
Day Trading for a Living? - ak39
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101
======
jhoutromundo
They have a reason to make that article: there is a lot of companies fooling
the Brazilian people over this.

I'm a Brazilian software developer for the financial market. I also made some
financial courses on the same university that the authors.

Brazilian stock exchange market has exploded in the last years and most of my
friends decided to 'work' as traders. None of them with prior knowledge or
experience in the market. All of the posts on Instagram every time they earn
some money.

The cause for this fever was the marketing around 3 or 4 companies who sell
the dream of financial independence through high-risk financial market
lessons. Normally they offered courses to famous people for free and use their
image to convince the rest of us.

One interesting thing: they normally sell the course with a private platform
to trade the stocks included. I believe that they use that platform to collect
data and operate against the traders that use that platform. They know the
strategy that they are going to use (because they teach them), so it is easy
to operate against.

~~~
amluto
> One interesting thing: they normally sell the course with a private platform
> to trade the stocks included. I believe that they use that platform to
> collect data and operate against the traders that use that platform. They
> know the strategy that they are going to use (because they teach them), so
> it is easy to operate against.

You’re assuming a complex strategy is needed when a simple one can easily
suffice: simply pretend that you executed the trades, give the clients their
profits, and keep the losses. In other words, the broker can take the opposite
side of every deal and keep the spread and commissions. If, indeed, the client
is trading based on no information whatsoever, then the broker wins and the
client loses.

To improve this, the broker can throw out the best performing clients, since
they might genuinely know what they’re doing.

I’m not suggesting that this is what any particular broker does, but it’s a
strategy that works very well, at least in principle.

~~~
alexhutcheson
A business using this approach is called a Bucket Shop - it's both fairly
well-known and explicitly illegal in most places:
[https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)](https://en.wikipedia.org/wiki/Bucket_shop_\(stock_market\))

~~~
tim333
It's also very similar to 'spread betting', explicitly legal in the UK and a
large industry.

------
melling
For anyone interested in a great story about a world class mathematician who
built a company that has used algorithms to beat the market for the last few
decades, James Simons has an impressive record:

[https://www.ted.com/talks/jim_simons_a_rare_interview_with_t...](https://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?language=en)

[https://m.youtube.com/watch?v=QNznD9hMEh0](https://m.youtube.com/watch?v=QNznD9hMEh0)

[https://en.m.wikipedia.org/wiki/Jim_Simons_(mathematician)](https://en.m.wikipedia.org/wiki/Jim_Simons_\(mathematician\))

One other thing, the Simons Foundation funds Quanta Magazine, whose articles
frequently appear on HN:

[https://www.quantamagazine.org/](https://www.quantamagazine.org/)

~~~
inerte
Someone will always beat the market, because that's what we're looking for.

I think it was on "Thinking Fast and Slow" that I read it's pointless to
analyze the stock market winners, since it's a random process. Imagine there
are 30 million entities that own stocks in the US - individual, companies,
funds, etc... If on a given year half of them did better than average (with
some rounding liberty):

    
    
      1st year: 15M better than average
      2nd year: 7.5M better than average
      3: 3.25M
      4: 1.6M
      5: 800k
      6: 400k
      7: 200k
      8: 100k
      9: 50k
      10: 25k
    

And so on... after 20 years, probably 25 traders will have beaten the market
for 20 years straight. Next year, same thing, 25 traders will have beaten the
market, and so on. In the US, there's always someone who has beaten the market
over the last few decades - there's nothing special about them. Randomly
picking stocks would give you the same end result. But since we're
storytellers, we build an explanation and go with it.

~~~
melling
Who said it’s a random process? Stock prices don’t go up randomly over the
long term.

Joel Greenblatt had 50% yearly returns for a decade.

Renaissance Technologies uses algorithms.

Also, I don’t think you would expect someone to beat the market every year,
but over a ten year period, for example.

~~~
ryandrake
I’ve got a roulette “system” too. Trust me, it even has _algorithms_ and
_machine learning_. I’ll sell you the book.

The discussion reminds me of a fun exercise we did in one of my B-school
classes: everyone stands up and flips a coin. If you flip heads you sit down
and stop the game. Everyone who flipped heads flips again, with the new tails
flippers sitting down. At the end when there’s one person left, the prof
interviews him, asking “how did you become so skilled at flipping heads?” and
“what advice can others take to get as good as you!”

This is what we are doing when we admire stock pickers and try to figure out
what their secret is.

~~~
mruts
Well Claude Shannon and Ed Thorpe did figure out how to beat roullette. And
BlackJack. And then Thorpe figured out Black Scholes and made a killing in the
markets trading warrents.

See my above comment about how statistics does not bear out your fooled by
randomness theory.

~~~
kasey_junk
I don’t have a dog in this fight but Ed Thorpe has one of his funds liquidated
via RICO. He’s usually used as an example in the positive case for “only bad
behavior gets outsized market returns” argument.

