Have you ever wondered what percentage of day traders make money? After all, not everyone can be profitable. As always, there are winners, and there are losers. But from social media and other channels, you only hear from successful traders.
And the truth might be a little harsh.
Day-to-day trading of cryptocurrencies and stocks is hard. It requires a lot of discipline, technical analysis, and a lot of dedication. You will not become a successful day trader in a week or in a month. You have to study hard and have luck on your side.
In this article, we’ll examine one study performed in Brazil, focused on day traders and their habits. Whether these people learn from their mistakes and improve over time or not and ultimately answers the question of whether do daytraders make money or not. Let’s dive in!
Do Daytraders Make Money?
The starting point of this article is a Brazilian study examining day traders performed from 2013 to 2017. The study was published later in 2020 and found out that 97% of day traders lose money. But it gets more interesting as we read through the study paper.
The study authors, Fernando Chague, Rodrigo De-Losso, and Bruno Giovannetti, observed all investors who newly started day trading between 2013 and 2015 for two years.
However, it is important to mention that examined was only one asset; Mini-Ibovespa futures.
That’s not some no-name fund but a preferred asset by day traders in Brazil.
The authors obtained data from about 20 thousand people. But only people that day traded for at least 300 days became the source of this study.
The whole study can be found here.
Who is Day Trader
For the purpose of this study, day trading was as follows.
“Day trading is the activity of buying and selling the same financial asset on the same day in the same quantity.”
In a real example, it means the following:
| Time | Assets |
|---|---|
| Start: 7 am | $0 BTC |
| 8 am | $100 BTC |
| 1 pm | $300 BTC |
| End: 8 pm | $0 BTC |
This study was based purely on day trading, as explained above.
Several studies have also previously evaluated the performance of traders, but these have included both people who are considered “day traders” and people who trade frequently in the same calculation. So the results were biased by people that held their position for a longer time.
These previous studies, not focused solely on day traders, came up with better results. According to these studies, around 20% of people who daily trade regularly bring profit.
That’s still a very positive way of looking at it. Since our aforementioned Brazilian studies came up with the results that only 3% of day traders do make money.
What Percentage of Day Traders Make Money
“Only 17 individuals (1.1% of 1,551) earned more than the Brazilian minimum wage (US$ 16 per day), only eight individuals (0.5% of 1,551) earned more than the initial salary of a bank teller (US$ 54 per day), and the individual who earned the most earned US$ 310 per day on average.”
So not only that, just 3% of day traders make money, but only less than one percent make enough to make a living.
They also found no evidence that day traders improved their strategies over the course of 300 days. Not only that, day traders did not learn from their mistakes but also tended to perform worse over time.
It may also indicate that luck is needed to succeed in day trading more than having a refined strategy.
How to not Lose Money Day Trading
Now that we know whether day traders make money let’s look at some strategies that can better your overall performance and higher your chances of succeeding.
The majority of our team members are more passive holders than active traders. Mostly because of the fact that you can’t time the market. And that’s the no.1 reason we give to someone to not start day trading.
Also, the fact that a person is indecisive and can’t decide the basic question of starting or not starting day trading is a bad sign.
Day trading is about discipline and making informed decisions. Not about asking others for their opinions.
There are some practices that can help you perform better while day trading. Let’s take a look at some of the.
Set your Risk-to-reward Ratio
Be clear about how much you are willing to lose and whether the asset is worth the risk.
As a rule of thumb, the greater the possible reward is, the greater the risk.
If you want to earn much, you must be willing to lose much. If you don’t want to take too much risk, stick to proven assets. Don’t go into any speculation.
But remember, no investment is risk-free.
Diversify
Don’t put all your money on high-risk investments. As the saying goes, don’t put all your eggs into one basket.
Balance high-risk assets by buying something less risky.
Emotions Aside
When trading, don’t let your emotions get in the way. Don’t panic sell, and do not be influenced by FOMO.
Your emotions can do you more harm than good. Always consider every move carefully.
Also, once you have succeeded, it does not mean that you have discovered the recipe for luck, but everything can turn around in a moment.
Also, don’t forget to keep your expenses low, rebalance frequently, and do your research.
Conclusion
Investing can be scary, and day trading is even scarier.
Definitely don’t make rash decisions – questions like “Should I quit my job and day trade for a living” are really not appropriate.
Start slowly, and maybe in time, you’ll be confident enough to actually start day trading full-time.
So a quick summary of the result of the study and the most important answer to the question of what percentage of day traders make money:
- 97% of day-trading people lose money.
- Even when traders frequently lose money, they don’t adjust or improve their strategies. Quite the opposite, they tend to perform worse over time.