agoThe paper's claim is "virtually impossible". The post's title is click bait.
- bryanrasmussen 7y agolots of things are virtually impossible to do for a living and people still manage it though.
- bradshaw1965 7y agoGlancing at the abstract it looks like 97% lose money, what larger number in a more suitable sample size would make a difference? I've heard low single digits of traders and investors deliver Alpha. Impossible? no. Highly efficent? Yes
- docker_up 7y agoImpossible? Lol I have a handful of friends that do this. It's hard work but they make 5 to 6 figures consistently per year. It's very very hard, and not everyone can do it. I tried and lost a lot of money. But it's definitely not impossible, that is simply a lie.
- VeninVidiaVicii 7y agoI mean... 10,000 is five figures.
- brk 7y agoAll things considered, "5 figures" seems like a pretty low income for something that is "very very hard", and risky. Seems like if you have the skills and tenacity to day trade like that you could find some other job to pay you high 5 figures with a more stability.
- docker_up 7y ago$20,000 per year is livable in many areas of the US, especially if you have a lot of savings to back that up. The point is that saying it's "impossible" is a lie.
- brk 7y agoWhere is $20,000 ‘livable’? Savings or not, I don’t know of many places where you could live on a net income of ~$1,300/mo. what do you do for medical benefits alone in that income bracket?
- aphextim 7y agoUpper Michigan: If you have $20,000 you get MI Health plan, essentially free healthcare in the poor income bracket (for now anyway unless it gets taken away, sign up where you get food stamps). Rent on a 2 bedroom apartment, as long as you are not in the "big" city of Marquette should be $400-$500. Heck when I was younger we 'rented' an entire 5 bedroom house, two story with basement for $950 (split 4 ways with roommates). Food and cost of living is cheap, especially if you go to farmers markets and buy stuff in season. Winter can be tough as heating costs go up, however they do offer those 'locked' in plans where you pay more in summer month but less in winter as it averages out your price. Overall you always pay more this way, however if you have trouble managing money having a steady rate can be more beneficial. If they took medical benefits away from low income bracket which I could see happening, well just hope you don't get sick, otherwise the rest is doable. As my dad once told me when I moved out at 18, as long as you got a roof over your head, and food in your stomach, the rest is details.
- Kranar 7y agoI mean you may as well say: Study shows it is impossible for an individual to build a tech start up as a living. Just because something is hard doesn't mean it's impossible. Day trading, like many other risky ventures, is something that is very hard and unlikely but for the few who succeed ends up being very profitable.
- smt88 7y agoA better way to put it is that day-trading is like gambling. You always lose money in the long run, even if you have spurts of success.
- cptaj 7y agoPlaying the lottery is also very profitable for those who succeed.
- vonmoltke 7y agoCorrect, and the statement "it is impossible to become rich by playing the lottery" is absurd. It's part of an annoying tendency to conflate "extremely low probability of success" with "impossible".
- mrandish 7y agoYes, the title should have been something like "impossible for an individual to day trade stocks for a consistently reliable living".
- deleted 7y ago[deleted]
- firethief 7y agoIs that the original goalpost? Because I'd say it is impossible to make a living playing the lottery. To make a living doing something, it needs to provide enough positive cash flow.
- mattkrause 7y agoAren't futures contracts, by definition, zero-sum? The average profit should be pretty damn close to zero (ignoring/averaging across trades with non-daytraders).
- shoes_for_thee 7y agoYeah, it's a zero-sum game. I guess the study was looking at individuals competing against institutions and market-makers.
- nickles 7y agoThis is a common misconception. Futures contracts are very often used for nonspeculative purposes (e.g. Starbucks locking in prices for buying milk or farmers locking in prices to sell wheat). This is a form of insurance. While the end users are ultimately may net with each other, the intermediaries who take risk matching these parties charge a fee (the spread) for doing so. Why can't the end users trade with each other directly and avoid such fees then? Often they are not in the market at the same time or want to trade different quantities, relying on the intermediaries to resolve these problems.
- mattkrause 7y agoI get that the insurance has a value of its own, but what about the trading of futures specifically? Suppose I buy a biotech stock at $10/share. They make a breakthrough, and the stock shoots up to $110/share. I make +$100/share, but no one has lost the corresponding $100. Suppose I agree to buy an ounce of silver from you for $20 in January. If silver is $21 then, you effectively lose a dollar , since you need to chip in a buck to get me my silver. If it's $19, you can slip a dollar into your own pocket before buying the silver on the spot market. Regardless of how it turns out, the total gain is zero. What am I missing?