Scholes & Merton got famously wrecked in the markets.

~~~
bob_theslob646
This is the perfect example of broken telephone. (If you don't know the full
story and fail to post any source)

The reason why they got the RICO.

"From 1969 to the end of 1987 the amount invested rose from $1.4 million to
$273 million. Its limited partners saw their wealth grow at 18.2 percent
annualized after fees. PNP had no losing years — and not even a losing
quarter."

The regulators thought that it was a Ponzi scheme based off that information
or did they...

"But most knowledgeable observers believed that the charges — filed under the
Racketeer Influenced and Corrupt Organizations (RICO) Act — were also intended
to get the Princeton Newport principals to testify against Michael Milken, the
controversial “junk bond” trader who had upended Wall Street conventions and
who had dealings with PNP."

The regulators thought that it was a Ponzi scheme, when in reality, they
mastered the tax code and created losses via hedging, which was legal at the
time.

"The resulting charges were related to trades that PNP had made to create
losses that would offset corresponding gains that arose during the firm’s
hedging maneuvers."

"The Princeton Newport attorney, Theodore Wells, a Harvard Law and Harvard
Business School alumnus known for high-profile white collar criminal defense,
argued that the trades were allowed under IRS regulations. They even had a
former IRS commissioner, Donald Alexander, prepared to testify in their
defense. The judge would not permit it."

>I don’t have a dog in this fight but Ed Thorpe has one of his funds
liquidated via RICO.

First off, his name is Edward O. Thorp
[https://g.co/kgs/jfpjL1](https://g.co/kgs/jfpjL1) not "Thorpe"

>Ed Thorpe has one of his funds liquidated via RICO.

Please post a source because almost all of the charges were overturned.

"Ed Thorp, who was not greatly affected by the criminal charges, was able to
restart his hedge fund activity. In 2012 Thorp’s net worth was estimated at
$800 million."

All of this information came from this source.

[https://communitynews.org/2017/02/28/from-fat-cat-to-
rackete...](https://communitynews.org/2017/02/28/from-fat-cat-to-racketeer-
jay-regan-says-no-way/)

------
davidu
I don't doubt the headline, but "We observe all individuals who began to day
trade between 2013 and 2015 in the Brazilian equity futures market" seems like
a weird way to come to that conclusion.

~~~
soneca
Why weird?

~~~
DSingularity
Because that is not a representative sampling of the day trader population.
Assuming the techniques of the study were sound, at best we can conclude
whether or not day trading Brazilian futures is a sustainably profitable
undertaking.

~~~
georgespencer
Wouldn't you need a basis for believing that day trading Brazilian futures has
unique properties not present in other markets to assert this? E.g. the
volatility or spread is significantly larger than European futures or the
information flow is more tightly de/regulated etc.

Is there a basis for believing this?

~~~
teawrecks
Making an assumption about the population based on a small non-random sample
is usually the belief that needs to be justified by evidence.

~~~
Retric
20,000 people is not a small sample. Sampling bias is still an issue with
large populations, but generally significantly less important.

------
wtvanhest
If you take Jan 1, 2013 to Dec 31st, 2015, the Brazillian stock market did
very, very poorly. That probably explains why it was nearly impossible since
most traders are probably long, not short the market. So even taking 1 day
positions in stocks, still on average over 3 years will experience signifigant
downward price pressure.

That said, the fact that the market is bad, is just randomness and shows one
of the major difficulties with relying on investment income to support your
life. Sometimes stuff just sucks, for very long periods of time. Meanwhile you
must pay your bills.

That doesn't even get in to whether or not these people dramatically
underperformed the market. They very likely did, but I also bet some of them
outperformed based on luck or skill.

Stock market investing is something everyone should try at somepoint in small
doses just to understand how difficult it is. Its probably the hardest way to
make money in the world and even the best investors usually have a bad few
years which ends their careers.

~~~
pintxo
> Its probably the hardest way to make money in the world

Just no. Certainly it's not easy. But the hardest? I'd say there is a long
list of occupations which most people would consider harder on various
dimensions.

~~~
codetrotter
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.

~~~
wtvanhest
Really well put.

------
outime
Putting aside the potential quality issues of the study, the headline here in
HN isn't accurate and made a lot of people comment about how wrong it is.

The study doesn't literally say "impossible" but "virtually impossible" and
they do say that a very small percentage was able to make about $310 a day
which is about ~110k a year.

~~~
mumblemumble
0.0051% of the study group, to be precise.

The more interesting trend, which isn't covered in the abstract, is that
profitability is inversely correlated with how long you stay at it. It was 30%
of people who day traded for one day and gave up on it, and steadily dropped
down to 3% for people who kept at it for more than 300 days.

As a stats person, that struck me as a very evocative distribution. The paper
put it nicely: "This peculiar pattern is similar to what we would fi􏰄nd, for
instance, in the casino roulette."

The next thing I would want to know is, if you model the stock market as a
machine that simply gives random payouts drawn from some distribution, what is
the probability that a set of 1,551 groups of 300 random draws from that
distribution would contain at least one set that averages more than $310? If
the paper ran such a model, I didn't see it.

~~~
hn_throwaway_99
Yes, it certainly looks like what would be dictated by statistics with random
chance that eventually reverts to a slightly negative mean.

In the short term it's not that unusual to flip a coin and get 5 heads in a
row, but the more you throw the closer to a 50-50 split you'll see.

~~~
mumblemumble
I'd also be very interested to see what would happened, hypothetically, if
everyone just stopped trading after some fixed number of hours, held that
position until the point when they decided to give up trading, and then
liquidated it.

My hypothesis is that their average returns would end up being much higher
than the returns they realized by day trading that whole time, due to less
money being lost to fees.

~~~
Legogris
ICO bagholders disagree

------
Kranar
I mean you may as well say: Study shows it is impossible for an individual to
build a tech start up as a living.

Just because something is hard doesn't mean it's impossible. Day trading, like
many other risky ventures, is something that is very hard and unlikely but for
the few who succeed ends up being very profitable.

