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Day Trading Success Rates

Given the participation of day traders in securities markets, researchers are always trying to figure out whether they make money. Here is a review of some of that research on day trading success rates. Note that they are low. Few people who take up day trading succeed, in part because few people who take it up are prepared. And even many of the prepared traders fail.

  • Do Individual Day Traders Make Money? Evidence from Taiwan: This paper, written in 2004 found that only 20 percent of day traders in Taiwan tracked between 1995 and 1999 made money in any six-month period, after considering transaction costs.

    Median profits, net of costs, were U.S. $4,200 for any six-month period, although the best traders showed semi-annual profits of $33,000. The study also found that those who placed the most trades made the most money, possibly because they are the most experienced traders in the group.

  • Report of the Day Trading Project Group: In 1999, the North American Securities Administrators Association, which represents state and provincial securities regulators in the United States, Canada, and Mexico, researched day trading so that its members could provide appropriate oversight.

    The report does not include performance data. However, it cites several cases where brokerage firms were sanctioned by regulators for misrepresenting their clients’ performance numbers, including one firm that had no clients with profits.

  • Trading Profits of SOES Bandits: Paul Schultz and Jeffrey Harris looked into the profits made by the so-called SOES bandits, day traders who took advantage of loopholes that existed in NASDAQ’s Small Order Entry System in the 1990s.

    These people were the first day traders. Did they make money? The authors looked at a few weeks of trade data from two different firms. What they found was that about a third of all round-trip trades (buying and then later selling the same security) lost money before commissions.

    Only a quarter of the round-trip trades had a profit of $250 or more before commissions. The 69 traders in the study made anywhere from one to 312 round-trip trades per week. They had an average weekly profit after commission of $1,690; however, almost half of the traders, 34 of them, lost money in an average week.

Putting these success rates in perspective

Yes, most day traders fail — about 80 percent in the first year. But so do a large percentage of people who start new businesses or enter other occupations.

Field First Year Failure Rate (%)
Real estate sales 86
Day trading 80
Training for a marathon 70
College 33
Restaurants 26
Teaching 13
If you understand the risks and keep them in perspective, you’ll be better able to handle the slings and arrows of misfortune on the way to your goal.

Day trading is difficult, but it is not impossible. You can improve your chances of success by taking the time to prepare and by having enough money to fund your initial trading account. During the first year, you’ll want to handle trading losses and still be able to pay your rent and buy your groceries. Knowing that you can cover your basic expenses will give you more confidence, and that can help your performance.

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