- nickles 7y agoSuppose a farmer wants to lock in the price of milk produced the farmer's dairy. The farmer wants to sell futures and sees a market of 18.30 / 18.50. These prices are probably being shown by a market maker. The farmer sells the futures to the market maker at 18.30. A few minutes later, Starbucks would like to buy the same contracts, to lock in its costs for the next month. Starbucks buys at 18.50. These two participants have paid the market maker, in total, 0.20 in spread. Here, the spread is the fee the market maker charges for facilitating liquidity. At this point, the net sum between the three participants is still 0. However, we also need to factor in the fees charged by the exchange, any taxes that may be charged on the transaction (for example the SEC fee in equities), clearing fees, and funding costs. On the whole, the transaction between the three participants was negative sum. However, the market maker is running a business by reflecting those costs, and the risk premium, in the spread. Even though this transaction is negative sum, it, presumably, still provides economic value to the farmer and Starbucks.
- erdleerdle 7y agoStart with a big pot, learn python, don't be stupid.
- adrr 7y agoIt is difficult to make a living but you can make money day trading. Market isn't the fastest. You can capture value on big events like the Boeing issues and other events. If you have risk appetite you can write options and pick up nickels in front of a steam roller.
- codingslave 7y agoDay trading seems similar to online poker, where 98% of players are loosing players.
- LeonM 7y agoAnd yet, every poker player will tell you about how they always win. The same goes for daytraders I guess
- yurka4 7y agoI completely agree with your statement. This is fortune for few.
- newfangle 7y agoAs a poker player this is exactly what i was thinking. Poker is probably more winnable though because you arent competing against super computers with ai built by a team of highly paid mathematicians.
- wtvanhest 7y agoIf you take Jan 1, 2013 to Dec 31st, 2015, the Brazillian stock market did very, very poorly. That probably explains why it was nearly impossible since most traders are probably long, not short the market. So even taking 1 day positions in stocks, still on average over 3 years will experience signifigant downward price pressure. That said, the fact that the market is bad, is just randomness and shows one of the major difficulties with relying on investment income to support your life. Sometimes stuff just sucks, for very long periods of time. Meanwhile you must pay your bills. That doesn't even get in to whether or not these people dramatically underperformed the market. They very likely did, but I also bet some of them outperformed based on luck or skill. Stock market investing is something everyone should try at somepoint in small doses just to understand how difficult it is. Its probably the hardest way to make money in the world and even the best investors usually have a bad few years which ends their careers.
- bklyn11201 7y agoAgreed. If the sample was California-based day traders specializing in SAAS software stocks between 2016 and 2018, would the sub-headline be that 97% of traders made great profits?
- pintxo 7y ago> Its probably the hardest way to make money in the world Just no. Certainly it's not easy. But the hardest? I'd say there is a long list of occupations which most people would consider harder on various dimensions.
- codetrotter 7y agoI think what parent commenter means is that it would be unlikely for almost anyone to make money that way, no matter how smart they are or how much time they put in. I think they aren’t saying that it’s a hard profession by itself in the way that you are talking about — only that the expected returns are negative for almost anyone. So in that case it’s not calling day traders smarter or harder working than others. It’s saying that no matter what your level of intelligence or other personal attributes there is likely some other job that would have much higher expected returns. For person A it might be to be a firefighter, for person B, to be a gymnast, for person C, to be a brain surgeon, for person D to work as a maid. Etc etc. At least that’s the way that I read it.
- outime 7y agoPutting aside the potential quality issues of the study, the headline here in HN isn't accurate and made a lot of people comment about how wrong it is. The study doesn't literally say "impossible" but "virtually impossible" and they do say that a very small percentage was able to make about $310 a day which is about ~110k a year.
- mawburn 7y ago> which is about ~110k a year $310 * 5 days a week * 52 weeks a year = $80,600
- quaquaqua1 7y ago110k pre tax in the USA is 80k post tax per year-- it is often helpful for us to think in terms of both numbers when comparing money making methods. That's my guess at least.
- wastedhours 7y agoProbably more that they didn't account for weekends, $310 x 365 is $113k
- marketgod 7y agoThey are also trading on a small account most likely. If you have $500k to trade with making $300 a day is much easier.
- outime 7y agoYeah you’re right, I just multiplied by 7 days. Then again you don’t work 5 days every single week (depends of the location) but 80k is definitely closer to the actual figure.
- mumblemumble 7y ago0.0051% of the study group, to be precise. The more interesting trend, which isn't covered in the abstract, is that profitability is inversely correlated with how long you stay at it. It was 30% of people who day traded for one day and gave up on it, and steadily dropped down to 3% for people who kept at it for more than 300 days. As a stats person, that struck me as a very evocative distribution. The paper put it nicely: "This peculiar pattern is similar to what we would find, for instance, in the casino roulette." The next thing I would want to know is, if you model the stock market as a machine that simply gives random payouts drawn from some distribution, what is the probability that a set of 1,551 groups of 300 random draws from that distribution would contain at least one set that averages more than $310? If the paper ran such a model, I didn't see it.