~~~
kevin_nisbet
The abstract of the paper seems to suggest otherwise: _We observe all
individuals who began to day trade between 2013 and 2015 in the Brazilian
equity futures market, the third in terms of volume in the world, and
persisted for at least 300 days: 97% of them lost money, only 0.4% earned more
than a bank teller (US$54 per day), and the top individual earned only US$310
per day with great risk (a standard deviation of US$2,560)._

My interpretation of this, is that those they tracked in this study, it's not
even all that profitable for the few that beat the odds while being exposed to
significant risk.

~~~
Kranar
But what should we compare those odds, how are we supposed to interpret this?

Imagine we tracked a group of 1000 randomly picked individuals who wanted to
be a brain surgeon. I don't know for sure but I wouldn't be surprised if of
1000 randomly chosen people, only 3 people managed to succeed at it after 4
years.

But no one would ever say "Study shows it's impossible for an individual to
become a brain surgeon." or imply that it's just random luck to be a brain
surgeon. Instead we conclude that being a brain surgeon must be very hard and
require a great deal of dedication and commitment.

The reason day trading is singled out whereas brain surgeons are not is that
the barrier to entry to become a day trader is very low, anyone can try to
become a day trader and many people think they can succeed at it.

The proper conclusion to take from this is isn't that the stock market is pure
luck or just a form of gambling... it's that one shouldn't be deceived by the
low barrier to entry into thinking that they can succeed at it. It's really
hard, soul crushing work to be a successful day trader in much the same way
it's really hard work to do anything in life that pays well.

~~~
seiferteric
Isn't it possible that there is simple not enough information in the system to
successfully day trade (at least in this particular market). Considering that
the daily movements of stocks are like a random walk, I don't find it hard to
believe.

~~~
Kranar
It's often difficult for me to discuss this since I do automated trading. I've
been doing this for over 10 years now, have grown a company out of it that has
30 employees, and I maybe lose money 2 or 3 days out of the entire year and
often times due to technical reasons...

Either daily movements of stocks are not at all like a random walk, or I am
just one heck of an astronomically lucky guy. Now I do consider myself
fortunate and privileged, for sure... but the amount of luck it would take to
repeatedly make money on the market day after day that can fund a decently
sized team of high paying engineers, data center costs/hardware costs, so on
so forth... it's unthinkable.

The stock market, at least to the degree that I am involved in it, very short
term market microstructure, doesn't behave anything like what economists say
it does.

------
cardimart
The results are fairly obvious to anyone who has read "A Random Walk Down Wall
Street".

Day traders rely on technical analysis which is the equivalent of astrology in
the financial sector.

~~~
Macross8299
"Random Walk Down Wall Street" is somewhat outdated and a lot of the evidence
from behavioural finance doesn't really support its central thesis. It's more
dogma than anything.

~~~
pembrook
The central thesis of short term market movements (say day to day or week to
week or month to month) being a random walk is about 99.7% correct.

This is a statistical reality, you can literally crunch the numbers!
Behavioral finance has nothing to do with it.

~~~
dbsights
about 99.7%?

I've always hated the argument of this book: yes the markets are chaotic and
short term movements appear random, but the appearance of being random is not
equivalent to being caused by a random process. The book makes a big deal
about how technical analysts saw patterns in random data so it must be bunk,
but this doesn't really say anything about the predictive power of technical
analysis when the data is generated by the aggregate actions of thousands of
traders instead of a coin toss.

Price action is not the result of investors literally buying or selling at
random. Each action is undertaken in response to external conditions and it is
far from absurd to believe that patterns can exist in the price.

------
linsomniac
"The easiest way to make a small fortune in the stock market is to start with
a large one."

~~~
conanbatt
Man this one is wrong lol

------
taesu
With big enough equity and proper risk management, one can do so. Problem lies
with low equity & high expectation which often leads to improper risk
management and a sudden margin call. i.e. it's really easy to make $1 with $1
billion account size with risk nearing zero, but trying to make $1 with $100
is exponentially hard & risky. These so called day traders opt in for later
b/c they are trained by the course & society & influences to do so.

~~~
HenryBemis
Every retail trader I've talked to, wants to start with $1000 or less and make
$300-$400 per day. Literally everyone. After they lose their 50th $1k, they
still aim for the same. It's like an addiction to gambling.

------
gwbas1c
I always thought the problem with day trading is an absence of information:
How does a single individual know enough about about all the various entities
they are trading to really know when one is going up or down?

Seems like an institution with dedicated employees performing due diligence
will know much more than an individual day trader, and thus will be able to
make better decision about when to buy and sell?

Anyway, my bias has always been that day trading is really gambling.

~~~
atourgates
All effective trading is, essentially, insider trading. Not in the legal
definition, but in the sense that to beat the market, you have to know
something that "the market" doesn't.

Or, just get lucky.

The only personal example I have is from buying NFLX stock about a decade ago.
I saw a news (Slashdot I think) story that Netflix's servers were having an
hours-long outage. I can't remember if it was mentioned in the story that
their stocks took a dip, or I just happened to look. Either way, I noticed
that their stocks were down about 30% on that news, which seemed silly to me.
The market was treating this like it was some kind of disaster for the
company, whereas I was pretty confident it was a temporary blip.

I bought the stock, just a few hundred worth since I was in my first barely-
over-minimum wage job at the time. Netflix got their servers running again,
and the stock recovered the next day. I decided to hold on to the stock
because, why not? Today, it's worth about 20x what I bought at.

If only I'd bought more.

My point is, I knew that the market was wrong, and an hours-long server outage
wasn't a reason for Netflix to suddenly be worth 30% less than it was the day
before.

To successfully pick stocks, you have to have some kind of expertise or
insider knowledge to know when the market's wrong, and you're right. Most of
us, in most situations, don't have that kind of expertise or insider
knowledge.

------
xivzgrev
It’s not impossible, there are many people who make decent money from day
trading. It might be more accurate to say “study shows it is difficult to earn
a living trading stocks”

~~~
steveklabnik
The abstract, of course, contains more detail than the headline regarding
exactly what is claimed:

> We show that it is virtually impossible for an individual to day trade for a
> living, contrary to what course providers claim. We observe all individuals
> who began to day trade between 2013 and 2015 in the Brazilian equity futures
> market, the third in terms of volume in the world, and persisted for at
> least 300 days: 97% of them lost money, only 0.4% earned more than a bank
> teller (US$54 per day), and the top individual earned only US$310 per day
> with great risk (a standard deviation of US$2,560). Additionally, we find no
> evidence of learning by day trading.

~~~
ch4s3
The interesting bit to me is, “we find no evidence of learning by day
trading”. This implies to me that the top earners are merely lucky, and have
no special knowledge or advantages.

