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Can Day Trading be profitable for retail?


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View Poll Results: Can Day Trading be profitable, consistently, for retail traders
Yes 112 72.73%
No 16 10.39%
Can't say 26 16.88%
Voters: 154. You may not vote on this poll

 
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Can Day Trading be profitable for retail?

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  #101 (permalink)
 blb014 
Dallas, Texas
 
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One of way of looking at it would be to examine a value trading meetup group I attend. Only one member had a negative return last year because he let his politics get in the way of his investing by continually shorting equities.

So 95% of our group is profitable and there are no marginal differences between traders in different markets?

Higher win rate in equities doesn't attract other retail traders because of return.
Equities investor/trader - Trader hopes to beat the S&P, last year 20% annual ROI
Forex trader - Traders hopes to turn is 10k into 100k by the end of the year. - leads to the much lower win rate

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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  #102 (permalink)
 bobwest 
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blb014 View Post
One of way of looking at it would be to examine a value trading meetup group I attend. Only one member had a negative return last year because he let his politics get in the way of his investing by continually shorting equities.

So 95% of our group is profitable and there are no marginal differences between traders in different markets?

Higher win rate in equities doesn't attract other retail traders because of return.
Equities investor/trader - Trader hopes to beat the S&P, last year 20% annual ROI
Forex trader - Traders hopes to turn is 10k into 100k by the end of the year. - leads to the much lower win rate

The question of this thread was whether day trading can be profitable for retail traders. All the discussion and all the data has been about short-term day trading.

This means it was not about value trading. You can't trade value on a time horizon that is only a few hours.

I'm not saying your point is wrong -- nor that it's right -- just that none of the comments that you argued against had anything to do with value-based trading or investing.

It's great that 95% of your group had a profit. But when someone says there is no marginal difference between markets, and he means short-term trading and you mean long-term trading in an equity bull market, you are talking apples and oranges.

Now, maybe long-term value trading is better.... fine. No one was saying it wasn't. At another time, we might discuss that, pro and con. For that matter, if you had said that long-term value-based equity trading gives better returns than short-term in-and-out day trading, many would say that is a reasonable view. Someone else might argue the point, and it could get interesting -- but it is not the present discussion.

So, if you just want to say that your equity value trading will make people money, that's cool. What do you think about day trading for the retail trader, which is what we're talking about? Is it a good idea or not? Why?

Bob.

Update: I realize that I may have misunderstood your point, and if so I apologize.... but then, fill me in. Are you talking about day-trading time horizons or something longer term?

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  #103 (permalink)
 blb014 
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bobwest View Post
The question of this thread was whether day trading can be profitable for retail traders. All the discussion and all the data has been about short-term day trading.

This means it was not about value trading. You can't trade value on a time horizon that is only a few hours.

I'm not saying your point is wrong -- nor that it's right -- just that none of the comments that you argued against had anything to do with value-based trading or investing.

It's great that 95% of your group had a profit. But when someone says there is no marginal difference between markets, and he means short-term trading and you mean long-term trading in an equity bull market, you are talking apples and oranges.

Now, maybe long-term value trading is better.... fine. No one was saying it wasn't. At another time, we might discuss that, pro and con. For that matter, if you had said that long-term value-based equity trading gives better returns than short-term in-and-out day trading, many would say that is a reasonable view. Someone else might argue the point, and it could get interesting -- but it is not the present discussion.

So, if you just want to say that your equity value trading will make people money, that's cool. What do you think about day trading for the retail trader, which is what we're talking about? Is it a good idea or not? Why?

Bob.

Update: I realize that I may have misunderstood your point, and if so I apologize.... but then, fill me in. Are you talking about day-trading time horizons or something longer term?

No worries. I responded earlier that scalping high frequency trading unlikely for most, but trading on a daily basis most definitely can be profitable even trading /es. (Yes very rarely and I'm round turn on a trade in a day)

Scalping high frequency on /ES is unlikely mainly because of unrealistic expectations and under capitalized. But they're several on here that are very profitable

I trade on a daily basis (adjustments to positions) Equities, options and futures /es with a retail platform. Does that make me a day trader?
My friends say" oh he owns ... and is a day trader" I use to say well "not a scalping day trader...." but it is not worth wasting my breathe anymore.

The eminis and forex are perfect instruments for scalping trading, I don't know why someone would try to scalp equities (PDT) on a retail platform. If we are talking about penny or pharm stocks, yes the low win rates would probably be the same

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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  #104 (permalink)
 artemiso 
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Seems like your argument rests on a very narrow generalization of equities and FX traders and trading style (beta exposure) such as:


Quoting 
Higher win rate in equities doesn't attract other retail traders because of return.
Equities investor/trader - Trader hopes to beat the S&P, last year 20% annual ROI
Forex trader - Traders hopes to turn is 10k into 100k by the end of the year. - leads to the much lower win rate

and incorrect assumptions such as:


Quoting 
The reason why theses traders are in riskier markets such as forex is for the higher return not win rate.

You can match your first order risk measures like vol simply by adjusting leverage.

The supporting data for no-arbitrage between asset classes is staring in your face even without my input. There are huge asset managers that are in the business of finding inefficiencies between asset classes and their rebalancing decisions may include moving $1B from value stocks in 1 Asian market to another, or $1B from commodities to equities, or developing country FX pairs to US equities. Harvard's endowment is in the business of moving hundreds of millions from Brazilian lumber to US equities on a low frequency. We know that there's almost no such asset manager with >2 Sharpe, so their R^2s must be extremely weak, meaning there's very few advantages from choosing between equities or FX.

