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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.

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.

One major flaw in this reasoning..

Some group of people are guaranteed to become brain surgeons.. the demand is there, the training is there, so it is a near certainty. In fact in the US at least, you can know very closely how many brain surgeons there can be per year. Who will fill those slots isn’t too kind to all takers. It is dedication, hard work, and luck (ie ovarian lottery).

Also the majority of those that “fail” at obtaining a neurosurgery training. If they were on the path to medical training will end up falling back to any number of high paying jobs in medicine or surgery.

This study found no one did terribly well at day trading. Random chance implies there will be some outlying outcomes, but that is a fundamentally different objective than having too many people for few slots.

What would you say the difference is between trying to make money on short term investments and trying to make money betting on sports?

Also your final paragraph seems to imply a causal relationship between how hard you work and remuneration. Hard work doesn't hurt, but luck is very important.

There is definitely an edge to be found, but the game heavily favors players with structural (I am able to know things you don't) or institutional (I have hundreds of subject matter experts and deep pockets) advantages, and individual day traders have none of those things.

Which isn't to say day traders can't get those things, it's just that you stop calling yourself a day trader and start calling yourself an investor when you start to intentionally build up structural/institutional advantages.

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.

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.

I know people who made millions day trading commodities, for no one in that cohort to have made any real money over two years is surprising to the point of disbelief. This may be something particular to the Brazilian exchange.

I’ve noticed a lot of successful traders trade commodities versus equities.

What makes commodities easier to trade?

Ed Seykota has been doing it for decades:


Commodities are generally harder to trade compared to equities. The reason successful traders do it is because you get access to much greater leverage compared to equities.


You’ll quickly get big or go home.

No inside information on commodities.

(However trading on embargoed government press releases is illegal. Though rather than kidnapping Clarence Beeks on the train, you can just interview the Florida farmers yourself.)

There is definitely inside information on commodities, it's just rare that insider trading on commodities is prosecuted.

You would definitely have an advantage in trading oil/gas futures if you had access to ExxonMobil's seismic exploration reports, for example.

Indeed! I found Matt Levine's post last Fall [1], particularly useful, as he believed you couldn't be prosecuted for insider trading of commodities (only securities). Then he received a nastygram from the CFTC :).

[1] https://www.bloomberg.com/amp/opinion/articles/2018-10-24/it...

Wow. But if Matt Levine can get it wrong too I don’t feel so bad.

But the insider trading you suggest above, is predicated on having material non public information of ExxonMobil’s.

Many who make millions are risky and lose it all, or more. How many of them are net positive over more than a year?

While I don't necessarily agree with Kranar's conclusions, I think his point is that the same can be said for many highly risky endeavors, like building a startup.

IMO the main difference is that, while in both cases you'll see a small number of successes and a huge number of failures, in startup land the net expected value is positive while in day trader land it is negative.

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