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Almost 80% of Private Day Traders Lose Money

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Re: Almost 80% of Private Day Traders Lose Money

#141

Post by notahacker »

dharmon wrote: post #90
chollida1 wrote: post #29

I re-read Michael Lewis' Liar's Poker once every few years. In new reprints he's added a prologue where he says something along the lines of "I tried to write a book about the horrors of wall street and instead it became a recruiting tool for wall street" In a similar vein whenever something like this comes up I write something that says don't try and do this and inevitable I get 10+ emails from people saying "Ok I u…

This is a great list, and it should be higher up in this thread. Most of it applies to longer-term investing as well (the area I work in). 1) I always tell this to people. So much of investing / trading comes down to your emotional reaction, and paper trading does not invoke these emotions. Contrary to your #3, I actually suggest starting with a small amount they can afford to lose. Better to work out the kinks and/o…

Your (4) is much better than the original because of the second point about how prone people are to assuming a few positive results mean you're definitely outsmarting the market.

So much of the day trading dream is based around the idea that consistent gains show the strategy is working, and not just that you haven't paid to hedge for the event that's going to wipe out all those gains in a very short period...

Re: Almost 80% of Private Day Traders Lose Money

#142

Post by ditonal »

alasano wrote: post #138
bluGill wrote: post #122

Earlier quoted context omitted.

In poker there is a dealer: you are expected to tip the dealer if you win. In the stock market you pay the dealer win or lose.

In poker you pay the rake, win or lose.

Depends on the rake system, in timed games this is the case but more common they take it from the pot so only the winner pays. But typically you win some pots even in a losing session so it's a pedantic point.

Re: Almost 80% of Private Day Traders Lose Money

#143

Post by leereeves »

waylandsmithers wrote: post #140
nicholas73 wrote: post #59

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 distri…

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

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.

Re: Almost 80% of Private Day Traders Lose Money

#144

Post by dragonwriter »

wstrange wrote: post #139
loteck wrote: post #127

Earlier quoted context omitted.

In investing, my understanding is the opposite of a long is a short.

Shorting has asymmetric risk. When you are long your loss is 100%. With a short it is theoretically unlimited.

> Shorting has asymmetric risk.

Shorting is perfectly symmetric with longing (except linguistically -- because "shorting" is perfectly normal, but "longing" not): in the former you have unlimited downside risk and limited upside set by the price at which you sold, in the latter you have unlimited upside potential and limited downside set by the price at which you bought.

Re: Almost 80% of Private Day Traders Lose Money

#145

Post by daveguy »

waylandsmithers wrote: post #140
nicholas73 wrote: post #59

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 distri…

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

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.

Re: Almost 80% of Private Day Traders Lose Money

#146

Post by ceejayoz »

qznc wrote: post #132
JamesSwift wrote: post #125

Earlier quoted context omitted.

What is the opposite of buying a specific stock? Buying every single other stock?

The opposite is to borrow and then sell it.

That has a lot more risk.

https://en.wikipedia.org/wiki/Short_squeeze

Re: Almost 80% of Private Day Traders Lose Money

#147

Post by neffy »

grondilu wrote: post #93

Isn't day trading a zero-sum game? If so, it's not very surprising that the majority of day traders lose money. Every dollar you make comes from someone who lost it. So unless you have a competitive advantage, such as lower brokerage fees, you should stay away. Me, I believe in https://en.wikipedia.org/wiki/Buy_and_hold . The money you'll make will come from the actual profits of the companies.

No, actually it's not.

If you take the amount of money involved in the stock market every year, and assume that as a percentage of the total amount of money sloshing around the economy it remains broadly the same, then owing to monetary expansion (~7-8% a year in the USA), there is that percentage to be extracted from the financial system every year. Which Wall Street is quite efficient at.

If you factor in things like financial feedback loops essentially acting to concentrate money over long periods of time in the financial sector (well, what did you think was causing the ever increasing wealth gap?), then it's a little more than that of course.

Re: Almost 80% of Private Day Traders Lose Money

#148

Post by falsestprophet »

bluGill wrote: post #121
emodendroket wrote: post #53

Earlier quoted context omitted.

Since you mentioned him: http://finance.yahoo.com/news/buffett-most-mportant-investme... > Nearly a decade ago, Warren Buffett made a million-dollar bet: that by investing in a completely unmanaged, broad-market low-fee index fund, he could beat the gains earned by a high-powered hedge fund with a team of managers at the helm. His opponent was Protege Partners, LLC, a New York City hedge fund with $3.5 billion in ass…

Warren Buffet has so much money in his control that he cannot beat the market - his very investments change the value of the good companies he invests in - and not in his favor. He can make small bets of companies, but even if the bets all pay off (they will not - even great investors make mistakes) it isn't enough to be very significant.

His scale also works in his favor for some transactions like municipal bond insurance or paying cash to acquire Fortune 100 companies.

Re: Almost 80% of Private Day Traders Lose Money

#149

Post by Spooky23 »

dllthomas wrote: post #98
jfoster wrote: post #95

Earlier quoted context omitted.

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…

> "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.

> 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.

Re: Almost 80% of Private Day Traders Lose Money

#150

Post by Kadin »

Someone1234 wrote: post #56
brongondwana wrote: post #4

It's just slot machines with a more respectable coat of paint.

If we assume day trading is gambling, I wonder what the house odds look like contrasted against other forms of gambling (e.g. blackjack, poker, slots, horses, etc)? I guess what I am asking is, if we take it for granted that it is gambling (and I am happy to do so) is it gambling with the best odds around?

There are "pari-mutual" betting systems, for instance the system used for horse racing in New York State, which are very market-like by design. Instead of an oddsmaker as in the European or Vegas systems, the odds on a particular outcome (e.g. a particular horse to win/place/show) are determined by market activity: the weight of bets on that horse vs. others in that race.

http://thefinalwager.co/2015/04/28/horse-racing-parimutuel-w...

If you are honestly better at judging the ability of particular horses and jockeys to win races than the average market participant, it is possible (at least in theory, I don't know how many people do it in practice) to make money.

However, the house "takeout" is pretty high; most places are 15+% on straight bets and can be more than 20% on exotic bets (Exactas, Quinellas, etc.). If not for the high takeout, it would be a very nice system for the bettor.

The only time I've ever made money at a horse track was a time when I went with a friend who rode and owned horses, and we spent the entire day in the paddock area (not even watching the races), watching the horses and jockeys come in. She pointed out particular instances where she thought the favorite didn't seem likely to win, and in those cases I'd put down straight bets on the next-best favorite horses, essentially "shorting" the favorite. It worked pretty well, enough to get around the house takeout and almost offset the drinks we consumed in the process. Not exactly something you'd want in your 401k, but not a bad way to spend an afternoon.

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