- booleandilemma 7y agoIt’s possible, because people do it. Maybe they mean day trading isn’t something that can be managed, metricized, and scrummed to death like some other fields?
- praptak 7y agoMandatory reading for anyone considering trading stocks: http://edmarkovich.blogspot.com/2013/12/why-i-dont-trade-stocks-and-probably.html?m=1 http://edmarkovich.blogspot.com/2013/12/why-i-dont-trade-sto... TLDR: just invest in an index fund.
- newshorts 7y agoUntil Michael burry pointed out that indexes have a grown into a bubble...
- SEJeff 7y agoHumans day trading is harder / impossible mainly because computers do it now, and do a much better job of it.
- chewbacha 7y agoIn other news, it’s virtually impossible to earn a living buying lottery tickets.
- gwbas1c 7y agoI always thought the problem with day trading is an absence of information: How does a single individual know enough about about all the various entities they are trading to really know when one is going up or down? Seems like an institution with dedicated employees performing due diligence will know much more than an individual day trader, and thus will be able to make better decision about when to buy and sell? Anyway, my bias has always been that day trading is really gambling.
- atourgates 7y agoAll effective trading is, essentially, insider trading. Not in the legal definition, but in the sense that to beat the market, you have to know something that "the market" doesn't. Or, just get lucky. The only personal example I have is from buying NFLX stock about a decade ago. I saw a news (Slashdot I think) story that Netflix's servers were having an hours-long outage. I can't remember if it was mentioned in the story that their stocks took a dip, or I just happened to look. Either way, I noticed that their stocks were down about 30% on that news, which seemed silly to me. The market was treating this like it was some kind of disaster for the company, whereas I was pretty confident it was a temporary blip. I bought the stock, just a few hundred worth since I was in my first barely-over-minimum wage job at the time. Netflix got their servers running again, and the stock recovered the next day. I decided to hold on to the stock because, why not? Today, it's worth about 20x what I bought at. If only I'd bought more. My point is, I knew that the market was wrong, and an hours-long server outage wasn't a reason for Netflix to suddenly be worth 30% less than it was the day before. To successfully pick stocks, you have to have some kind of expertise or insider knowledge to know when the market's wrong, and you're right. Most of us, in most situations, don't have that kind of expertise or insider knowledge.
- taesu 7y agoWith big enough equity and proper risk management, one can do so. Problem lies with low equity & high expectation which often leads to improper risk management and a sudden margin call. i.e. it's really easy to make $1 with $1 billion account size with risk nearing zero, but trying to make $1 with $100 is exponentially hard & risky. These so called day traders opt in for later b/c they are trained by the course & society & influences to do so.
- HenryBemis 7y agoEvery retail trader I've talked to, wants to start with $1000 or less and make $300-$400 per day. Literally everyone. After they lose their 50th $1k, they still aim for the same. It's like an addiction to gambling.
- newshorts 7y agoI find it interesting that all the comments on here seems to corroborate this evidence. It doesn’t seem like a large percentage of comments are saying “this is false, because I make a living day trading!” Instead most of the comments say something like “this story is untrue because I know someone who makes a living day trading” Knowing someone != being someone
- bmarquez 7y agoMany people who are actually successful with day trading (as opposed to selling pitchforks to miners) don't like to brag or talk openly, or post flashy pictures on social media. Why? Because they don't need the attention. They don't need people begging to mentor them for free, or share the strategy they've worked for months or years, or ask for free stuff since they didn't really "work" for it like lottery winners, or criticize their livelihood saying it can't be done. There's just no point.
- melling 7y agoFor anyone interested in a great story about a world class mathematician who built a company that has used algorithms to beat the market for the last few decades, James Simons has an impressive record: https://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?language=en https://www.ted.com/talks/jim_simons_a_rare_interview_with_t... https://m.youtube.com/watch?v=QNznD9hMEh0 https://m.youtube.com/watch?v=QNznD9hMEh0 https://en.m.wikipedia.org/wiki/Jim_Simons_(mathematician) https://en.m.wikipedia.org/wiki/Jim_Simons_(mathematician) One other thing, the Simons Foundation funds Quanta Magazine, whose articles frequently appear on HN: https://www.quantamagazine.org/ https://www.quantamagazine.org/
- Kranar 7y agoRenaissance Technologies did not use algorithms to beat the market... they used tax schemes to do so: https://www.bloomberg.com/news/articles/2019-04-10/renaissance-explores-settlement-as-irs-seeks-billions-in-taxes https://www.bloomberg.com/news/articles/2019-04-10/renaissan... When you factor in the money they saved from dodging taxes and how they managed to compound the growth on that money, their returns end up being no more impressive than any other hedge fund. Even if it turns out that what they did wasn't illegal, the bulk of their profits beyond what would have been made just investing in an index fund came from their tax scheme rather than from any kind of insight into the financial markets.