~~~
smt88
We were taught explicitly in my (highly-ranked US) business school that stock
performance is a random walk and success is luck.

~~~
ones_and_zeros
This is an interesting concept to be teaching business school students.

Doesn't this amount to telling you your education is useless?

~~~
jmilloy
No, because running a business and stock trading are different things.

~~~
ones_and_zeros
running a business is just the opposite side of the stock trading coin.

If the stocks themselves are random walks, then the underlying company
performance must be random walks. If your education does indeed improve the
outcomes of the business you manage and run then that would mean stock
performance can be influenced by things other than luck.

Unless of course you are operating under the premise that company performance
and stock performance are unrelated.

~~~
jmilloy
I don't know. But a business may perform predictably from the insider's point
of view ans unpredictably from the outside.

------
hash872
While I agree that day trading anything is an extremely poor idea- why is
trading by banks/hedge funds/Goldman Sachs etc. consistently profitable? (Or
if isn't profitable, why do they do it?) Is it just the massive informational
advantage that they have? I'm not advocating for trading per se (I certainly
don't do it!)- just curious about how large financial institutions presumably
turn trading profits in light of EMH

~~~
pembrook
Goldman Sachs isn't profitable because of prop trading. They charge fees for
services. It's that simple.

~~~
hash872
So then why do they trade at all then? I'm not arguing for trading, I'm just
curious.

It seems like the existence of 'trader' as a job at all of these financial
institutions kind of disproves EMH if you have enough market data

~~~
pembrook
They don't.

After the Volcker rule the big banks had to close their prop trading groups:
[https://en.wikipedia.org/wiki/Proprietary_trading](https://en.wikipedia.org/wiki/Proprietary_trading)

The idea that investment banks are filled with human "traders" is Hollywood
nonsense.

Most trading activity (and even filling of retail order flow) is now done by
quant-driven funds.

~~~
hash872
According to LinkedIn there are 573 people with the job title 'trader' at
Goldman Sachs. I'm scanning through the list now- titles like Fixed Income
Trader, Mortgage Trader, Rates Trader, Oil Trader, Equity Sales Trader, FX
Trader, Emerging Markets Trader, Base Metals Trader, Interest Rates Trader,
Investment Grade Bond Trader, Equity Derivatives Trader, Commodity Trader....
I found all of these on the first page of results (25 people)

~~~
pembrook
By contrast, about 37,000 people work at Goldman. Those people with the name
“trader” in their title are simply executing client trades as a service for
fees—-not speculating with the banks own money.

I stand by my point, the idea that Goldman is full of traders in the Hollywood
sense is nonsense.

------
jacquesc
I have a couple friends that do day trading on "technical analysis". As in,
they only trade on the chart movements. Both claim to make money consistently.
I generally believe them, but it seems like black magic to me. Especially when
they explain what they're doing in detail.

Not sure I understand this study tho, and whether or not it relates.

~~~
mumblemumble
One thing to keep in mind is that even a random number generator can trivially
turn a profit when the market is trending up. It's when the market is volatile
or going down that you get a real test of how well a strategy works.

Which isn't to say that technical analysis is unfounded. And I do believe that
there are opportunities that exist for individuals that haven't been
arbitrated out of the market by the professional quants simply because they
don't represent enough money to be interesting on an institutional scale. But
it takes something like a bear market to really know for sure if you've found
those opportunities, or if you're just riding a rising tide that lifts all
boats.

------
factsaresacred
There are prop firms[1] filled with traders regularly making money hand over
fist. Many of those traders also make a killing on their personal account.

So while certainly not easy, it's possible.

Trading suffers from some of the same problems of web development: few
barriers to entry leading to an abundance of low-quality participants, and the
mostly autodidactic nature of skill development.

Like 10x engineers, 10x traders exist. But getting there requires thousands of
hours of deliberate practice, discipline and conscientiousness - traits
typically not found among the get-rich-quick crowd who discovered trading
after clicking a Youtube ad for forexbillionaredaytrader.scam

[1][https://en.wikipedia.org/wiki/Proprietary_trading](https://en.wikipedia.org/wiki/Proprietary_trading)

------
f00zz
Something that's probably not mentioned in the article is that it's really
easy to get into day trading in Brazil. I think I read somewhere that in the
US you need a US$ 25k account to day trade; in Brazil with a US$ 50 account
you're in the game. There are many zero-fee brokers (though those are a recent
development, I don't remember those in 2013), and capital gain taxes are 20%.

In fact I'm surprised that day trading in Brazil is not more popular than it
already is. It's basically legalized gambling. I do remote work as a software
developer in Brazil and I've been playing a bit with options swing trading on
the side (which is even cheaper than day trading); I don't plan to make a
living out of it, but it can be fun (and a bit addictive).

