Is day trading for a living your dream job? Get another one – study says 97% of day traders lose money.

Is day trading your dream job?

A study from the University of San Paulo Brazil by Fernando Chague, Rodrigo De-Losso, and Bruno Giovannetti says that the vast majority of day traders lose money in the equity markets.

Some of the most popular finance websites out there promote the idea that day trading is easy and accessible. Investopedia is quoted as the following: “Trading is often viewed as a high barrier-to-entry field, but this is simply not the case in today’s market. Now, anyone with ambition and patience can trade, and do it for a living, even with little to no money. Sounds fantastic? It is, and there are so many options available to people with the desire to put in the time to learn.”

The goal of the authors was to create a more informed public on the odds for modern day traders. These traders now face high frequency algorithms and bots that trade automatically for them.

The authors took a large sample of day traders from the Brazilian equities market, a sample of 19,646 day traders. They found the following:

“Considering those who day traded for only one day (1,111 individuals), 29.8% obtained positive net prot. Considering those who day traded for 2 to 50 days (9,978), 51 to 100 days (3,100), 101 to 200 days (2,738), 201 to 300 days (1,168), and more than 300 days (1,551), 15.5%, 8.9%, 6.8%, 5.4%, and 3.0% obtained positive net prot, respectively.”

The idea of “learning while trading” or “becoming better through practice” is more or less debunked. As the portion of successful day traders decreases monotonically with the number of days they traded – or in other words, your odds are no better than gambling.

Further, they found that only 3% of traders came out ahead of fees and generated a profit. They note that if the profit was so enormous it could still attract people to the profession. However, even that doesn’t seem to hold true:

“Only 17 individuals (1.1% of 1,551) earned more than the Brazilian minimum wage (US$ 16 per day), only eight individuals (0.5% of 1,551) earned more than the initial salary of a bank teller (US$ 54 per day), and the individual who earned the most earned US$ 310 per day on average. Moreover, the eight individuals who earned more than the initial salary of a bank teller did so with great volatility; the standard deviation of their daily profit ranged from US$ 632 to US$ 3,308.”

Conclusion:

While it seems like it might be fun to be able to outplay the market almost every individual trader does not beat the market, with 97% of them failing to even make a profit. And of those who did make a profit they did so with great risk to their capital (and probably sanity).

But the authors findings are not unusual, even professional hedge funds do not beat the market. This only adds more support to the random walk hypothesis often prevalent in the financial markets. These findings might not hold true to cryptocurrency but it’s likely they do. But if you are considering attempting to trade or invest in cryptocurrency, it’s best if you learned about the underlying tech first.

Further, if you are thinking of attempting to day trade for a living, reconsider it, or at least think about paper trading first for a few months and studiously keeping track of your profit, fees, thoughts, and account capital throughout the experiment – and if you make a profit after all of that – it might be for you.

But my suggestion is don’t go out and buy a course on day trading.

Link to the study

Plus this is consistent with my personal experience with paper trading and following twitter traders who never actually post screenshots of their account and trading positions – they just try to sell courses or private groups or are just pump and dump groups.