- melling 7y agoThe article says that this scheme occurred during specific years. During the 1990’s they also beat the market. “Medallion, which is open only to current and former Renaissance employees, has generated returns of about 40 percent after fees for decades by using computers to spot market patterns. It’s distinct from the funds Renaissance makes available to outsiders, such as the Institutional Equities Fund. Medallion earns most of its money through short-term trading of securities and other assets. Such earnings typically get taxed at the same marginal rate as salary. The tax code rewards longer-term investments with a preferential, lower rate. The dispute centers on transactions the firm carried out with Barclays Plc and Deutsche Bank AG between 2000 and 2015 that had the effect of transforming short-term trading gains into long-term returns. Rather than own securities directly, Renaissance instructed the banks to buy and sell them within a portfolio of assets. It then bought an option from the banks tied to the portfolio’s performance”
- osrec 7y agoI've done ok trading stocks and FX, probably enough to live off. There is a caveat however; you need to have a sizeable portfolio to begin with. Otherwise, the risks you'll need to take are simply too large. If you think you're going to turn £5k into £500k in a year, forget it! But turning £5k into £5.3k is certainly doable. Scale that initial portfolio to £5m, and you can take home £300k with relative ease in a good market- that's a very comfortable income for most people.
- wbl 7y agoThat's less then 10٪. Long term stock market returns are around 7% and considerably less riskier.
- osrec 7y agoYes, long term 7% is the quoted number, however that can be over a couple of decades (maybe more) and you may need to endure a recession or two. With a bit of active management, I manage to achieve 6-8% each year, but I avoid large negative hits that an index fund might endure in a bad market. So, I'm sort of returning similar returns to market, but with less volatility in the bad times. I'm sorta happy with that.
- codeplea 7y ago5k to 5.3k is a 6% increase. It seems like day trading should be just about the riskiest/hardest way to get 6% a year. The S&P 500 returns about 10%/year since its inception. (7% if you adjust for inflation.)
- danepowell 7y agoYou can make that much and more by passively investing in index funds. What's the appeal in day trading then?
- unicornmama 7y agoThis reminds me of the joke: How do you make a small fortune? Start with a large fortune.
- 7y ago
- jacquesc 7y agoI have a couple friends that do day trading on "technical analysis". As in, they only trade on the chart movements. Both claim to make money consistently. I generally believe them, but it seems like black magic to me. Especially when they explain what they're doing in detail. Not sure I understand this study tho, and whether or not it relates.
- mumblemumble 7y agoOne thing to keep in mind is that even a random number generator can trivially turn a profit when the market is trending up. It's when the market is volatile or going down that you get a real test of how well a strategy works. Which isn't to say that technical analysis is unfounded. And I do believe that there are opportunities that exist for individuals that haven't been arbitrated out of the market by the professional quants simply because they don't represent enough money to be interesting on an institutional scale. But it takes something like a bear market to really know for sure if you've found those opportunities, or if you're just riding a rising tide that lifts all boats.
- poooogles 7y ago>I have a couple friends that do day trading on "technical analysis". As someone that trades on fundamentals I like to think of that as reading tea leaves. Literally non sensical. Oh yeah sure that pattern is the upside down elephant so we should go short... No smoke without fire though so I assume some are making money with it. Just doesn't seem like a sound idea to me.
- golover721 7y agoI also have a few friends who do well day trading (which is usually done by mostly or only technical analysis). They have done well for themselves as they actually treat it like a job. Constantly trying to educate themselves, being at their computers paying attention to the market for the entire trading day. Most folks who feel the allure of day trading don't realize that to make it work it has to be your full time job. You can't just make some trades, go off and do something else, and expect to make any money.
- vasco 7y ago
- hsnewman 7y agoI don't understand. If companies (pensions, banks, funds) regularly trade and make profit (ie: for a living), why can't individuals? I think this study is flawed, more likely the Brazilian market had problems during the study's time period.
