Approximately 1–20% of day traders actually profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail.
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What exactly is day trading?
Day trading is when you buy and sell stocks in a short amount of time, usually within a single day. The objective is to make a small profit on each trade, which will compound over time.
With the rise of online stock brokers like Robinhood and cheap or free trades, day trading has become a way for small investors to make a lot of money in a short amount of time, even though it is very risky.
“Successful day traders treat it as a full-time job, as opposed to trading between business meetings or over lunch.”
Trading is difficult for retail investors to profit fromdue to various factors such as the unpredictable nature of financial markets, the influence of institutional investors and high-frequency traders, market volatility, and the psychological biases that often lead to impulsive decision-making. Brad Barber of the University of California, Davis, did a study in 2010 that found that only 1% of day traders are always making money.
The study studied trades from 1992 to 2006, a span of fourteen years. The few people who do make money consistently spend their days trading, and it becomes their full-time job instead of something they do between meetings or at lunch.
If this all sounds like a bit more risk than you’re comfortable with, you may do what many investors do and engage in long-term, buy-and-hold investing in a diversified portfolio of low-cost index funds and ETFs.
Invest regularly in the account and allow the growth of companies to drive your portfolio’s long-term gains.
Long-term investing is significantly more likely to increase your wealth than day trading. Still, if you want to trade stocks every day, you should first learn as much as you can about the process.
KEY TAKEAWAYS
- Day traders purchase and sell stocks and other assets during the trading day to profit from the quick price variations.
- Day trading utilizes an extensive array of tools and strategies to benefit from these perceived market inefficiencies.
- Day trading, which is often based on a technical analysis of how the market moves, requires a lot of self-discipline and objectivity.
The Day Trading Success Rate
Day trading has a 4% success rate as a source of income. The actual rate I saw during my many years of trading at a proprietary trading firm and in discussions with other firm operators.
10% to 15% of prop firm trainees could make some money through day trading (a side activity). For many, their earnings were insufficient to warrant their time.
These individuals spend more than six hours each day at the office, day trading five days per week. They had access to capital and knowledgeable traders to ask inquiries (few did).
Six to twelve months was the minimum time required to earn a living through trading (I had a part-time job up till month 7). Some individuals took longer. Nobody is shorter.
Investing less effort or time lengthens the journey or decreases the success rate.
I believe poor success rates pertain to “I’ll give it a shot” individuals (most ppl). NOT those with love for trading. People with passion do whatever it takes. Give-it-a-shot people… try and fail.
“But I see so many people making a fortune; it must be simple!” This is an example of availability bias: accepting what is visible without contemplating what is not visible. If people talked about losing, you probably wouldn’t follow them on social media.
Follow those that seem to know what they’re doing when studying! It is the only world you can see, but it is not the only one in existence.
How to Be in the Top 4% (or 10%) want to at least swap. If you intend to only “test it out,” you should not bother. Mondays are the favorite day of the week for traders.
Devote a minimum of six months to learning a single approach. Inconsistency and experimentation lengthen the path to profitability.
The act of logging hours is not a practice. Only deliberate practice is relevant. Reviewing errors, generating remedies, and identifying ways to marginally increase risk/reward and win rate.
Confidence comes from doing something repeatedly until you believe in it and know you can do it. Most worries about “trading psychology” can be solved by practicing the strategy until it feels natural.
You do not consider money or produce money. You carry it out, as with any other repeated duty in life. That is only achievable if you consistently trade in the same manner. You will lack (justifiable) confidence and profitability if you are always attempting new things.
The Day Trader Success Rate
During my tenure at the proprietary trading firm, before leaving to trade independently, I witnessed a large number of aspiring day traders apply, but only a handful was accepted.
In order to become professional day traders, these people were willing to go through many interviews, sign contracts, and make a promise to show up every day while following risk management rules. These were, at least superficially, committed individuals.
Approximately 2,000 traders passed through the doors of my firm and other proprietary firms over the years, based on talks with their owners. The rate of success was about 4%, where success was defined as being able to make a living from the markets, which only sometimes means making a lot of money.
So, of the approximately 2,000 inhabitants, approximately 80 could trade for a living. The remaining 1920 gave up, departed, or were terminated.
These individuals trained and practiced for six to eight hours each day, every weekday. They had access to funds and assistance from successful traders, but only some utilized it. And yet, only approximately 4% of day traders could make a living from the trading.
The day trading success rate, including those who were somewhat lucrative but unable to support themselves, was likely between 10% and 15% of those who walked through the doors. These people might have kept trading as a side job, but they needed to make more money to support themselves.
If you want to make a living from day trading, your chances are about 4% if you have adequate funds and invest several hours daily for at least six months. Early streaks of good fortune do not count. I’m discussing regular month-to-month profits.
The majority of profitable traders required at least five months to accomplish so. For four months, I suffered (minor) financial losses. I earned a small sum in my fifth year, the equivalent of part-time work in my sixth, a minimal amount sufficient for subsistence in my seventh, and continued to increase from there.
It will depend on your income objectives, the amount of capital you have, and the profitability of your trading plan. Here are some potential profit scenarios for day trading FX. For day trading in stocks, you need at least $25,000 to start, and you can often get 4x leverage. With that level of capital, success is feasible. Futures trading can also be initiated with minimal capital.
The likelihood of making a living through day trading is unlikely if you lack enough funds and time to invest. It is conceivable, but it will take a great deal of effort and dedication to growing a tiny account into a source of income.
If you want to earn money on the side, you will still need the same level of commitment, putting in months to refine a system and fighting self-destructive inclinations. But the chance of meeting these lower goals is higher, with a success rate of 10 and 15%.
These numbers could be better. There are numerous factors to consider. But, conditions at the trading firm(s) were quite beneficial, and it is undeniable that most people could only make money slowly and slowly.
See the whole approach for day trading and dominating the market in less than two hours per day. My course on forex day trading will teach you how.
Conclusion:
Approximately 1–20% of day traders actually profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail.
