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Can Day Trading be profitable for retail?

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artemiso View Post
The horizontal axis is gross (brokerage fees excluded) PnL of individual trades.

The vertical axis is cumulative probability, meaning probability that a trade makes profit of up to the amount on the horizontal axis.

If you see the orange curve, the cumulative probability of making $0 is around 79% for the group of traders in the orange curve. This means that only 21% of trades taken by accounts categorized in that group make positive gross PnL.

I can express this by cumulative profit of individual accounts on the horizontal axis too to arrive at the statistic you asked your broker for, but that isn't as a meaningful as knowing the outcome of individual trades because it's harder to normalize accounts as they have subscriptions and withdrawals, different account length etc.

Trimming it down a lot: 79% of trades taken by small accounts lose money (to market maker). Does this make sense?

To be clear, @artemiso's data shows that 21% of small-account trades make money (pre-commission and fees) -- or 79% lose -- not 21% of small-account traders.

With this data, a given trader in the small-account group could have 100% profitable trades (not too likely), or 0% profitable trades (probably some do.) The data does not group the trades by account, for reasons stated. Most traders will have something in between, but the overwhelming bias will be toward losses, which is the best takeaway from this. (Someone doing no better than the average for the group will have only 21% winners, which is not a good number. There may be outliers who do better, possibly much better, but probably not many.)

Also, these are gross P/L numbers, without commissions and fees, so the actual positive results will be less. However, assuming that most of the 21% of winning trades will be net losers after fees is not something that is in the data, and individual fees will be different for different trades. Certainly the net after-fees number of winning trades will be less by some amount.

This does not show that profitable trading is impossible for the small trader, but it does show that it is difficult and seldom achieved. This is consistent with industry lore (it is often said that "95% of traders fail") and with the general experience on this forum. Traders need to understand the probabilities of what they are attempting, and these are real numbers that address that.

Bob.

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