- bowcoy 7y agoPutting your money in a savings account already gets you 6%-10% depending on how Brazil's economy is doing. Putting your money in real estate gets you 10%-50% depending on the neighborhood. But both of those investments require big/old money, and the younger generation does not have that (not uncommon for a highly qualified engineer or mathematician to live at their parents until they are 28, because they can not afford to rent or buy a apartment). So, daytrading has become extremely popular. It is the "make 2000$ working from home" style and seedily advertised everywhere. For instance, the night door man at a medium-poor hotel was up all night looking at candle graphs and drawing trendlines. My girlfriends social media is full of influencers who get free money to play and then only report on their winnings. I spoke with a professional gamer who quit university to do nothing but Twitch stream and day trade. He makes 6400$ a month in a country where the minimum wage is 290$ (though cost of living can be on par with the big cities in the US). The data they used is pretty solid, but then again, if you make serious money with day trading, then you find a so-called "little way" to avoid detection and scrutiny. For instance, it would be slightly more complex to use 20 accounts, vs. just 1 account. You can trade on another person's details. I think the biggest part of the losses are caused by the hype, and targeting this hype to financially illiterate people, who do not have much money to weather a bad streak. Many ordinary people were also sucked into Bitcoin around December 2017, with taxi drivers investing in fractional BTC, only to see their savings and vacation money drop to 25% of the original value. Market was not super (but is recovering).
- tempsy 7y agoThis year has been unusual but it is pretty wild as someone fully invested in stocks (including individual picks) how many times I found myself making more than my rent or paycheck in a day.
- asdfman123 7y agoBut this is directly in contrary to people who have told me they can make 20% a week day trading! By my calculations, the guy who told me that a few years back should literally own the entire world by now.
- axwhy 7y agoWith small account, yes it is impossible
- jhoutromundo 7y agoThey have a reason to make that article: there is a lot of companies fooling the Brazilian people over this. I'm a Brazilian software developer for the financial market. I also made some financial courses on the same university that the authors. Brazilian stock exchange market has exploded in the last years and most of my friends decided to 'work' as traders. None of them with prior knowledge or experience in the market. All of the posts on Instagram every time they earn some money. The cause for this fever was the marketing around 3 or 4 companies who sell the dream of financial independence through high-risk financial market lessons. Normally they offered courses to famous people for free and use their image to convince the rest of us. One interesting thing: they normally sell the course with a private platform to trade the stocks included. I believe that they use that platform to collect data and operate against the traders that use that platform. They know the strategy that they are going to use (because they teach them), so it is easy to operate against.
- amluto 7y ago> One interesting thing: they normally sell the course with a private platform to trade the stocks included. I believe that they use that platform to collect data and operate against the traders that use that platform. They know the strategy that they are going to use (because they teach them), so it is easy to operate against. You’re assuming a complex strategy is needed when a simple one can easily suffice: simply pretend that you executed the trades, give the clients their profits, and keep the losses. In other words, the broker can take the opposite side of every deal and keep the spread and commissions. If, indeed, the client is trading based on no information whatsoever, then the broker wins and the client loses. To improve this, the broker can throw out the best performing clients, since they might genuinely know what they’re doing. I’m not suggesting that this is what any particular broker does, but it’s a strategy that works very well, at least in principle.
- bencollier49 7y agoPresumably this strategy would land the operators in jail if enough of their traders successfully predicted a large enough market move.
- 7y ago
- cardimart 7y agoThe results are fairly obvious to anyone who has read "A Random Walk Down Wall Street". Day traders rely on technical analysis which is the equivalent of astrology in the financial sector.
- Macross8299 7y ago"Random Walk Down Wall Street" is somewhat outdated and a lot of the evidence from behavioural finance doesn't really support its central thesis. It's more dogma than anything.
- pembrook 7y agoThe central thesis of short term market movements (say day to day or week to week or month to month) being a random walk is about 99.7% correct. This is a statistical reality, you can literally crunch the numbers! Behavioral finance has nothing to do with it.
- dbsights 7y agoabout 99.7%? I've always hated the argument of this book: yes the markets are chaotic and short term movements appear random, but the appearance of being random is not equivalent to being caused by a random process. The book makes a big deal about how technical analysts saw patterns in random data so it must be bunk, but this doesn't really say anything about the predictive power of technical analysis when the data is generated by the aggregate actions of thousands of traders instead of a coin toss. Price action is not the result of investors literally buying or selling at random. Each action is undertaken in response to external conditions and it is far from absurd to believe that patterns can exist in the price.
- Allower 7y ago"In Brazil" Well that's your problem...
- stjohnswarts 7y agoThat 100% assurance that no one can day trade seems a bit, ever seems like a bold declaration. I'm sure there are prodigies that can, but the other 99% of us suck at it over time.
