Turns out that the chances of making profits in an extremely short-term trading, also known as day trading, are far worse than we thought. A recent research reveals that everyone who is doing or considers trying day trading, should really think twice.
Day traders are those who rely on making profits from trading in very short time periods: buying and selling of securities happen within a single day.
A blogger, going under the name of CuriousGnu has analyzed data from 80K+ accounts of traders using the services of a British brokerage company eToro that offers a social networking platform for traders from Europe (unavailable in the United States). The blogger based his analysis on eToro's feature that allows the users to view what trades other users make, giving them an opportunity to mimic trading behavior of one another.
The analysis revealed shocking results: as many as 80% of traders end up losing money instead of making profits on day trading whereas a median loss on investments within a year was at 36,3%.
Likewise, Marketwatch mentions that most experts, when asked about day trading, give an advise to avoid it due to its high risks and unreliability, no matter how experienced the trader is.
The American Securities Administrators Association (NASAA) made a deep investigation of day trading as an industry, and claimed this form of trading to be highly risky as well.
"Trading refers to purchasing and selling securities on a short-term basis, with the intention of achieving quick profits. Day trading is simply trading on an extremely short-term basis, and is thus particularly speculative."
The NASAA researchers believe that the majority of successful investors are the ones who have chosen to invest long-term. The CuriousGnu's findings indicating an 80% chance of loss rather than win, go well in line with the NASAA report:
"However, the odds with day trading stocks are actually worse than this, akin to guessing the results of tossing a coin that sometimes lands on its edge. A stock’s price has three possible outcomes, since the stock may remain static. In addition, the day trader has to pay commissions for the privilege of making his guesses."