90-95% of Day Traders Lose Money
According to vantagepointtrading.com, 4 out of 5 people who day trade lose money and only 1 in 100 trade well enough to be described as 'predictably profitable'.
Some of the reasons as to why this is the case, points to the level of experience and methodology used but also to the day trader or investor being burdened by hidden costs such as tax premiums and commissions. Once these costs are subtracted, net profits, if any, can evaporate.
Another reason why personal day trading does not yield as much as most of us believed has to do with recent advances in trading technologies. In US markets, 75% of all trades are now originating from automated or partly automated trading strategies. If you are a day trader and are trading without automation, you are at a clear disadvantage.
How can day traders improve their odds of winning?
To trade or invest successfully, day traders will need to craft an investment strategy they can count on.
A good trading strategy includes:
- Access to a dynamic stock screening tool based on intelligence, not fiction
- A market exit strategy that regularly takes profits and manages risk
- An auto-trading tool to test and execute the strategy
How do I measure my strategy's performance?
Before we talk about measuring your success, you need to accept is that no trading or investment strategy will ever be anywhere close to 100% accuracy in the long haul. The 'perfect' trading strategy does not exist because the markets are 'imperfect'.
Secondly, according to dailymail.co.uk, an experienced human analyst get 48% of their forecasts right. An artificial intelligence algorithm delivers 68%. A 68% accuracy rate is considered top performance when it come to trading or investment strategies.
How do I calculate my strategy's success rate?
The formula for calculating a strategy’s success rate is as follows; if you made 30 trades and 20 of them were winners and 10 were losers, the success rate = 20 winning trades / total trades x 100 or 67%.
What are the characteristics of a winning strategy?
If we dissect a successful strategy (long), we discovered that a winning strategy:
- Goes to market with a diversified set of highly positive intraday stocks
- Has a 'Profit Taking' strategy low enough to allow for profits to be realized in one day
- Has a 'Stop Loss' loose enough to allow a normal oscillation to occur in a day's session
- Does not sell stocks 'End of Day' to allow profits to realize themselves over several days
In a world where the human trader is outclassed by fast computers executing automated trading strategies, where hidden costs such as taxes and commissions cripple profits, or because the trader lacks knowledge or methodology to perform the job, the best move a day trader can consider today is to put the odds back in his favor by using a modern trading platform such as Stock Circles to create and test his trading strategy.