- iliketosleep 7y agoThis is akin to saying "it is impossible to gamble at the casino for a living", which for the overwhelming majority of people is true. Having said that, it's not impossible. People have beaten casinos before, and they have beaten markets, by finding an edge over the house (or market) - but it's never the typical Joe type. In day-trading, the typical Joe uses so-called "technical analysis", the same stuff you'll find in books and taught by course providers, which offers absolutely no edge over the market. It's simply cashing in on hope.
- duxup 7y agoI think the "for a living" is really about beating it longer term and the income comes in a sustainable fashion. Even someone beating a casino I would think would get some big payouts to live on long term... but that casnio is gonna notice and shut down that "living" or just ban you. In that sense you're not doing it "for a living" as much as hoping to make enough money in a short span to maybe last longer term. Now maybe they find new ways to beat the casino but to do it sustainability is questionable. So beating the casino seems different than "for a living" IMO.
- iliketosleep 7y agoLarge, irregular payouts can also constitute a living. In extreme cases, it might even be just one payout.
- duxup 7y agoI think the study shows that even that didn't happen for anyone in the market.
- qaq 7y ago"We observe all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market, the third in terms of volume in the world, and persisted for at least 300". How do they know it is "all"?
- AYBABTME 7y agoIn the whole paper, there's no mention of whether the market itself was growing or shrinking. This makes the results kind of hard to trust. Assume the market lost money for these dates, then it would follow that most traders on that market lost money as well. The results should at least be controlled for the overall rate of change of the market.
- cshimmin 7y agoI don't think that's how day trading is supposed to work. Successful day traders are supposed to make money whichever way the market is moving, by taking short positions when the market is going down and long when the market is up. Buy-and-hold investors (quite the opposite of day traders) are the ones who make money when the market as a whole goes up.
- factsaresacred 7y agoThere are prop firms[1] filled with traders regularly making money hand over fist. Many of those traders also make a killing on their personal account. So while certainly not easy, it's possible. Trading suffers from some of the same problems of web development: few barriers to entry leading to an abundance of low-quality participants, and the mostly autodidactic nature of skill development. Like 10x engineers, 10x traders exist. But getting there requires thousands of hours of deliberate practice, discipline and conscientiousness - traits typically not found among the get-rich-quick crowd who discovered trading after clicking a Youtube ad for forexbillionaredaytrader.scam [1]https://en.wikipedia.org/wiki/Proprietary_trading https://en.wikipedia.org/wiki/Proprietary_trading
- smdz 7y agoThat is so misleading! I have been day trading profitably for the last 6+ years. It is more than enough to cover my living expenses for a family of 4. But I also work (freelance dev), because it cannot cover my home EMIs. My returns are not too high, but much better than bank interest rates and probably much below professional traders. The only thing stopping me from earning my EMIs or more income is the allocated capital, which is limited to stay in the game long term without losing my shirt. Even though I had a profitable strategy even before I started trading profitably, it took me 2.5 years to align my comfort/tolerance level with risk management. i.e. its not just about having a profitable strategy. I did minor tweaks on my strategy only 2 times in all those years. I do not doubt that many fail with day trading. In my case, day trading is stressful and takes anywhere between 5-8 hours of my time daily including time spent outside market hours. It is stressful, exciting and frustratingly boring while waiting for opportunities. And to add to the stress I freelance too, mostly before trading hours and some after. Doing both feels like slogging everyday and on some days I have an internal struggle about increasing the trading risk. And there are times where other traders will (unintentionally) gaslight by telling me how their monthly returns are equal to my annual returns.
- Kevin_S 7y agoOk but the last 6 years the market has generally only gone up. If you are doing technical analysis, you would expect to actually be profitable in an expansionary period. The problem is if you trade the same way in a deflationary period you will lose all of your gains.
- fouc 7y agoIt'd be interesting if the trading interface could silently flip the chart & swap the puts & shorts during a deflationary period, so that you could keep trading the same way, while taking into account a bear market.
- deleted 7y ago[deleted]
- munherty 7y agoSorry this doesnt fly. I think at best we can conclude that the trading methods used by the sample are ineffective for day trading in Brazil. Now if their methods are similar to that of the population, one may be able to conclude that common day trade methods are unsustainable within the brazilian market
- rotrux 7y agoThe subject of this post should be changed to remove "impossible."
- fortran77 7y agoWhat happens is you get people "day trading" in a period of time when there's an extended bull market and they think they're geniuses / financial whizzes.
- jedberg 7y agoTheir title should really say "now" at the end. It was definitely possible before. I know people who did it, and they weren't just bragging about fake gains. I saw the accounts. I saw the rigs. And I saw them go from one small house to a bunch of rental houses and a big mansion using day trading profits. And they all retired before 2008.