------
iliketosleep
This is akin to saying "it is impossible to gamble at the casino for a
living", which for the overwhelming majority of people is true. Having said
that, it's not impossible. People have beaten casinos before, and they have
beaten markets, by finding an edge over the house (or market) - but it's never
the typical Joe type. In day-trading, the typical Joe uses so-called
"technical analysis", the same stuff you'll find in books and taught by course
providers, which offers absolutely no edge over the market. It's simply
cashing in on hope.

~~~
duxup
I think the "for a living" is really about beating it longer term and the
income comes in a sustainable fashion.

Even someone beating a casino I would think would get some big payouts to live
on long term... but that casnio is gonna notice and shut down that "living" or
just ban you. In that sense you're not doing it "for a living" as much as
hoping to make enough money in a short span to maybe last longer term.

Now maybe they find new ways to beat the casino but to do it sustainability is
questionable.

So beating the casino seems different than "for a living" IMO.

~~~
iliketosleep
Large, irregular payouts can also constitute a living. In extreme cases, it
might even be just one payout.

~~~
duxup
I think the study shows that even that didn't happen for anyone in the market.

------
Bubbadoo
You see it on Instagram all the time... charlatans hawking 'trading systems'
on equities, options, fx, etc. They're targeting people who want to 'take
control of their lives.' Trading is like professional sports: once in the
while a natural comes around, but for most, it's a great way to lose buckets
of cash. Even for traders' with a gift, it takes about three years to develop
a kind of market sense or intuition. Then there are the markets themselves:
with low-latency and HFT, you're almost never in control. You can only hope
your algo is close to one the other traders are using. I especially love those
flim-flam artists--hawking FX futures trading as a way to financial
independence--their own usually. FX markets are controlled largely by central
banks who don't always let the market know what they're doing and includes
some of the world's most capitalized banks. It's hard to know what to do in a
market with all of these massive external forces. Most importantly, the
markets have evolved over the last 15 years to a point where if you're not
low-touch, you're going to lose. Having said this, last year I beat the S&P
soundly. It was a good year. It did take a minimum of 60 hours a week and was
a stressful roller coaster at times. This year... forget it. With one of the
least stable administrations in place, the market can reverse direction
multiple times in a day. You'd better be automated for that.

------
smdz
That is so misleading! I have been day trading profitably for the last 6+
years. It is more than enough to cover my living expenses for a family of 4.
But I also work (freelance dev), because it cannot cover my home EMIs.

My returns are not too high, but much better than bank interest rates and
probably much below professional traders. The only thing stopping me from
earning my EMIs or more income is the allocated capital, which is limited to
stay in the game long term without losing my shirt. Even though I had a
profitable strategy even before I started trading profitably, it took me 2.5
years to align my comfort/tolerance level with risk management. i.e. its not
just about having a profitable strategy. I did minor tweaks on my strategy
only 2 times in all those years.

I do not doubt that many fail with day trading. In my case, day trading is
stressful and takes anywhere between 5-8 hours of my time daily including time
spent outside market hours. It is stressful, exciting and frustratingly boring
while waiting for opportunities. And to add to the stress I freelance too,
mostly before trading hours and some after. Doing both feels like slogging
everyday and on some days I have an internal struggle about increasing the
trading risk. And there are times where other traders will (unintentionally)
gaslight by telling me how their monthly returns are equal to my annual
returns.

~~~
Kevin_S
Ok but the last 6 years the market has generally only gone up. If you are
doing technical analysis, you would expect to actually be profitable in an
expansionary period. The problem is if you trade the same way in a
deflationary period you will lose all of your gains.

~~~
fouc
It'd be interesting if the trading interface could silently flip the chart &
swap the puts & shorts during a deflationary period, so that you could keep
trading the same way, while taking into account a bear market.

------
asdfman123
But this is directly in contrary to people who have told me they can make 20%
a week day trading!

By my calculations, the guy who told me that a few years back should literally
own the entire world by now.

------
osrec
I've done ok trading stocks and FX, probably enough to live off. There is a
caveat however; you need to have a sizeable portfolio to begin with.
Otherwise, the risks you'll need to take are simply too large.

If you think you're going to turn £5k into £500k in a year, forget it! But
turning £5k into £5.3k is certainly doable.

Scale that initial portfolio to £5m, and you can take home £300k with relative
ease in a good market- that's a very comfortable income for most people.

~~~
wbl
That's less then 10٪. Long term stock market returns are around 7% and
considerably less riskier.

~~~
osrec
Yes, long term 7% is the quoted number, however that can be over a couple of
decades (maybe more) and you may need to endure a recession or two.

With a bit of active management, I manage to achieve 6-8% each year, but I
avoid large negative hits that an index fund might endure in a bad market.

So, I'm sort of returning similar returns to market, but with less volatility
in the bad times. I'm sorta happy with that.

------
jedberg
Their title should really say "now" at the end. It was definitely possible
before. I know people who did it, and they weren't just bragging about fake
gains. I saw the accounts. I saw the rigs. And I saw them go from one small
house to a bunch of rental houses and a big mansion using day trading profits.

And they all retired before 2008.

------
rvr_
The article is very good, but there is another dimension to be evaluated:
There are two futures contracts that attract a lot of trading volume in
Brazil: ibovespa futures and dollar/real futures. Both contracts have two
tickers each, the "full" and the "mini". So we have: INDFUT, DOLFUT, WINFUT
and WDOFUT (those two last are the "minis").

The common lore (or myth) goes as follow: The average trader starts trading
paper money in a demo account, then goes to the mini to "learn to feel the
pain" and if successful migrates to the full contract.

So, to really have the bigger picture, the study must be expanded to include
the four tickers. Them we can really now if the "pros" playing on the full
contract are really making any money.

------
aj7
Two axioms for small investors: 1\. You can’t make money by day trading. 2\.
Technical analysis is bunk.

