Day Trading for a Living?

Two axioms for small investors: 1. You can’t make money by day trading. 2. Technical analysis is bunk.

Welcome to 1999 :-) Or China 2010 or so. It almost feels like there are people who look at these events, figure out who made the money, and then work to recreate them in a new environment where they can be in the position to make all the money.

My experience from the dot com day trading frenzy was that there were three kinds of investors;

Those that had no clue and just followed a bunch of investment "tip" sources and did what ever was the investment of the day (these people were essentially gamblers, and like gamblers were up one day and down the next, only to eventually bottom out).

Then there were the folks who had read up on how the markets worked, maybe taken a finance class or two, and read a bunch of Morningstar reports on various funds and their strategies and tried to create some sort of meta strategy that was a mix of the funds they found impressive. These people had good days and bad days and over the course of a couple of years basically matched the S&P500 or other widely diversified stock indexes in gains. What I learned from them is that if the market in general is up 9% and you're up 10% you are only doing slightly better than the market, even though you feel like "hey I'm getting 10% a year, I'll double my money in 7 years!"

Then there were the very serious folks, these folks read annual reports and 10-Q statements and prospectuses. They kept a databases of people who were executives, board members, and advisors of different companies. They consumed four or five different regional news streams (usually London, Tokyo, New York, Chicago, and Washington) They kept indexes and stock price histories in their own databases and mapped current events to stock motion. They broadly characterized every stock they watched closely by who managed the entity, what markets it was most effected by, and least effected by, and what government policies could help or hurt it. I'm sure if they could afford a Bloomberg Terminal subscription they had one of those too. They did well for themselves but they invested 80 hours a week into doing well.

Not surprisingly there are lots of people in the first group, fewer in the second, and fewer still in the hard core group. I personally see myself in the second group, and over the years my own portfolio has done slightly better than the market.

A unique strategy one person I knew took during the dot com bubble was to convert gains into "things" on a regular basis. At one time he had about a dozen different Porsche sports cars, two houses, and some acreage in the Livermore valley that he rented out as a vineyard. He did pretty well selling that stuff to recover losses from the crash.

Do you understand that 'studies' are not necessarily reality? I know the "I fucking love science" crowd has replaced priests with professors, but professors, their data and their logic are also highly fallible.

How about you go ahead and mock up a probability model about how a company like Jump Trading can make 100s of market neutral bets every day for ten years, and end up being lucky to make money on 95% of those days. The probability of that happening due to randomness around a 50% probability on each trade is probably lower than 1 in the number of atoms in the universe.

This is the correct response.

For whatever reason, people seem to think "50/50 chance of beating the market" = 50% chance of generating 40% return on any given year.

Try randomly picking stocks over the last 20 years, and run 1 billion simulations and see if you get anywhere near that (even letting you have survivorship bias for free)

I 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.