If you are day trading you will probably lose money: here’s why

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Day trading has become a popular pastime over the past year, with investors around the world facing economic shutdowns and social distancing measures.

But while day trading may seem like a fun way to earn extra income or even a potential way to earn a living, studies suggest that the average day trader tends to do more harm than good to their portfolio. investment.

Numbers: In a recent blog post, A wealth of common sense Ben carlson has highlighted several large studies that paint a very bleak picture of day trading as a whole:

  • A study of Brazilian futures traders found that 97% of day traders lost money over a period of 300 days.
  • Another study of day traders in Taiwan between 1995 and 2006 found that only 5% of day traders were profitable.
  • A study By the United States Securities and Exchange Commission, forex traders have found that 70% of traders lose money each quarter on average, and traders typically lose 100% of their money within 12 months.
  • A study of eToro day traders found that nearly 80% of them lost money over a 12-month period, and the median loss was 36%.

In the blog post, Carlson said that people are free to invest or trade their money as they see fit, and that there are a handful of professional retail traders who make day trading work consistently. However, studies show that the road is an uphill battle.

“Make sure you approach this with your eyes wide open knowing that day trading is difficult and usually comes with a higher tax bill than a long term buy and hold strategy,” Carlson wrote.

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Beware of success stories: Sean Bandazian, an investment analyst for Cornerstone Wealth, told Benzinga that only a few exceptional traders are successful in the long term.

“Most successful traders with longevity find a style that works for them consistently, and most of the time that style does not involve taking concentrated positions during the day,” said Bandazian.

He also said that anyone reading success stories from day traders who got rich quick should keep those stories in perspective.

“The reality is you only hear the success stories. People should understand that there are exponentially more people losing money trying to catch lightning in a bottle, ”Bandazian said.

“The obvious problem with the get-rich-quick mentality is that it usually involves taking a risk of massive concentration in a volatile asset. You might be successful at first, but it only takes one bad trade to bury your account.

Benzinga’s point of view: The stock market is a proven mechanism for long-term wealth creation, and it has had remarkably consistent historical performance over 30-year periods. However, the shorter your trading time frame, the more the market becomes a zero sum game, and it is extremely difficult for the average retail trader to compete with the resources and speed of professional institutional traders and algorithms.


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