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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”



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.


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.


Insider info?

The Longer I live, the more I see people profiting off knowledge.

A personal example I see of this is in Tech. If you understand tech, you can find areas people don't understand. Those are what's worth investing or shorting.

Although if you are limited to day trades I'm not sure this is relevant.


It could also imply that they simply have related experience or skills before starting.

It's difficult to, for example, learn how to become a brain surgeon on the job.


Medicine actually involves a significant amount of learning on the job in all specialties - https://www.verywellhealth.com/types-of-doctors-residents-in...


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


I assume this means you were taught a very strong form of the efficient market hypothesis.

I believe there’s some good evidence for weak form efficient markets hypothesis in the most liquid markets, which implies you can’t make money by trading only on ‘technical signals’ in the price. This is what you might expect day traders to try to do, so in that sense it’s not a particularly surprising result this paper demonstrates.

But the consensus is, I think, that the strong form of the efficient market hypothesis might not be true in real life - being good at fundamental analysis can lead you to outperform the market.

Illiquid markets are a bit different again - you can potentially get ‘paid’ a lot more just for providing liquidity to the market there, which is different again.


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

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


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


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.


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


And the article even moreso:

> "We follow all individuals who day traded mini-Ibovespa futures contracts for their first time from 2013 to 2015, a total of 19,646 individuals."

I know nothing about the Brazilian equities market, but it seems like it might be harder to for individuals to reliably make a profit on something heavily traded and fungible (Ibovespa is an index), where you're competing with much bigger players. Smaller stuff might work better--for one person--because it doesn't scale.


I don't know much about the Brazilian equities market per se, but I do know about trading in other markets.

Liquidity is a very important aspect of any market. If you are the largest player in a small market (i.e. it has low liquidity), you are market making, and the problem with that is information asymmetry comes into play: you're trading against people who know stuff you don't know, and they will only trade against you when you're wrong.

If you are in a highly liquid market, the market represents all the information out there, so you need to think about where your informational edge comes from.

Most day traders seem to focus on technical analysis in the belief that there are underlying probabilities that drive market movement and this alone is enough to find an edge.

The linked paper is not one I have read completely yet, but it seems to align with my own experience and those observed elsewhere: that might be true, but you need to find the edge nobody else has seen yet, and that seems to be very difficult and carry some risk.


Exactly. The odds that any random person (or worse, those with <2 years of day trading experience), has a meaningful edge on an index covering 80% of the Brazilian stock market are....not great.


The trick with a lot of smaller markets is that they're easily manipulated. You try to trend-follow and just get exploited by pump-and-dumps.


Probably very similar to results for people who try to make a living gambling in casinos.


Looking at how bad these results are, the career gamblers in the casino seem to have an edge. They have various strategies that actually do work to greater or lesser degree - e.g. Playing poker which is a game of skill against other people with a house rake instead of a house mathematical edge.


Poker isn't gambling, but a game of skill. Are there many people making a living actually gambling on something like craps or roulette.


Making a living on poker? Absolutely.

Making a living on craps or roulette? Not mathematically impossible, but highly improbable. How do they get their edge?


Roulette you just play the statistics: not really an edge. You run the Martingale system (double your bet after every loss), and my quick monte carlo simulation says I'd turn $1 into $2,250 after 5,000 iterations. But I'd need a bankroll of $8,200 to cover the 13 consecutive losses my model spit out. And if your bankroll is that big, there are easier ways to get the same return.

(Oh, and most tables have maximums, so you can't keep doubling your bet to infinity.)


Not likely. But there are some strategies that amount to exploiting casino promotions and perks. There used to be some tricks around slot machines - like those near the door had a payout ratio above 1.0. There are probably still tricks along those lines, but if they become well known the casino's change them. You'd be much better of sticking to games of skill.


Fair enough. I've heard of craps players teaming up to play huge on both sides of the pass/don't pass, which would still have a negative EV. But they racked up comps pretty quickly which supposedly gave them a slight overall return when factoring that in. This might be good for a while to accumulate free rooms and whatnot, but not sure how one would actually make a living doing this.


Yeah, seems like a bad bet, but still better than day trading judging by the study results.


Not craps or roulette (without cheating), but certainly with blackjack. By finding favorable conditions and counting cards, it's possible to extract a slight advantage over the house (say 1% edge). Of course this is a grueling enterprise with an extremely high variance and thus requiring a large amount of capital.


Not impossible but highly unlikely probably means impossible, practically speaking.

Unfortunately this falls into the "too good to be true" category. A very unscientific categorization but surprisingly accurate in real life.

To me the worst conclusion is that "Additionally, we find no evidence of learning by day trading." Which leads me to believe that despite your best efforts at obtaining knowledge, luck in timing still plays too much of a role in the outcome. That doesn't add up to a viable alternative to a regular day job.


"Making decent money" doesn't mean crap it's about risk, expected value, and opportunity cost.

If you've got a million dollars and put it into an index fund you'll make ~$100k/year. If you day trade and make "Decent money" of say $70k/year you're still at a loss vs if you took the less 'risky' approach. Even if you made $150k (50% over the index) it's still a loss due to lost opportunity cost. As the $100k index + a job at McDonalds making $30k/year still puts you ahead due to long term vs short term capital taxes. And if you've got the knowledge to day trade and earn more than 50% over an index you can probably command a better job than fast food.

If you don't have a million in capital it becomes harder and harder the less money you have.

Your friends would need to consistently beat the market by a percentage of their capital for it to be considered a 'win' imo.




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