Only 20% of traders actually make a profit (study)

by TheCuriousBread

Here’s the number from a UC Davis study that studied the profitability of day-traders

Over the typical six month horizon, using lower range assumptions regarding transaction costs, less than 20 percent of day traders earn profits net of transaction costs.

Now, who are those 20 percent that actually made a profit?

We identify day traders who earn substantial profits over a six-month period and analyze the performance of their subsequent trades. These profitable day traders continue to earn stellar returns. The average day trader in this group earns a semi-annual income of over $NT 1 million from his day trading activity, though the group’s median income is a more modest $NT 126,000. The stocks they buy outperform those that they sell by 62 basis points per day. These profits survive transaction costs. In other words, there is strong evidence of persistence in the ability of day traders.

People who actually know what they’re doing.

Consistent with our prior evidence, there is a strong monotonic relation between past standardized profits and subsequent performance.

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If you actually come out positive in the year-end, you’re already doing better than 80% of traders out there. If you beat the market you’re even the rarer of the rare, and if you go full yacht, ability and skill have more to do with luck.

Key takeaway: When you find yourself consistently losing money, it’s probably time to consider the statistics. Good traders consistently gain money, if they lose they don’t double down to try to recoup their loss. If you keep losing money, it’s time to stop and “git learnt”.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.


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