Day trading %'s ?

[BK1248]

My friend just started daytrading for a living and I bankrolled him for a no risk 5% cut. What % of daytraders can consistently beat the market and make a decent living?

[skierdude1000]

Hmmm... well 90% of daytraders go broke within their first 6-12 months


Good luck

[Dan Mezick]

Here's the likely percentage of daytraders that make money: (none)

This post may be the sign of a top.

[PokerParrot]

Less than 2%.

Think of the similar question "what % of poker players make a decent living" and factor in that trading is monumentally more difficult.

[jccookjr]

Get your money back before it's too late.

[jdoe]

If you started with $1,000,000 and wanted to earn 1% a week anyone should be able to beat the market for a week or 2 before the money is all gone.


If you think he is good, look at my results in the 2+2 Stock Trading Competition. I will take the same deal and give you 6%.



Jdoe

[OrangeCat]

[ QUOTE ]
My friend just started daytrading for a living and I bankrolled him for a no risk 5% cut.

[/ QUOTE ]
Daytrading what? Discretionary or mechanical? What were his results when back testing his system?

[Sniper]

[ QUOTE ]
My friend just started daytrading for a living

[/ QUOTE ]

Not enough information... did he just wake up this morning and decide to try his hand at daytrading? Does he have any kind of track record? Has he read any books? Does he have what it takes psychologically to be successful? Does he have a mentor? Is he trading any kind of a system? Does he understand the basics of risk/reward and money management?

[ QUOTE ]
I bankrolled him for a no risk 5% cut

[/ QUOTE ]

What exactly does that mean? You bankrolled him, but you think you have no risk? Is he going to pay you back if he loses all your $$$ ?

To maintain a daytrading account, your equity can not fall below 25K. A daytrader should start with at least 100K+ to increase their chance of success, when the inevitable drawdowns come.

[BK1248]

It is friend who wanted to try it, he has been involved with the market for many years and has been doing well trading short term trades for the last year or so. He has other equity and I gave him 10k and i get 5% profits and I am guaranteed the 10k no matter what happens. He said 15% people can make $, I thought lower to 5%, but after reading this I dont even know if 5% possible. Im not worried about my $$ I was asking for his sake. Thanks for replies.

[Dan Mezick]

....and trade alot less frequently, no doubt.

[Sniper]

[ QUOTE ]
Im not worried about my $$

[/ QUOTE ]

If 10K is a small portion of your net worth, then chalk this up as diversifying into a high risk investment, and good luck.

[ QUOTE ]
He said 15% people can make $, I thought lower to 5%, but after reading this I dont even know if 5% possible.

[/ QUOTE ]

There are many successful traders. There are many more that try to daytrade and have no idea what they are getting themselves into, thus the often quoted 90% of daytraders go broke within the first year.

If your friend has an idea of what he's getting into, is trading a profitable system, has a trading plan, understands that this is a job that requires long hours (9-4 in the market + alot of overtime for research/education) etc, then he has a much higher chance of success.

You might suggest that your friend stop in here if he has questions, as Im sure the few full time traders that populate this forum would be happy to help him avoid many of the common mistakes that new traders make.

[PokerParrot]

With only 10K, he doesn't really stand much of a chance.

[Sniper]

He said his friend had other equity.

[Moonsugar]

I don't know the statisitics but alot of these posts are silly. Comparing daytrading to poker is a stretch. Stockmarket friction costs are tiny compared to rake. Whereas poker is an even game excluding the rake, the stock market has 'negative vig', that is you get paid to play.

All that being said, it is EXTREMELY difficult to get more value from trading than you could get by just buying index fund(s). THis is especially true for individuals on an after tax basis because the low turnover strategy of indexing is so advantageous. The main reason its difficult to add value to the market is because securuities are 'more or less' effeciently priced and that in aggregate the average investor HAS to receive the average return by mathematical fact.

Your friend may get lucky, a lot of managers do. Or, he could be the best money manager ever. Unfortunately we won't know the answer for decades. Just remember that if he has a great year it doesn't make him great and if he has a bad year he doesn't neccessarily suck, it could all just be variance, or as we call it in finance: volatility.

Edit for the nits: Volatility = standard deviation, not variance per se.

[Sniper]

[ QUOTE ]
Comparing daytrading to poker is a stretch.

[/ QUOTE ]

Most of the top stock market writers make reference to poker.

