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Knowing The Probabilities: Actual Facts And Research On Day Traders Mostly Losing Money

Knowing The Probabilities: Actual Facts And Research On Day Traders Mostly Losing Money

day traders

Image credit: Tods0859 / iStock

The lure of being your own boss and making potentially unlimited profits while working in your pajamas proves irresistible but unachievable for 95 percent of day traders trying to make a living on very short-term price movements, and that may be generous. 

Day trading is defined as buying and selling on small price movements throughout a trading day, often in intervals of seconds or minutes, according to The Balance. By comparison, long-term investing is buying or selling after long periods of holding an investment and waiting for the right price.

Put another way, investing involves a fundamental analysis of stocks to determine good long-term prospects. Day traders, on the other hand, “use expensive, state-of-the-art technology and technical analysis to spot intraday trends they may be able to capitalize on.”

“Unfortunately, the myth that 95% of all day traders lose money is wrong. The actual number is closer to 99%,” wrote Rolf Schlotmann, a trader, entrepreneur and chairman of Quantum Trade Solutions, a company that sells trader mentoring programs and online trading courses.

Schlotmann’s company analyzed broker data and the performance of traders and came up with 24 statistics on why day traders lose money. He concluded that trading decisions are often based not on sound research or tested trading methods but on emotions, the need for entertainment and the hope of making “a million dollars in your underwear“.


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“What traders always forget is that trading is a profession and requires skills that need to be developed over years,” Schlotmann wrote.

Despite the hype that easy access has leveled the playing field for traders, it is investors, not traders, for whom the field is level, according to investment manager Benn “DJ D-Vol” Eifert.

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Eifert is the co-founder, managing member and chief information officer of QVR Advisors, a quantitatively-driven, options-and volatility-focused investment manager. QVR makes money helping institutional investors navigate the derivatives market.

“In fact, the playing field has never been more level for individual investors (not traders),” Eifert tweeted. “Incredibly cheap access to diversified broad exposures to US and global equities, where intermediaries make tiny fees.”

Eifert attempted to set the record straight in a series of tweets on Feb. 13. “Got some grifters out there lately pushing a narrative that the rise of broad-based aggressive individual trading activity is somehow empowering, so here are some links below to actual research/data on the topic, both newer and older,” he tweeted.

Here’s a brief summary from some of Eifert’s links:

  1. The top stocks bought by Robinhood users underperform by 9 percent on average over the following month: U.S. univeristy researchers found that Robinhood investors engage in more attention-induced trading than other retail investors. Many retail investors buy stocks that catch their attention, and limited attention prevents them from considering all the available information and choices. “Consistent with models of attention-induced trading, intense buying by Robinhood users forecast negative returns. Average 20-day abnormal returns are -4.7% for the top stocks purchased each day,” the authors wrote in a paper published in October, 2020.

2. Almost 80% of Private Day Traders Lose Money: Alex, a self-described data and visualization nerd who goes by the name CuriousGnu, analyzed data from 83,000 customers on eToro, a brokerage company that allows users to view and copy other users’ trades. Alex found that over the previous 12 months, 79.5 percent of them lost real money and the median 12-month returns were -36.3 percent.

3. 97% of Brazilian day traders in the equity futures market lose money: University researchers in Brazil, the world’s No. 3 biggest equity futures market by trading volume, concluded in a paper posted in July 2019 that it is virtually impossible for individuals to day trade for a living, contrary to what educational course providers claim. They observed all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market and found that 97 percent of all those who traded for more than 300 days lost money. Only 1.1 percent earned more than the Brazilian minimum wage and only 0.5 percent earned more than the starting salary of a bank teller.

4. Single men trade 67% more than single women and perform significantly worse, an effect explained primarily by overconfidence: Men are more prone to overconfidence than women, particularly in male-dominated realms such as finance, according to researchers at the University of California, Davis. They concluded in a 2001 paper published in the Quarterly Journal of Economics, that men trade more than women, perform worse than women and reduce their returns more than women do. In addition, these differences are most pronounced between single men and single women.

Eifert warned day traders to be more discerning about the information they consume from “the various ecosystems that make money every time you transact.”

“Spreads (and fraud income) are extremely high in crypto, and spreads+PFOF very high in equity options, so the people who are part of the various ecosystems that make money every time you transact will try to tell you to keep up the gambling, you’re about to strike it big,” he tweeted. “This is the oldest bezzle on Wall Street. As long as the customers trade, a lot, then the intermediaries get rich.”

Some Twitter followers responded to Eifert in what appeared to be jaded terms. “Providing easier access to financial markets, especially for the inexperienced and undercapitalized, didn’t automatically fix the wealth gap? Shocking.” Andrew Moss, CMT tweeted.

“It’s not a gap, it’s an interstellar plan,” @ML_Yeth_ replied.

“Yeah. Really helps the 1%, with computers set to trade up or down in microseconds — timed to present the illusion that most Regular and Extended Trading Sessions are ‘buying opportunities…’ until they pull the plug an hour or two, later, to profit, and leave retailers behind,” Craig O. Thompson tweeted.

Some Twitter users provided real-life anecdotes in support.

“I worked at a VC firm heavily invested in a retail trading platform and I distinctly remember the managing partner telling me ‘it all comes down to how many customers are willing to blow their brains out trading like maniacs'” tweeted Shitco Shatoshi.

“Trading is not gambling.” Not_Seriously tweeted. “Trading is based on statistics; money management, emotional control, systems with positive mathematical expectation. And unless you’re superclass or crazy lucky, it’s not enough to get rich if you’re not already. It’s hard, and more boring than any game.”

Tigers G wasn’t about to let anyone steal anyone’s dreams. “More boring than working at a low wage job making poverty wage just to make ends meets for god knows how long have you been working at these jobs because everything around you is goddamn expensive???” @TigersG2 tweeted.

Image credit: Tods0859 / iStock, https://www.istockphoto.com/portfolio/Tods0859?mediatype=photography