Day Trading is unprofitable: Facts you can't ignore

Day trading is trading which takes place within the time frame of a day. Day traders look to profit from short term price movements within a day and close out positions before the day ends. Some traders take it further are ‘scalp’ the market’s minuscule movements over minutes and seconds.

Day trading so attractive because it offers the theoretical possibility of making huge profits and beating market returns very quickly. But that is just theory, not the reality.

It’s easy to fall trap to most brokers claims that short-term trading will help you quit your day job and achieve financial freedom. There is a conflict of interest here. Day trading means higher trading frequency and volume, and more commission income for the brokers.

As a trader, I am against day trading, and I work on higher time frames, starting from the Daily. This means I look at the markets from a much bigger perspective, which makes things much more predictable and workable. My trade targets could take a few weeks to even months to reach, and I love waiting it out for the markets to do their job.

If you are a day trader reading this, you would be appalled to know that day trading is hardly ever profitable.

What does the SEC say about Day Trading?

Because Day trading is not the best way to trade and is very risky, a report by U.S. Securities and Exchange Commission warns day traders as follows:

• Be prepared to suffer severe financial losses

• Day traders do not "invest"

• Day trading is an extremely stressful and expensive full-time job

• Day traders depend heavily on borrowing money (leverage)

• Don't believe claims of easy profits

• Watch out for "hot tips" and "expert advice" from newsletters and websites

• Remember that "educational" seminars, classes, and books about day trading may

not be objective

• Check out day trading firms with your state securities regulator


Most traders who day trade lose money.

2019 Brazilian Study:

Three academics, two from the Sao Paulo School of Economics and another from the University of Sao Paulo, undertook a detailed analysis of options and futures day traders in local equity markets.

The academics looked at about 20,000 new traders between 2013 and 2015 and found that over time, they lost more and more money. Of those that traded for a single day, only 30 percent turned a profit. Only 3 percent of the people that traded for over 300 days made any money.

The researchers found that the longer that someone traded, the more money they lost.

They also found that only 0.4% earned more than a bank teller (US$54 per day) and the top day trader earned only US$310 per day with great risk of US$2,560.

In the words of these experts:

We show that it is virtually impossible for individuals to compete with HFTs and day trade for a living, contrary to what course providers claim.

The researchers found that the longer that someone traded, the more money they lost.

This peculiar pattern of declining profitability is similar to what we would find, for instance, in the casino roulette, where the proportion of successful players also monotonically decreases with the number of rounds played.

An earlier 2010 study from the University of California at Davis which indicated a mere 1.6% of day traders were profitable net of fees, supports this new research.

In the words of Frank Davis, director of sales and trading at LEK Securities in New York,

“Day trading or trying to time the market is just a very difficult way to make a living. Professionals advise against it, no matter who you are.”

If you want to be able to understand the true workings of the financial markets and make long term consistent profits, day trading is certainly not the way to go. Choosing higher time frames for analysis and a long term perspective of the market is what is needed.

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