Financial professionals know the idea that an individual can ‘day-trade’ for a living is a dangerous conceit. However, literature produced by brokerages and other service providers who offer to teach investors this ‘skill’ suggests that rubes are continuously persuaded this is possible.
In a study of the world’s third largest equity futures contract on the Brazilian stock market Fernando Chague (Getulio Vargas Foundation (FGV) – Sao Paulo School of Economics) et al. looked at data from 2012 to 2017 to see how day traders actually fared.
The results show not just that it can’t be done but the longer an individual persists the worse the outcome becomes. The results are in stark contrast to claims from assorted snake-oil peddlers that this skill can be improved with time. It can’t, quite the contrary in fact.
In the study period here’s how individuals fared based on how many days they were trading: (days traded – % of individuals who made money) 1-only – 29.8% (not even 50%, worse than a coin toss!), 2~50 – 15.5%, 51~100 – 8.9%, 101~200 – 6.8%, 201~300 – 5.4%, >300 – 3%.
It gets worse. Even the tiny cohort that made money made little more than the Brazilian minimum wage and the researchers didn’t factor in transaction costs, tax or loss-making trades not closed out on the same day.
So, next time you hear this nonsense i.e. that this activity is worthwhile feel free to send the paper available via the following link on to your braggart friend or naive siblings/offspring Day Trading For A Living?
Happy Sunday.