~~~
bob1029
I would like to expand on this point because while it is true as stated above,
there is more to the picture from my perspective. Day trading and technical
analysis are certainly bunk, but the problem I see is people equating day
trading with making intelligent stock picks which were NOT driven solely by
technical analysis nonsense.

For instance, predicting that a certain company's product will steal market
share from a competitor based upon personal experience in the same industry
and then purchasing stocks based upon this is an extremely viable strategy.
Especially, if your intentions are to hold for the long term (beyond 12
months). You just need to get comfortable with the boundaries of your own
understanding and make rational decisions based on this. I always see this
black and white discussion (put everything into a broad market EFT vs day
trade on technical analysis) without much discussion of intermediate
strategies that are based on actual concrete research and understanding of the
relevant markets.

~~~
aj7
I do the above, but I think it might be vanity. It’s not clear I shouldn’t
spread risk via ETFs.

------
neves
Is it just me who thinks really weird the idea of "working" without producing
anything?

~~~
hellodetroit
Think of a used car dealership. They buy cars and resell them later for
(usually) a higher price. Are they not producing anything?

As the sibling comment pointed, participants in a market are producing and
consuming liquidity.

------
docker_up
Impossible? Lol I have a handful of friends that do this. It's hard work but
they make 5 to 6 figures consistently per year.

It's very very hard, and not everyone can do it. I tried and lost a lot of
money. But it's definitely not impossible, that is simply a lie.

~~~
ectospheno
Your particular logical fallacy is "cherry picking".

~~~
docker_up
You only need one example to disprove that something is "impossible".

------
sebastianconcpt
_We show that it is virtually impossible for an individual to day trade for a
living, contrary to what course providers claim. We observe all individuals
who began to day trade between 2013 and 2015 in the Brazilian equity futures
market, the third in terms of volume in the world, and persisted for at least
300 days: 97% of them lost money, only 0.4% earned more than a bank teller
(US$54 per day), and the top individual earned only US$310 per day with great
risk (a standard deviation of US$2,560). Additionally, we find no evidence of
learning by day trading._

------
mattkrause
Aren't futures contracts, by definition, zero-sum?

The _average_ profit should be pretty damn close to zero (ignoring/averaging
across trades with non-daytraders).

~~~
nickles
This is a common misconception. Futures contracts are very often used for
nonspeculative purposes (e.g. Starbucks locking in prices for buying milk or
farmers locking in prices to sell wheat). This is a form of insurance. While
the end users are ultimately may net with each other, the intermediaries who
take risk matching these parties charge a fee (the spread) for doing so.

Why can't the end users trade with each other directly and avoid such fees
then? Often they are not in the market at the same time or want to trade
different quantities, relying on the intermediaries to resolve these problems.

~~~
mattkrause
I get that the insurance has a value of its own, but what about the trading of
futures specifically?

Suppose I buy a biotech stock at $10/share. They make a breakthrough, and the
stock shoots up to $110/share. I make +$100/share, but no one has lost the
corresponding $100.

Suppose I agree to buy an ounce of silver from you for $20 in January. If
silver is $21 then, you effectively lose a dollar , since you need to chip in
a buck to get me my silver. If it's $19, you can slip a dollar into your own
pocket before buying the silver on the spot market. Regardless of how it turns
out, the total gain is zero.

What am I missing?

~~~
nickles
Suppose a farmer wants to lock in the price of milk produced the farmer's
dairy. The farmer wants to sell futures and sees a market of 18.30 / 18.50.
These prices are probably being shown by a market maker. The farmer sells the
futures to the market maker at 18.30. A few minutes later, Starbucks would
like to buy the same contracts, to lock in its costs for the next month.
Starbucks buys at 18.50.

These two participants have paid the market maker, in total, 0.20 in spread.
Here, the spread is the fee the market maker charges for facilitating
liquidity. At this point, the net sum between the three participants is still
0. However, we also need to factor in the fees charged by the exchange, any
taxes that may be charged on the transaction (for example the SEC fee in
equities), clearing fees, and funding costs.

On the whole, the transaction between the three participants was negative sum.
However, the market maker is running a business by reflecting those costs, and
the risk premium, in the spread. Even though this transaction is negative sum,
it, presumably, still provides economic value to the farmer and Starbucks.

~~~
mattkrause
Isn't that example nearly zero-sum (ignoring the spread)? If the spot price
for milk goes down later, Starbucks loses a bit of money. If it goes up, the
farmer has effectively "paid" for an advance.

My point is that futures are _by construction_ zero-sum (ignoring spreads) or
negative sum (including them). Thus, any analysis that averages across market
participants' P&L will conclude that futures trading is unprofitable[0],
except for the market makers. This is true regardless of the savvy of market
participants.

[0] Obviously, it doesn't capture non-cash considerations. Starbucks and the
farmer both might be thrilled with reduced risk. But paper doesn't consider
those factors either.

~~~
nickles
> Isn't that example nearly zero-sum (ignoring the spread)?

But ignoring the spread is incorrect, and nearly zero sum is not the same as
zero-sum. The spread is the fee that market makers earn for a service they
provide. You're also not considering other participants. The price changes
you're talking about could be driven entirely by end users, or they could be
driven by speculators, arbitrageurs, and others who are providing separate
services (price discovery, liquidity, balance sheet, arbitrage, etc.) and are
also capturing some of the value.

> futures trading is unprofitable[0], except for the market makers

If you are explicitly excluding participants who profit by providing financial
services to markets, then you are begging the question.

> Obviously, it doesn't capture non-cash considerations. Starbucks and the
> farmer both might be thrilled with reduced risk.

Transferring risk can definitely provide economic value (insurance policies
exist for this reason), but it should be noted that there are other advantages
as well. These futures transactions can help Starbucks manage inventory
without needing to maintain large stockpiles of perishable or reduce the
volatility of prices charged to consumers.