- linsomniac 7y ago"The easiest way to make a small fortune in the stock market is to start with a large one."
- conanbatt 7y agoMan this one is wrong lol
- kolbe 7y agoIn the time frame tested, Brazil's equity markets fell about 60%. I'm sure more than just 'day traders' failed to make money.
- hash872 7y agoWhile I agree that day trading anything is an extremely poor idea- why is trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? (Or if isn't profitable, why do they do it?) Is it just the massive informational advantage that they have? I'm not advocating for trading per se (I certainly don't do it!)- just curious about how large financial institutions presumably turn trading profits in light of EMH
- o_nate 7y agoThe type of trading that is consistently profitable at banks is mostly market-making, which is not a strategy available to a day-trader.
- neaden 7y agoA big part of it is that on average the stock market goes up, so even if you are randomly buying stocks you'll come out ahead over the long run as long as fees don't eat it up. Another significant portion is that they have access to a lot of information you don't, and are able to buy stocks and derivatives that you cannot. This comes as a benefit of their size.
- dan_mctree 7y agoIn addition to what the others said, stock trading fees often don't scale with the cost of these stocks. If you're investing with low amounts, these static fees eat up a lot of any potential gains of day trading
- Havoc 7y ago>why is trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? Not a level playing field. It's exactly because you're going up against guys like GS that's the reason for day trading being suicide.
- pembrook 7y agoGoldman Sachs isn't profitable because of prop trading. They charge fees for services. It's that simple.
- 7y ago
- gigatexal 7y agoAnecdotal sure but I know many who are trading derivatives at a profit — they’re being conservative but selling and buying options can be lucrative although it goes against the efficient market hypothesis
- throwawaylolx 7y agoThat's not really a claim that science can prove.
- aj7 7y agoTwo axioms for small investors: 1. You can’t make money by day trading. 2. Technical analysis is bunk.
- bob1029 7y agoI would like to expand on this point because while it is true as stated above, there is more to the picture from my perspective. Day trading and technical analysis are certainly bunk, but the problem I see is people equating day trading with making intelligent stock picks which were NOT driven solely by technical analysis nonsense. For instance, predicting that a certain company's product will steal market share from a competitor based upon personal experience in the same industry and then purchasing stocks based upon this is an extremely viable strategy. Especially, if your intentions are to hold for the long term (beyond 12 months). You just need to get comfortable with the boundaries of your own understanding and make rational decisions based on this. I always see this black and white discussion (put everything into a broad market EFT vs day trade on technical analysis) without much discussion of intermediate strategies that are based on actual concrete research and understanding of the relevant markets.
- aj7 7y agoI do the above, but I think it might be vanity. It’s not clear I shouldn’t spread risk via ETFs.
- ape4 7y agoIs Day Trading the same as Momentum Trading?
- homonculus1 7y agoThis is probably the worst retitle I've seen on HN
- neves 7y agoIs it just me who thinks really weird the idea of "working" without producing anything?
- justinmeiners 7y agoThey are providing a service, not a product.
- waylandsmithers 7y agoFolks who do this sometimes say what they produce is liquidity in the markets where they participate in trading.
- hellodetroit 7y agoThink of a used car dealership. They buy cars and resell them later for (usually) a higher price. Are they not producing anything? As the sibling comment pointed, participants in a market are producing and consuming liquidity.
- f00zz 7y agoSomething that's probably not mentioned in the article is that it's really easy to get into day trading in Brazil. I think I read somewhere that in the US you need a US$ 25k account to day trade; in Brazil with a US$ 50 account you're in the game. There are many zero-fee brokers (though those are a recent development, I don't remember those in 2013), and capital gain taxes are 20%. In fact I'm surprised that day trading in Brazil is not more popular than it already is. It's basically legalized gambling. I do remote work as a software developer in Brazil and I've been playing a bit with options swing trading on the side (which is even cheaper than day trading); I don't plan to make a living out of it, but it can be fun (and a bit addictive).
- HenryBemis 7y agoFX trader here. I do trade daily for the last 18 months, mostly algo, and it IS possible to make profit every single day. Just aim for 0.1% per day and you are set for life. You aim for the 0.1% of your capital, so when the market goes against you, you got enough margin to keep the account alive. Anton Kreil has a good video (I will add it later - walking now) that tells the tale how the markets are set up to rip you off/apart. He mentions the 90-90-90 rule. 90% of retail traders lose 90% of their capital every 90 days. I have seen this happening so many times to retail traders who want to get rich in a week that I just stopped talking to other traders because they never learn their lesson. Edit: Anton Kreil's video on how the system is stacked up against 'you'. He of course also sells the 'secret recipe' to win!! https://www.youtube.com/watch?v=hzFl0uDwAQY https://www.youtube.com/watch?v=hzFl0uDwAQY
- samfisher83 7y agoIf you could make .1% every on the stock market that would be a return of 29% a year. I am not sure how many hedge funds could get you that kind of return. FX is different and I guess there are differences in terms of trading days, but returning .1% every day would be very hard.
