Study Shows Day Trading Resembles Gambling
An old study examining the performance of 18,000 regular gamblers in casino games found that only 13% were profitable over a two-year period. The results were even starker for day traders, where less than 1% consistently generated a positive return over the same period.
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An old study examining the performance of 18,000 regular gamblers in casino games found that only 13% were profitable over a two-year period. The results were even starker for day traders, where less than 1% consistently generated a positive return over the same period.
Researchers analyzed over 450,000 day traders operating in the Taiwanese stock market from 1992-2006, involving 3.7 billion transactions worth $10 trillion. The majority of day trading was carried out by individual investors.
Annually, only 20% of day traders made a profit, with less than 1% able to replicate that success the following year.
The critical question then is whether the alpha produced by this 1% of traders is a result of luck or skill. This is where it gets interesting.
Analytics came to the conclusion that, on average, trading is hazardous to your wealth. Unless you are in the top 0.1% of traders based on skill, you are much better off gambling — or, better yet, investing in a diversified portfolio.
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