~~~
mattkrause
Are you saying that the "misconception" is that it's actually slightly
negative-sum, rather than exactly-zero sum? If so, great, I agree. It doesn't
change my point at all; if anything it makes it stronger.

 _I_ am not excluding anyone; I'm trying to explain why I think the result
here is not particularly enlightening.

~~~
nickles
My understanding of your comments is influenced strongly by this statement:

> Thus, any analysis that averages across market participants' P&L will
> conclude that futures trading is unprofitable[0], except for the market
> makers. This is true regardless of the savvy of market participants.

By virtue of offering various services to market participants, savvy market
operators can consistently generate profit. In the context of this article, I
took your statement to mean that any given participant cannot consistently do
so.

At the same time, the end users entering into these transactions understand
they will be paying these fees, just as a firm expects to pay a fee to borrow
money from a bank. If we describe this process as a zero-sum game, it gives
the impression that trading is a speculative casino, reallocating money to
participants at random (the misconception). If we describe it instead as
negative-sum, where participants are paying/paid for services, it better
reflects the economic value of the transactions.

> ignoring/averaging across trades with non-daytraders

I didn't see this bit for some reason when originally responding to your
comment. Had I, my comment would have been stated differently.

~~~
mattkrause
That's not what zero-sum means. The definition of a zero sum "game" is simply
one where the participants' payoffs (here, profits) sum to zero.

Nothing in the definition prevents some participants from being better players
than others. As you noted above, some entities might also prefer to "buy"
stability for their main operation instead of trying to minimize their
spending on some of its inputs. Nevertheless, for every dollar made on
futures, someone has lost (at least) that much. Except for the market-maker,
the entire thing is a closed system. Thus, you'd expect the average return,
across everyone trading the contract, to be zero, which is exactly what this
paper shows.

The paper does show 47 people who turned a profit. Their analysis can't
distinguish between rubes who haven't (yet) reverted to the mean and savvy
traders with some kind of effective edge. It would be interesting to see what
the loss distribution looks like.

------
lamby
Reminds me of:

> It's said that most at home traders fail, but this is incorrect: they fail
> at making money, but they are successful at feeling like a trader. That is
> the goal; the money is secondary, which is why they fail at making it.
    
    
      — The Last Psychiatrist, Who Can Know How Much Randi Zuckerberg Is Worth?(http://thelastpsychiatrist.com/2014/03/who_can_know_how_much_randi_zu.html)

------
kolbe
In the time frame tested, Brazil's equity markets fell about 60%. I'm sure
more than just 'day traders' failed to make money.

------
PorterDuff
I've always wanted to design a slot machine that traded a few NASDAQ stocks.

You go into a bar, run your credit card and stick some money in the machine,
buy/sell some shares (with leverage?), machine owner skims off fees, cash out
when done.

I never thought day trading worked very well and given the number of non-human
brains on the other side (plus the overhead), the odds are good that the odds
are bad.

------
AYBABTME
In the whole paper, there's no mention of whether the market itself was
growing or shrinking. This makes the results kind of hard to trust. Assume the
market lost money for these dates, then it would follow that most traders on
that market lost money as well. The results should at least be controlled for
the overall rate of change of the market.

~~~
cshimmin
I don't think that's how day trading is supposed to work. Successful day
traders are supposed to make money whichever way the market is moving, by
taking short positions when the market is going down and long when the market
is up. Buy-and-hold investors (quite the opposite of day traders) are the ones
who make money when the market as a whole goes up.

------
munherty
Sorry this doesnt fly.

I think at best we can conclude that the trading methods used by the sample
are ineffective for day trading in Brazil. Now if their methods are similar to
that of the population, one may be able to conclude that common day trade
methods are unsustainable within the brazilian market

------
hsnewman
I don't understand. If companies (pensions, banks, funds) regularly trade and
make profit (ie: for a living), why can't individuals? I think this study is
flawed, more likely the Brazilian market had problems during the study's time
period.

~~~
bowcoy
Putting your money in a savings account already gets you 6%-10% depending on
how Brazil's economy is doing. Putting your money in real estate gets you
10%-50% depending on the neighborhood. But both of those investments require
big/old money, and the younger generation does not have that (not uncommon for
a highly qualified engineer or mathematician to live at their parents until
they are 28, because they can not afford to rent or buy a apartment).

So, daytrading has become extremely popular. It is the "make 2000$ working
from home" style and seedily advertised everywhere. For instance, the night
door man at a medium-poor hotel was up all night looking at candle graphs and
drawing trendlines. My girlfriends social media is full of influencers who get
free money to play and then only report on their winnings. I spoke with a
professional gamer who quit university to do nothing but Twitch stream and day
trade. He makes 6400$ a month in a country where the minimum wage is 290$
(though cost of living can be on par with the big cities in the US).

The data they used is pretty solid, but then again, if you make serious money
with day trading, then you find a so-called "little way" to avoid detection
and scrutiny. For instance, it would be slightly more complex to use 20
accounts, vs. just 1 account. You can trade on another person's details.

I think the biggest part of the losses are caused by the hype, and targeting
this hype to financially illiterate people, who do not have much money to
weather a bad streak. Many ordinary people were also sucked into Bitcoin
around December 2017, with taxi drivers investing in fractional BTC, only to
see their savings and vacation money drop to 25% of the original value.

Market was not super (but is recovering).

