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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

#161

Post by samfisher83 »

cloudjacker wrote: post #133
samfisher83 wrote: post #103

If someone is consistently good at losing money 60% of the time. Why not just do the exact opposite of whatever their initial hunch is. Then they should make money. Based on loss of 36% from the article that is more than just transaction and trade fees which are 1 to 2%of trade therefore if they just do the opposite of what they are doing they should make money.

The risk profile changes when you switch to an opposite strategy If you went long, and lost money, going short instead doesn't mean you would make money, it means you could lose on the interest payments, you could lose on being forced to close, could lose on the different risk profile of having unlimited loss potential Even more so with derivatives.

There are borrowing costs with shorting, but you usually don't go long on shorting stocks its more of short term thing. In that case borrowing costs are not too bad.

Re: Almost 80% of Private Day Traders Lose Money

#162

Post by RubyMyDear »

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…

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...)

Re: Almost 80% of Private Day Traders Lose Money

#163

Post by rahulrrixe »

gedrap wrote: post #87
0xmohit wrote: post #12

And the primary reason is that one loses more in a single trade than what one probably earned in 5 or more trades. Humans are inherently risk-averse when it comes to protecting their profits and risk-taking otherwise. The possibility to make money increases if one acts more like a robot, i.e. acting strictly upon rules decided a priori.

>>> And the primary reason is that one loses more in a single trade than what one probably earned in 5 or more trades. This is the key. Once in a while, on the internets, I see people who say that they developed a strategy that can profit 5% month on month, etc. Excluding the ludicrous claims of 30% and similar monthly profit. However, they are often totally wiped out by a highly unlikely outlier event that should ha…

BTW The Black Swan book sucks!

Re: Almost 80% of Private Day Traders Lose Money

#164

Post by dllthomas »

Spooky23 wrote: post #149
dllthomas wrote: post #98

Earlier quoted context omitted.

> "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/BN…

I don't understand why your comment is prefaced with "Yet". Did you misread my comment?

It seems like we're agreed that investing should not be done by reasoning like "Amazon's strategy for the next couple of years involves X, Y, and Z, so I think they will be successful/fail."

> For example, if as a tech person, you used your insights into the industry [...]

... then I would be radically under-diversified. If tech is doing well, my biggest asset (my career) is performing well. I'm most likely to need to draw on my stocks in an emergency precisely when they'll be doing poorest.

Re: Almost 80% of Private Day Traders Lose Money

#165

Post by dllthomas »

tome wrote: post #112
IshKebab wrote: post #104

Earlier quoted context omitted.

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?"

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?".

I think if you unpack "should", those wind up being more or less orthogonal.

Re: Almost 80% of Private Day Traders Lose Money

#166

Post by _yosefk »

Spooky23 wrote: post #149
dllthomas wrote: post #98

Earlier quoted context omitted.

> "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/BN…

"If you picked Apple or Amazon, you hit a home run."

Well, sure you did. If you picked Yahoo in the late 90s, a home run hit you. If you picked Intel or Microsoft in the recent past, nothing happened to you.

A good article on using insights as a tech person is Phil G's piece on shorting Microsoft in the 80s. (Microsoft was much less appealing to a tech person in the 80s than it is now, and a much better investment.) http://philip.greenspun.com/materialism/money

This is not to say that tech people can't make money banking on their instincts, just that I personally am not tremendously confident about my own instincts. I can certainly make a very compellingly sounding bull or bear case regarding any currently famous tech company.

A great example from recent history is LinkedIn's stock tanking hugely in one day and then Microsoft bringing it back to the original level in one day some time later. And I'll be damned if Microsoft ever makes that money back. But I totally should have bought the dip.

Re: Almost 80% of Private Day Traders Lose Money

#167

Post by earl_gray »

notahacker wrote: post #141
dharmon wrote: post #90

Earlier quoted context omitted.

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...

That second sentence is very insightful.

Re: Almost 80% of Private Day Traders Lose Money

#168

Post by steveplace »

hal9000xp wrote: post #158
steveplace wrote: post #155

Earlier quoted context omitted.

>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 you…

I didn't say 10k was total capital base, just deployment for a trade.

And leverage exists so you can get higher percentage returns on your capital.

I'm just saying it's possible, that's all.

Re: Almost 80% of Private Day Traders Lose Money

#169

Post by verbify »

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.

And even that isn't necessarily true - the cost of illiquidity and the risk of holding Amazon's stock for a few years could mean that even though you underestimated that everyone else thought that Amazon would be hugely successful, you could still make money.

Re: Almost 80% of Private Day Traders Lose Money

#170

Post by Animats »

Even worse than day trading are "binary options". This allows betting on, for example, whether the price of gold will go up or down in the next minute. Most of those are total scams. There are about 100 binary trading firms based in Tel Aviv, Israel, and most of them are telemarketing operations for a software platform called SpotOption.[1] Features of the scam include 1) they're not brokers, they're the other party, so you're betting against the house, 2) the house controls the price info and may tweak it slightly to make you lose, 3) there's a "margin trading" system which prevents you from withdrawing until you've done a certain amount of trading volume, and 4) even if you win, they make it really hard to withdraw money. Most "investors" lose 100% of their money.

Read "The Wolves of Tel Aviv" in the Times of Israel.[2] All these outfits are prohibited from operating in the US (the CFTC catches some of them trying; "Banc de Binary" was forced to return all US customer losses) but they've been able to operate in the European Union by registering in Cyprus and using that as a passport to the entire EU.

[1] http://www.spotoption.com/ [2] http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-...

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