[ QUOTE ]
Stockmarket friction costs are tiny compared to rake. Whereas poker is an even game excluding the rake, the stock market has 'negative vig', that is you get paid to play.

[/ QUOTE ]

Negative Vig/Get paid to play? You must be forgetting commission costs which can be substantial for day traders, especially scalpers.

A few years ago when daytrading was the hot thing to do, many scalp style daytraders (the method most commonly taught by daytrading firms) were paying milions in commission costs. Show me a poker player making a million a year on rakeback /images/graemlins/wink.gif


[ QUOTE ]
it is EXTREMELY difficult to get more value from trading than you could get by just buying index fund(s)

[/ QUOTE ]

There are many very simple trading systems that easily outperform the buy and hold index strategies over the long term. Just as 1 example that is widely known... The dogs of the dow.

[ QUOTE ]
The main reason its difficult to add value to the market is because securuities are 'more or less' effeciently priced

[/ QUOTE ]

Stocks are not efficiently priced. Stocks move back and forth from overvalued to undervalued on a fairly regular basis. Smart traders take advantage of the markets pricing inefficiencies for long term consistant gains.

If stocks were efficiently priced, they would move very little each day.

[ QUOTE ]
in aggregate the average investor HAS to receive the average return by mathematical fact.

[/ QUOTE ]

What is your measure of "average return" in the stock market?

Who would want to be an average investor? If you structure your finances properly, you will earn more $$$ from the stock market than you will from any other activity. This is definately one area of your life where investing the proper time in education will reap huge rewards.

[PokerParrot]

[ QUOTE ]
Stockmarket friction costs are tiny compared to rake. Whereas poker is an even game excluding the rake, the stock market has 'negative vig', that is you get paid to play.

The main reason its difficult to add value to the market is because securuities are 'more or less' effeciently priced

[/ QUOTE ]

Obviously not a trader.

[Dan Mezick]

According to the efficient market theory, anyone that exceeds the long-run benchmark averages by any amount long term is experiencing positive variance (they are simply lucky).

How do you stay memrely "lucky" for 20 years or more?

[Sniper]

The efficient market theory is just that, a theory, just like there was a theory that the world was flat and the sun revolved around the earth.

Some links to more info on the Efficient Market theory:

Investorwords (http://www.investorwords.com/1672/efficient_market.html)

Morningstar (http://news.morningstar.com/classroom/print_quiz/0,3270,4495,00.html)

Investopedia (http://www.investopedia.com/articles/basics/04/022004.asp)

Wall Street Window (http://wallstreetwindow.com/efficient.htm)

Wikipedia (http://en.wikipedia.org/wiki/Efficient_market_hypothesis)

Investorhome (http://www.investorhome.com/emh.htm)

[Dan Mezick]

The EMT assumes rational investors. We know that assumption is false because of recent advances in Behavioral Finance (http://www.behaviouralfinance.net/). We also know that technical traders that trade mechanical systems successfully for decades invalidate the EMT by working from non-random repeating patterns of price, volume and time.

Most of the terms in this emerging social science refer to forms of denial, delusion and self-deception. This is all the stuff Dr. Al discusses in his writings-- actual delusion and denial in their many forms.

The primary culprit in most dumb decisions about money is Inattentional Blindness (http://psyche.cs.monash.edu.au/v5/psyche-5-03-mack.html)

[lu_hawk]

[ QUOTE ]

If 10K is a small portion of your net worth, then chalk this up as diversifying into a high risk investment, and good luck.


[/ QUOTE ]

So should I diversify my poker playing by calling to the river when I don't have the odds and call it 'high risk'? Risk is always bad. Variance is not risk.

[Sniper]

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Risk is always bad.

[/ QUOTE ]

Risk is not bad. In the stock market, diversifying a part of your portfolio into well researched higher risk investments is +EV. With higher risk comes the opportunity for higher reward.

Everyone willing to invest the time to do their homework, should allocate at least a small portion of their portfolio to higher risk investments than they might ordinarily make.

[ QUOTE ]
So should I diversify my poker playing by calling to the river when I don't have the odds and call it 'high risk'?

[/ QUOTE ]

You mean you've never bluffed someone out of a pot? stolen the blinds with a weak hand? Been called on a blind steal and flopped a monster?

Take a risk today, you never know, it might payoff big /images/graemlins/wink.gif