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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

#151

Post by yfhsjjskc »

emodendroket wrote: post #53
mistermann wrote: post #46

Earlier quoted context omitted.

It isn't, there's fanous people like Warren Buffet of course, but I personally know of 3 individuals in investing forums who post all their trades and handily beat indexes over long periods.

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…

So he beat one particular hedge fund, that hardly proves that "essentially no traders beat the performance of index funds long-term."

Re: Almost 80% of Private Day Traders Lose Money

#152

Post by yfhsjjskc »

notahacker wrote: post #136
Someone1234 wrote: post #56

Earlier quoted context omitted.

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?

Blackjack, a casino game with unusually good odds, has a house edge of 0.43% You can certainly get brokers that'll accept a lower commission than that per trade, and if you're not hugely overleveraged the variance of your expected returns is going to be lower[1]. As with poker, the difficulty isn't so much the house edge as the fact there will be people or bots who are much better at it than you and/or have much bigg…

But does the broker give you free Pina Coladas?

Re: Almost 80% of Private Day Traders Lose Money

#153

Post by hal9000xp »

Since 2012, I'm interested in financial markets. I read some university books. I trade from time to time (mostly index ETF and futures/options for experimental reasons).

I would argue that ~80% is quite optimistic estimation. I think in long-term more than 99% of retail day traders lose money.

It's NOT because making money on financial markets is ridiculously difficult. It's because if you trade frequently, you get feedback from market pretty quickly. The feedback in terms of profit and loss of your money.

If you become day trader, I would guess that you want beat the market (otherwise you just buy and hold index ETF). It means that you as a day trader is willing to take risks to lose money in case you are wrong that you think you are able to beat markets.

What does it mean "to beat the market" in long-term? It means that you are smarter or faster or have some insider information. In other words it means that you have competitive edge.

Well, obviously, average person doesn't have competitive edge against hedge funds and other institutional investors who hire people with outstanding intellectual capabilities. Just read hedge fund interview questions to see how they filter people.

Other way to estimate your situation as a retail day trader: if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role?

I don't say that it's inherently impossible to beat the market as a retail investor. It's fairly possible if you are REALLY smarter than others. And in this case, you most probably are capable to impress professional traders and investors while talking about markets. If so, they will bring you their money, and incorporate hedge fund, and you are not retail investor anymore. Just like Michael Burry did.

In other areas, ~99% of failed attempts is also true. For example, ~99% startups fail to make money. So it's normal state of affairs.

Re: Almost 80% of Private Day Traders Lose Money

#154

Post by gedrap »

mrchicity wrote: post #135
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…

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…

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'.

Re: Almost 80% of Private Day Traders Lose Money

#155

Post by steveplace »

hal9000xp wrote: post #153

Since 2012, I'm interested in financial markets. I read some university books. I trade from time to time (mostly index ETF and futures/options for experimental reasons). I would argue that ~80% is quite optimistic estimation. I think in long-term more than 99% of retail day traders lose money. It's NOT because making money on financial markets is ridiculously difficult. It's because if you trade frequently, you get f…

>if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role?

You're not playing the same "game" as hedge funds. They have different mandates and liquidity.

Putting 100 million into play on a position is completely different than 10k. You can choose different strategies, different trading vehicles, and different risk management parameters as a retail trader compared to an institutional trader.

So you don't necessarily need insider information or a massive technical infrastructure. You can get an edge, but it won't be the same edge you'd have running serious money.

Re: Almost 80% of Private Day Traders Lose Money

#156

Post by [deleted] »

alistproducer2 wrote: post #47
crucialfelix wrote: post #9

I did it for a while in the very exciting year of 2008. I see-sawed back and forth and was profitable for months at a time, but in the end I was down. I strictly kept my daily losses limited at $50/day. So really small risk. At the end of that year my day trading losses were about $1500 and otherwise I was in cash just watching the world burn. My long term funds lost more than that in a day. I've lost out on more mon…

I traded a little during the crisis until I got hit with the pattern day trading rule. I cashed out up 28%. Maybe they were doing me a favor cause I probably wouldn't have done so well on a longer timeline.

[deleted]

Re: Almost 80% of Private Day Traders Lose Money

#157

Post by emodendroket »

yfhsjjskc wrote: post #151
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…

So he beat one particular hedge fund, that hardly proves that "essentially no traders beat the performance of index funds long-term."

http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-...

> Pity the active fund manager.

> More dollars have flowed to index strategies that track a market benchmark, such as the S&P 500 index, partly because such funds typically have lower costs than active funds and more investors believe that stock-picking managers can't regularly beat the financial markets.

> Now a new Morningstar study, released this week at the Morningstar Investment Conference, finds that actively managed funds lagged their passive counterparts across nearly all asset classes, especially over a 10-year period from 2004 to 2014.

Re: Almost 80% of Private Day Traders Lose Money

#158

Post by hal9000xp »

steveplace wrote: post #155
hal9000xp wrote: post #153

Since 2012, I'm interested in financial markets. I read some university books. I trade from time to time (mostly index ETF and futures/options for experimental reasons). I would argue that ~80% is quite optimistic estimation. I think in long-term more than 99% of retail day traders lose money. It's NOT because making money on financial markets is ridiculously difficult. It's because if you trade frequently, you get f…

>if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role? You're not playing the same "game" as hedge funds. They have different mandates and liquidity. Putting 100 million into play on a position is completely different than 10k. You can choose different strategies, different trading vehicles, and different…

> Putting 100 million into play on a position is completely different than 10k.

True. But it's also true that in order to make living from profit of 10K investments you have to make 300% as retail investor, not 30% as institutional investor.

I.e. you may be compensated to choose alternative strategies, but as disadvantage you have to have much higher ROI than institutional investor.

And as you will pursue to make your 300%, you will take significantly more risks.

Re: Almost 80% of Private Day Traders Lose Money

#160

Post by emodendroket »

kasey_junk wrote: post #65
mistermann wrote: post #46

Earlier quoted context omitted.

It isn't, there's fanous people like Warren Buffet of course, but I personally know of 3 individuals in investing forums who post all their trades and handily beat indexes over long periods.

People actually misstate the argument regularly. It is of course possible to beat the index over long periods, but there is little evidence that there is any skill that allows you to do it. That is, could those 3 individuals write down a prescriptive algorithm that allows someone to replicate their results ahead of time? Another way to describe the problem is, given the same number of bots, randomly picking tades, as…

If there's no evidence that beating the market depends on any particular skill, that would seem to be saying it's essentially a matter of chance. If that is the case then it stands to reason that, as the period of time observed grows longer, it becomes less and less likely for anyone to beat the market.
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