- HenryBemis 7y agoI'd say even more than 20% per year, because you aim for 0.1%, but when the market goes against you, you may end up having a max floating -20% but that will close with a 2% profit that day. The Broker will only cheat a little just to push you over the edge. As long as stay far-far away from the edge, you are safe. If you aim for 0.1%, even if they (broker, markets, price action) do their worse, they won't get you past 10% (that's x100 the 0.1% risk:reward you aim for).
- IAmGraydon 7y agoIf you really believe that you can make a .1% return every day retail trading leveraged FX, you’re delusional. There’s just no other way to say it.
- 7y ago
- sebastianconcpt 7y agoWe show that it is virtually impossible for an individual to day trade for a living, contrary to what course providers claim. We observe all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market, the third in terms of volume in the world, and persisted for at least 300 days: 97% of them lost money, only 0.4% earned more than a bank teller (US$54 per day), and the top individual earned only US$310 per day with great risk (a standard deviation of US$2,560). Additionally, we find no evidence of learning by day trading.
- zelly 7y ago> 97% of day traders lost money How can I take the opposite side of these trades? Is this what James Simons is doing?
- rjkennedy98 7y agoBuy and hold...simple as that.
- hogFeast 7y agoWhat do you think traders who work at banks are doing? Last I checked, they made more than bank tellers. (Being facetious, looking at one instrument in one market is awful...it deserves a stupid response).
- verizonuser 7y agoES just retested 3000 - good time to try a short position on United States stock market index futures.
- PorterDuff 7y agoI've always wanted to design a slot machine that traded a few NASDAQ stocks. You go into a bar, run your credit card and stick some money in the machine, buy/sell some shares (with leverage?), machine owner skims off fees, cash out when done. I never thought day trading worked very well and given the number of non-human brains on the other side (plus the overhead), the odds are good that the odds are bad.
- qwerty456127 7y agoIt's widely known that 99% amateur traders loose money.
- foxfired 7y agoNonsense. Of course you can. You just have to sell it as a course rather then do the trading.
- rvr_ 7y agoThe article is very good, but there is another dimension to be evaluated: There are two futures contracts that attract a lot of trading volume in Brazil: ibovespa futures and dollar/real futures. Both contracts have two tickers each, the "full" and the "mini". So we have: INDFUT, DOLFUT, WINFUT and WDOFUT (those two last are the "minis"). The common lore (or myth) goes as follow: The average trader starts trading paper money in a demo account, then goes to the mini to "learn to feel the pain" and if successful migrates to the full contract. So, to really have the bigger picture, the study must be expanded to include the four tickers. Them we can really now if the "pros" playing on the full contract are really making any money.
- lamby 7y agoReminds me of: > It's said that most at home traders fail, but this is incorrect: they fail at making money, but they are successful at feeling like a trader. That is the goal; the money is secondary, which is why they fail at making it. — The Last Psychiatrist, Who Can Know How Much Randi Zuckerberg Is Worth?(http://thelastpsychiatrist.com/2014/03/who_can_know_how_much_randi_zu.html)
- ablx000 7y agoEfficient Market Hypothesis anyone?
- Bubbadoo 7y agoYou see it on Instagram all the time... charlatans hawking 'trading systems' on equities, options, fx, etc. They're targeting people who want to 'take control of their lives.' Trading is like professional sports: once in the while a natural comes around, but for most, it's a great way to lose buckets of cash. Even for traders' with a gift, it takes about three years to develop a kind of market sense or intuition. Then there are the markets themselves: with low-latency and HFT, you're almost never in control. You can only hope your algo is close to one the other traders are using. I especially love those flim-flam artists--hawking FX futures trading as a way to financial independence--their own usually. FX markets are controlled largely by central banks who don't always let the market know what they're doing and includes some of the world's most capitalized banks. It's hard to know what to do in a market with all of these massive external forces. Most importantly, the markets have evolved over the last 15 years to a point where if you're not low-touch, you're going to lose. Having said this, last year I beat the S&P soundly. It was a good year. It did take a minimum of 60 hours a week and was a stressful roller coaster at times. This year... forget it. With one of the least stable administrations in place, the market can reverse direction multiple times in a day. You'd better be automated for that.
- 00N8 7y agoTeaching people to day trade as a career sounds kind of like teaching people to challenge NBA players to basketball games for money, as a career