------
HenryBemis
FX trader here. I do trade daily for the last 18 months, mostly algo, and it
IS possible to make profit every single day. Just aim for 0.1% per day and you
are set for life. You aim for the 0.1% of your capital, so when the market
goes against you, you got enough margin to keep the account alive.

Anton Kreil has a good video (I will add it later - walking now) that tells
the tale how the markets are set up to rip you off/apart. He mentions the
90-90-90 rule.

90% of retail traders lose 90% of their capital every 90 days. I have seen
this happening so many times to retail traders who want to get rich in a week
that I just stopped talking to other traders because they never learn their
lesson.

Edit: Anton Kreil's video on how the system is stacked up against 'you'. He of
course also sells the 'secret recipe' to win!!

[https://www.youtube.com/watch?v=hzFl0uDwAQY](https://www.youtube.com/watch?v=hzFl0uDwAQY)

~~~
samfisher83
If you could make .1% every on the stock market that would be a return of 29%
a year. I am not sure how many hedge funds could get you that kind of return.

FX is different and I guess there are differences in terms of trading days,
but returning .1% every day would be very hard.

~~~
HenryBemis
I'd say even more than 20% per year, because you aim for 0.1%, but when the
market goes against you, you may end up having a max floating -20% but that
will close with a 2% profit that day.

The Broker will only cheat a little just to push you over the edge. As long as
stay far-far away from the edge, you are safe. If you aim for 0.1%, even if
they (broker, markets, price action) do their worse, they won't get you past
10% (that's x100 the 0.1% risk:reward you aim for).

------
foxfired
Nonsense. Of course you can. You just have to sell it as a course rather then
do the trading.

------
qaq
"We observe all individuals who began to day trade between 2013 and 2015 in
the Brazilian equity futures market, the third in terms of volume in the
world, and persisted for at least 300". How do they know it is "all"?

------
codingslave
Day trading seems similar to online poker, where 98% of players are loosing
players.

~~~
LeonM
And yet, every poker player will tell you about how they always win. The same
goes for daytraders I guess

------
chewbacha
In other news, it’s virtually impossible to earn a living buying lottery
tickets.

------
gigatexal
Anecdotal sure but I know many who are trading derivatives at a profit —
they’re being conservative but selling and buying options can be lucrative
although it goes against the efficient market hypothesis

------
tempsy
This year has been unusual but it is pretty wild as someone fully invested in
stocks (including individual picks) how many times I found myself making more
than my rent or paycheck in a day.

------
hogFeast
What do you think traders who work at banks are doing? Last I checked, they
made more than bank tellers.

(Being facetious, looking at one instrument in one market is awful...it
deserves a stupid response).

------
stjohnswarts
That 100% assurance that no one can day trade seems a bit, ever seems like a
bold declaration. I'm sure there are prodigies that can, but the other 99% of
us suck at it over time.

------
praptak
Mandatory reading for anyone considering trading stocks:
[http://edmarkovich.blogspot.com/2013/12/why-i-dont-trade-
sto...](http://edmarkovich.blogspot.com/2013/12/why-i-dont-trade-stocks-and-
probably.html?m=1)

TLDR: just invest in an index fund.

~~~
newshorts
Until Michael burry pointed out that indexes have a grown into a bubble...

------
erdleerdle
Start with a big pot, learn python, don't be stupid.

------
homonculus1
This is probably the worst retitle I've seen on HN

------
throwawaylolx
That's not really a claim that science can prove.

------
00N8
Teaching people to day trade as a career sounds kind of like teaching people
to challenge NBA players to basketball games for money, as a career

------
booleandilemma
It’s possible, because people do it.

Maybe they mean day trading isn’t something that can be managed, metricized,
and scrummed to death like some other fields?

------
SEJeff
Humans day trading is harder / impossible mainly because computers do it now,
and do a much better job of it.

------
zelly
> 97% of day traders lost money

How can I take the opposite side of these trades? Is this what James Simons is
doing?

~~~
rjkennedy98
Buy and hold...simple as that.

------
newshorts
I find it interesting that all the comments on here seems to corroborate this
evidence.

It doesn’t seem like a large percentage of comments are saying “this is false,
because I make a living day trading!”

Instead most of the comments say something like “this story is untrue because
I know someone who makes a living day trading”

Knowing someone != being someone

~~~
bmarquez
Many people who are actually successful with day trading (as opposed to
selling pitchforks to miners) don't like to brag or talk openly, or post
flashy pictures on social media.

Why? Because they don't need the attention. They don't need people begging to
mentor them for free, or share the strategy they've worked for months or
years, or ask for free stuff since they didn't really "work" for it like
lottery winners, or criticize their livelihood saying it can't be done.
There's just no point.

------
rotrux
The subject of this post should be changed to remove "impossible."

------
adrr
It is difficult to make a living but you can make money day trading. Market
isn't the fastest. You can capture value on big events like the Boeing issues
and other events. If you have risk appetite you can write options and pick up
nickels in front of a steam roller.

~~~
dragthor
With risk-defined option trading, you decide the size of the steam roller.

~~~
Havoc
The pennies stay small though

~~~
marketgod
Look up the Wheel Strategy. Good way to start trading and it's fairly
profitable because it's long term investing with a boost to your cash flow.

------
qwerty456127
It's widely known that 99% amateur traders loose money.

------
fortran77
What happens is you get people "day trading" in a period of time when there's
an extended bull market and they think they're geniuses / financial whizzes.

------
ape4
Is Day Trading the same as Momentum Trading?

------
axwhy
With small account, yes it is impossible

------
ablx000
Efficient Market Hypothesis anyone?

------
verizonuser
ES just retested 3000 - good time to try a short position on United States
stock market index futures.