Bear in mind that a significant portion of the accounts I deal with are institutional in nature, including fairly large hedge funds, which do not shoot to turn 10k into 100k. Also, 2000+ is also a much larger sample than your meetup group.

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  #105 (permalink)
 blb014 
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artemiso View Post
Seems like your argument rests on a very narrow generalization of equities and FX traders and trading style (beta exposure) such as:



and incorrect assumptions such as:



You can match your first order risk measures like vol simply by adjusting leverage.

The supporting data for no-arbitrage between asset classes is staring in your face even without my input. There are huge asset managers that are in the business of finding inefficiencies between asset classes and their rebalancing decisions may include moving $1B from value stocks in 1 Asian market to another, or $1B from commodities to equities, or developing country FX pairs to US equities. Harvard's endowment is in the business of moving hundreds of millions from Brazilian lumber to US equities on a low frequency. We know that there's almost no such asset manager with >2 Sharpe, so their R^2s must be extremely weak, meaning there's very few advantages from choosing between equities or FX.

Bear in mind that a significant portion of the accounts I deal with are institutional in nature, including fairly large hedge funds, which do not shoot to turn 10k into 100k. Also, 2000+ is also a much larger sample than your meetup group.

Diversifying, beta, sharp ratio. I agree there are few advantages for having fund managers other than admin and for them to consistently beat the market. That has led to index, target funds.

As far as institutional, yes myriad of reasons for trading forex, hedging risk.

But as a retail trader (this thread) with no global implications, Leverage and Return are the main drivers


Specifically referring to your chart on win rate(trades forex 79%losers) 1:5 win

There are significant differences. My personal experience (equities) it is much higher and Im not an outlier.

Are there any scholarly studies with evidence of this over the long term? Equities having a 1:5 win rate ratio

Volatility is good for the market and trading.

Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
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  #106 (permalink)
miktrading
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Posts: 24 since Mar 2017
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tpredictor View Post
I thought I'd give my best definitive answer. The definitive answer is yes. Day trading can be profitable for retail but it is not profitable for most retail and even among the better retail traders, it is not profitable enough to make a living on a tiny account. Second, the question as asked cannot be answered because it isn't defined well enough. How profitable? How consistent? If that is an open ended, consistent forever then that's unanswerable but unlikely for all traders. You need to ask also what is the distribution of returns?

Based on my years of studying the market, my own hypothetical and published tracked performance and others I've seen, I will try to give you the most accurate answer possible. The best futures day traders (probably applies to other day traders) can make between 50% and 200% on an account basis while keeping drawdowns to under 50% and often under 30%. As for consistency/longevity, this type of performance is possible to do over at least multiple years, we'll say 2-5. Doing anything in trading consistently beyond that is a big question mark.

There is really no reason to even discuss or argue whether or not day traders can do this. I mean that if you are a top 15% day trader you should be able to do this. Most traders cannot afford to day trade for 50% or even 100% returns. So, it is very difficult to go full time. But, there is really no reason to discuss whether or not these returns are possible because it is easy to find such published track records. There are even programmed systems with returns like these.

The more interesting question is if you want to move yourself beyond a top 15% performer, what type of returns might be possible and how would you do it? How do you move into top 2% to 5%? This is where we do not have a lot of data as most traders in this group are unwilling to share their returns. But, if it is possible, I will show you how and where the risk comes from.

1. Risk a large percentage of account per day. If you are very consistent then you can risk a high % of your account each day and still keep risk of ruin to something marginal. For example, if you make at least several high probability trades per day then having a run of 12 losing days would be very unlikely even over 5 years or so (<5%). Given that sort of knowledge, you can determine an amount to risk per day... For example assuming you have a 55% of being profitable on the day, out of ~240 days (i.e. proxy for trading year), the probability of having a run of 12 losing days is less then 1%.

Now given this, it means you can risk up to 8% of your account each day. That would be 4 trades at 2% risk each, for example. So, let's see how that looks on a 25k account. It gives you a $2,000 daily loss limit. Assuming you can make 25% of your risk on average, that yields $500 per day. A theoretical return of $120,000 or a 4.8x return. This becomes more difficult to do on accounts sub 25k because the risk per trade drops such that you have to effectively hyper scalp. The risk is you start on a bad day or have a bad run to start with.

2. Trade multiple contracts on high probability trades. If you can find 1 trade that you make $50 per day trading 1 contract at high probability, then adding 10 contracts takes that to $500. The risk is that your stop loss is blown and that your win ratio drops.

3. Trade for bigger winners. If you can catch a big trade then you could pull off $2,000 or $3,000 or $4,000 on a single contract. The risk is that (1) holding open a big winner like that will put a large percentage of the account at risk-- it is a form of compounding, (2) catching big winners is very subject to volatility. This sort of trader might not be a strict day trader but might still be mostly day trading.

Also, as an aside, I suspect it is not always a skills gap in a lot of cases as to why retailers lose, it is because they are effectively setting themselves up to lose because they trade tiny accounts which makes the average trade a bigger percentage due to fixed futures contract.


Excellent way to sum things up. Now why would one trade a negative risk/reward opposed to a positive risk reward. High probability and lower probability trades. I tried continuing a thread about harmonic rotations here:



It seems like a better way to control stops and targets, although there are missing pieces here as well.

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