The Truth About Day Trading

Day trading, the activity of buying and selling the same financial asset on the same day, sounds like one of the smartest approaches to investing in stocks. Why bother holding onto an index fund when you can make daily profits? And to make day trading sound even better, there are lots of people on the internet nice enough to teach you how to trade, and make huge easy profits just like them, for a fee, of course.

Timestamps:
0:00 Introduction to what day trading can and can’t do for you
0:36 Is day trading an effective strategy?
6:43 Day trading for a living?
7:52 The paradox of skill
10:13 Why do day traders still day trade?

Referenced in this video:
The Cross-Section of Speculator Skill: Evidence from Day Trading

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[BenFelixCSI]

At 3:14 I say the study sample period was 1995 - 2019. The animation says 1995 - 1999. The animation is correct. Missed that in post.

[edwardmauer]

This is why I recommend night trading instead.

[Green__one]

I tried day trading for a while. After fees, I made a fair amount of money, and I was able to consistently beat my financial advisor who was managing my RRSP/TFSA accounts. As a result I was pretty pleased with myself. Then I learned that I was only barely matching the aggregate market returns for the same time period, but with a lot more effort. That finding was enough for me to move to passive ETF investing, and fire my financial advisor.

[Howell_Jolly]

"Since there is no evidence of learning among day traders, paying someone to teach you how to day-trade is only making your prospects even worse after costs"! Just brilliant!

[brandonmorin]

Eyyyy, sound investment education delivered in crisp 4k.

I actually had an instructor in a trading class while I was at uni that emphasized the need to avoid trading guru courses. Market efficiency being what it is, sustainable trading profits can only exist if you or a very small group of traders are aware of an established relationship in the market that you can exploit for profit. The more people know about it, the higher the odds are it'll be priced out by others flocking to take advantage of it. So chances are if someone's selling you a strategy it's probably because it no longer works lol.

[rubberroast]

I used to make a living playing online poker, when it was very new and not mainstream. My edge against the competition was large, as there were many inexperienced beginners to the game. I was making 50% more than my day job, but in half the time. After two years easy (and fun) living, I realized that even though I was still a good player, the skill level of the competition had greatly improved, so I went back to day job when the poker margin got slimmer. This day trading clip reminds me of these wannabe poke pros out there, very few make significant $$$, most over estimate their own skill level, and vast majority do not make $$ but like the thrill of the game.

How to end up with 1 million dollars with day trading, start out with 2 million dollars.

[abberantgeck]

Technical trading is the astrology of economics.

[brettambrose]

And imagine how much this analysis would tilt further in passive investors favour if you factored in the day trader's opportunity cost of not working a different full time job.

[cryptosminem]

Day trading pro tip #1: buy high, sell low

[Michele-nzoz]

I have just recently started learning about financial markets, investments and trading.

Thanks to this video, and many others, I can confirm I will not become a trader.

[kyhermit]

Traded US stock index futures full time from 2007-2014. Frequent trading activity generates significant transactions costs beyond commissions, including slippage (getting a worse fill than expected) and continually paying the bid-ask spread. Limit orders do not eliminate this as you rarely get filled unless price trades through your limit, so you are effectively paying the bid-ask even then. The continual drag of this "overhead" reduces wins and magnifies losses, something rarely discussed by the gurus.

[whitedog]

I like this formula when a topic is addressed in a podcast episode in a sort of "causal" way and then in a video in a more structured way. This helps understanding the subject especially for folks like me (not english native speaker) – also the videos are more understandable thanks of presence of titles and graphics. Love the new lighting, image quality is way better now. The content is always great 👍🏻

[tthinker]

Thank you so much. An in-law of my is encouraging me to venture into options and day trading. My portfolio has been doing quite nicely with just long term growth investing, but I have been tempted. I had no idea that the prospects of day trading for the newbie were so bleak! With the rather startling information presented, I think I'll just pass on the glittery world of options and day trading.

[saadselects]

Thanks Ben. Im an index investor but a couple weeks ago, I almost purchased a $5000 course on trading. This just confirmed my decision not to do so. Im staying the course with indexing!

[Outta]

He speaks the truth. I wish I saw this video 15 years ago. He forgot to mention paying for software and data feeds. Heavy losses and the opportunity cost of not putting that money that was lost, into an index fund and participating in the gains of the market overtime. People who day trade will tell you about their gains but trust me, they aren't telling you all of their losses so dont fall into the trap of " keeping up with the Jones" in day trading.

[Michaelm]

Amazing research Ben, as always... Nobody should be day trading unless they are Jim Simons and have a full room of the best mathematicians in the world.

[koolbtrue]

My issue with these studies is that most of them have been performed over periods of time where information wasn't as accessible as it is today and most simply don't track modern trading. Counter-arguments:

* $0 commission trading is a fairly new phenomenon that has become the new normal from 2018 to 2020. That alone would skew most day traders particularly new day traders into the underperforming territory prior to this shift. Now day traders have unlimited day traders in extremely quick succession.
* Modern tools are far more sophisticated with several charting and indicators that had not been invented prior to the 2000's. They are not magic buy and sell points, but will allow skilled traders to make more educated predictions by following linear trends and momentum.
* Information into baseline day trading is more widely available on the internet. Prior to Google and YouTube it would have been difficult for anyone to acquire any skill prior to trading without any sort of mentorship. Retail investors would have ZERO shot of beating industry traders in the time frames described in these studies.
* The definition of day traders is conveniently broad in these studies. Are all these people self-proclaimed day traders? Or are they entry-level investors who have no clue what they are doing? I mean, a ton Robinhood millennials would probably fall within this "day-trader" category and they would probably have no idea that what they are doing is considered day trading. In their mind they are just "investing".
* There is an influx of millennial influence that is starting to take effect on the markets. If I read another article from hedge fund manager bitching about how millennial retail investors are ruining their precious money printing algorithms, I'm going to lose it.

[trs]

day trading is the most persistent bad idea in personal finance. excellent video as always.

[pradeepdarji]

Most of them are making money selling their courses not day trading