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Day Trading for a Living?

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Re: Day Trading for a Living?

#201

Post by djsumdog »

dav1app wrote: post #117

They 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 mar…

It's no reason to discount this study of course. It just means it should try to be reproduced by following large samples of day traders in American, European and/or Japanese markets. My hypothesis is that you'd get pretty similar results. Day trading always seemed like gambling to me. It's just fancy Vegas.

Re: Day Trading for a Living?

#202

Post by rebuilder »

melling wrote: post #184
inerte wrote: post #173

Earlier quoted context omitted.

Someone will always beat the market, because that's what we're looking for. I think it was on "Thinking Fast and Slow" that I read it's pointless to analyze the stock market winners, since it's a random process. Imagine there are 30 million entities that own stocks in the US - individual, companies, funds, etc... If on a given year half of them did better than average (with some rounding liberty): 1st year: 15M bette…

Who said it’s a random process? Stock prices don’t go up randomly over the long term. Joel Greenblatt had 50% yearly returns for a decade. Renaissance Technologies uses algorithms. Also, I don’t think you would expect someone to beat the market every year, but over a ten year period, for example.

Yes, given enough traders, you very much would expect some of them to beat the market consistently, over a decade or more.

Re: Day Trading for a Living?

#203

Post by lallysingh »

amluto wrote: post #144
dav1app wrote: post #117

They 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 mar…

> 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…

You don't have to throw out the clients that perform well! You charge them fees and send their orders to market.

Maybe front-run them a bit if you're into that.

Re: Day Trading for a Living?

#204

Post by bowcoy »

hsnewman wrote: post #90

I 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.

Putting 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).

Re: Day Trading for a Living?

#205

Post by munchbunny »

Kranar wrote: post #54
kevin_nisbet wrote: post #30

Earlier quoted context omitted.

The abstract of the paper seems to suggest otherwise: 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 U…

But what should we compare those odds, how are we supposed to interpret this? Imagine we tracked a group of 1000 randomly picked individuals who wanted to be a brain surgeon. I don't know for sure but I wouldn't be surprised if of 1000 randomly chosen people, only 3 people managed to succeed at it after 4 years. But no one would ever say "Study shows it's impossible for an individual to become a brain surgeon." or im…

There is definitely an edge to be found, but the game heavily favors players with structural (I am able to know things you don't) or institutional (I have hundreds of subject matter experts and deep pockets) advantages, and individual day traders have none of those things.

Which isn't to say day traders can't get those things, it's just that you stop calling yourself a day trader and start calling yourself an investor when you start to intentionally build up structural/institutional advantages.

Re: Day Trading for a Living?

#206

Post by dmurray »

mumblemumble wrote: post #65
outime wrote: post #32

Putting 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.

0.0051% 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 ni…

> 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.

The abstract says the trader who made $310/day had a standard deviation of $2560 (presumably per day). Over 300 samples, that's a standard deviation of 2560/sqrt(300) or $150/day. So if he really had a breakeven strategy and got lucky, he was 2 standard deviations from the mean, or in the top 2.5%, and you'd expect 40 other traders to have done just as well, and it would be vanishingly unlikely that nobody else did.

Not quite what you were asking, but I don't think there's enough information at least in the abstract to answer your question. The payout distribution will be largely dependent on the size of the traders' positions and riskiness of their strategies.

Re: Day Trading for a Living?

#207

Post by tim333 »

blunte wrote: post #154
nickles wrote: post #124

Earlier quoted context omitted.

> Renaissance Technologies did not use algorithms to beat the market... This is false. RenTec generated outsized returns for a decade prior to entering into the derivatives with Barclays and DB beginning in 2000. > the bulk of their profits beyond what would have been made just investing in an index fund This is also false. For example, RenTec generated 99% return in 2000 net of fees, while the S&P 500 lost ~8%.

From what has been published, secrecy within Renaissance is so extreme that perhaps only 2-3 people actually know what is going on. So for an outsider, I say it's pure speculation. And I speculate that their outsized gains are due to market manipulation, front running, or other insider activities (as in, illegal/unfair). No one is smart enough; no algorithm or model is future-proof; nobody gets returns like this unle…

There was a video interview with the founder where he explained pretty much how they do it. The employ a lot of bright PhD maths/physics types, get them to come up with all the algorithmic strategies they can think of, run tests with historic data and live trading to see which ones work and then scale up those.

There isn't one smart guy or one great strategy - there are dozens of smart guys and loads of strategies and they can win because they outsmart the city types.

Re: Day Trading for a Living?

#209

Post by Macross8299 »

cardimart wrote: post #126

The 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.

"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.

Re: Day Trading for a Living?

#210

Post by mruts »

inerte wrote: post #173
melling wrote: post #81

For 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_t... https://m.youtube.com/watch?v=QNznD9hMEh0 https://en.m.wikipedia.org/wiki/Jim_Simons_(mathematician) One other thing, the Simons Foundation funds Quanta M…

Someone will always beat the market, because that's what we're looking for. I think it was on "Thinking Fast and Slow" that I read it's pointless to analyze the stock market winners, since it's a random process. Imagine there are 30 million entities that own stocks in the US - individual, companies, funds, etc... If on a given year half of them did better than average (with some rounding liberty): 1st year: 15M bette…

Okay, let’s do the math buddy. Let’s assume the null hypothesis (the market) has a mean return of 10% and vol of 10%. RenTec’s Medallion Fund has made 80% annualized return before fees in the last 20 years. Assuming the market is a random walk (it’s not), the chance of RenTec making >50% (I don’t think they’ve ever made less than that in 20 years) every year for 20 years is...

3.486 x 10^(-91)

The actual probability is a lot smaller btw.

Why do people keep posting this tired argument over and over? It’s not true. There’s no evidence that it is true. The math strongly suggests (see above) that you can beat the market.

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