* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here
The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.
A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.
A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.
A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.
These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .
Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (205) 851-0506 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsem*nt, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.
Citations for Disclaimer
Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”
Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”
Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”
I am a seasoned financial expert with a deep understanding of stock market dynamics and trading strategies. Over the years, I have closely followed and analyzed various studies and research papers to gain insights into the nuances of stock trading. My expertise extends to risk management, market behavior, and the factors influencing investment outcomes.
Now, let's delve into the concepts and key points mentioned in the provided article:
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Results Variation and Risks:
- The article emphasizes that results in stock trading are not typical and vary from person to person. This aligns with the understanding that individual trading outcomes can be influenced by a myriad of factors, including skill, strategy, and market conditions.
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Time, Dedication, and Hard Work:
- Trading success is portrayed as requiring time, dedication, and hard work. This aligns with the common understanding that successful trading involves continuous learning, disciplined execution, and adapting to market changes.
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Inherent Risks of Stock Market:
- The article warns about the inherent risks of investing in the stock market, including the potential loss of the invested capital. This reflects a fundamental principle in investing – high returns are associated with high risks.
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Past Performance Not Indicative of Future Results:
- The article highlights the principle that past performance in the market is not necessarily indicative of future results. This concept is crucial in understanding that historical success does not guarantee future profitability.
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Day Trading and Losses:
- The available research on day trading suggests that most active traders tend to lose money. This loss is attributed to factors such as overconfidence, fees, and overtrading.
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Studies on Day Trading:
- The article references specific studies to support its claims:
- The 2000 study titled "Trading is Hazardous to Your Wealth" evaluated U.S. households and linked lower returns to overconfidence in trading.
- The 2014 paper "Learning Fast or Slow?" focused on day traders on the Taiwan Stock Exchange, indicating that 97% of day traders can expect to lose money.
- The 2019 study "Day Trading for a Living?" observed Brazilian futures contract traders, showing that 97% of frequent day traders lost money.
- The article references specific studies to support its claims:
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Overtrading and Gambling Behavior:
- The 2014 paper draws parallels between overtrading and the behavior of gamblers and drivers with more speeding tickets. It suggests that legalized gambling has an inverse effect on trading volume.
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Frequency of Trading Activity and Profitability:
- The 2019 study on Brazilian futures contract traders hypothesizes that more frequent trading activity decreases the chance of profitability.
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Disclaimers and Caution:
- The article concludes with disclaimers, emphasizing that the information is for informational purposes only. It warns readers to conduct their own research, seek professional advice, and acknowledges the risks involved in trading.
This comprehensive analysis reinforces the cautionary tone of the article, providing a nuanced understanding of the challenges and risks associated with day trading in the stock market.
