Tue. Oct 26th, 2021

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One of the questions I have a lot, and especially in times like these, is, “How do I learn to trade stocks daily?”

I ask, “Why do you want to negotiate on a daily basis?”

The answer is often, “To make money, obviously.”

I wonder, “Why do you think you can make money by trading a day?”

There is usually a pause and then the answer is, “I see so many people making money trading day.”

Well, the answer to the question “Can I make money trading by the day?” is “Of course you can.”

But just like you read product ads with an asterisk and a small text that says “* Conditions apply,” that also applies to daily stock trading.

All new stock market enthusiasts see is that people make money in daily trading and the reason they see it is that they and their enthusiasm are only born in a rising market when day traders make money.

But the fact is, in the long run, most traders don’t make money.

In fact, if you went to a study of Taiwanese retailers in Taiwan from 1992 to 2006, they found more than 75% of all day traders who quit smoking within two years and with disastrous results. In addition, the aggregate performance of all traders throughout the fifteen-year period of the study was negative. The study also found that only 1% of day traders made profits over time. That is, 1 in 100. In other words, only 1 trader in every 100 days trying to make a career by betting on their life savings can make a living doing so.

The study concluded –

Consistent with rational speculation and learning models, we document that the aggregate performance of day traders is negative, that the vast majority of day traders are unprofitable, and that many persist despite extensive experience of losses.

Another study published in June 2020 looked at day traders in Brazil (those who use the equity futures market to place their bets) between 2013 and 2015. It concluded –

[Out of] all people who started trading daily between 2013 and 2015 in the Brazilian equity futures market, the third in terms of volume in the world … 97% of people who persisted for more than 300 days went lose money. Only 1.1% earned more than the Brazilian minimum wage and only 0.5% earned more than the initial salary of a bank teller, all at great risk.

… it is virtually impossible for a person to make a living on a daily basis, contrary to what brokerage specialists and course providers often claim.

While no such study is being done on Indian traders, I guess the reality is not far from what has been seen in Taiwan and Brazil.

And not just day traders, the statistics can be relatively better, but absolutely bad, even for people who are engaged in short-term trading (holding stocks for a few days or weeks).

According to data from India’s two major depositories, led by pandemic-driven restrictions and job losses that left millions of people at home with little to do, active demand accounts rose by a record 10.4 million in 2020. A leading broker has reported that 72% of the customers it added from October to December 2020 had never traded shares.

Only about 3.7% of Indians invest in equities, compared to about 12.7% in China and 55% in the United States, so many people in India who have never traded shares will continue to add up over the next few years. But the problem is when many of these new people enter the market with the “casino” mentality: that the market is here to help them “make money fast”.

The situation has been exacerbated by the rise of cheap, influential business apps on social media such as YouTube, Twitter and Telegram that talk frequently about their actions, provide advice on actions, and manage discussion groups. actions. Worse, some of them also show off their daily P&L showing how much money they earned in a single day.

I have nothing against day traders. Just as I practice buying and holding investments, everyone has a personal choice about how to act on the stock market. All I’m trying to do today is warn new and young people trying to start their journey into actions that do something (daily or frequent negotiation) that has a good chance of causing them a lot of headaches and headaches in the future.

Of course, not everything is under the control of one person. Our body’s chemical signaling system tells us that both gambling and trading are fun and divert us to compulsive behavior. Casino operators have long recognized this and have done everything possible to keep dopamine flowing.

Now, cheap or zero-cost trading applications (in the name of a fintech technology startup revolution) play the same role in the stock market as they make online trading cheaper and easier for people. without experience. Not to forget the large number of diapers of shares on social media that make great follow-ups based on their big claims. It seems like these apps and these people are democratizing investment, which is nonsense. All they do is direct inexperienced people to potentially dangerous paths as they pretend as if they are doing them a favor.

Dude, the stock market doesn’t work exactly like a casino. It is the players who think so. In a casino, the longer you play, the more you lose (remember, you always win the house). However, in the stock market, as the story suggests, the longer you play (the long game), the more likely you are to win.

Of course, you’ll hear stories of someone (that 1 in 100) who quickly killed the stock market through daily trading, derivatives, etc., in the same way that there was someone who left the casino with millions. But always remember by the way: these are exceptions, not the rule.

The rule is that you can generate wealth from the stock market, and without the stress and dangers of trading in the short term, by buying high quality companies and owing them until they are high quality. This was the original purpose for which the market was created.

But if you’re here to play the game in the short term (for minutes, days, or weeks), keep that in mind.

So back to the question “Can I make money operating a day?” the answer is “Of course you can.”

But, (many) conditions apply. And it’s certainly not a good idea.

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Read on too

  • The biggest face of investors in danger (Ben Carlson)
  • Millions of millennials are accumulating in the Indian stock market, according to data (Business Standard

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That’s all I have left for today.

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Take care of yourself.

With respect,
– Vishal

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