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Zone of Competence

~ Dollars, Sense, and Probabilities.

Zone of Competence

Tag Archives: Trading

Less than 1% of Daytraders Are Consistent Winners!

12 Friday Sep 2014

Posted by JC in Uncategorized

≈ 1 Comment

Tags

Investing, Trading

This shocking result comes from the TraderFeed blog of Dr. Brett Steenbarger, who is a well-known trading coach and psychologist. He references a study by Barber, Lee, Liu, and Odean.

Coming from Dr. Steenbarger, these findings are hard to dismiss as the ravings of someone with an ax to grind against trading.

From the study:

In the average year, 360,000 individuals engage in day trading. While about 13% earn profits net of fees in the typical year, the results of our analysis suggest that less than 1% of day traders (less than 1,000 out of 360,000) are able to outperform consistently.

Trading Is Not For Me

Disclaimer: I studied technical analysis and trading several years ago and decided that I had neither the skill nor the temperament for it. It also seemed to me like a zero-sum game that had a winner-take-all dynamic about it, with a bunch of people donating their capital or slogging along near breakeven to finance a few big winners.

I had informally figured 5% to 10% of traders made real money, so it shocked even me that the figure is less than 1%.

Maybe you figure you will be part of the lucky 0.28%. Good luck, but the upset stomach and 24/7 nature of the endeavor wouldn’t be worth it for me even if the odds of success were 50/50.

Don’t Trade, Invest

I suggest instead a lengthened time horizon and thinking like a partner in a business. Focus on intrinsic value and buying with a margin of safety.

I also suggest dropping everything to read Risk Revisited, the latest memo from Howard Marks. It is a master tour of the world of risk from one of the world’s great investors.

Associate With the Right People

And since humans are doomed to mimicry, you should follow Jason Zweig’s advice:

So try to socialize — in the real world and in online social media — only with investors who are calm and methodical. After all, whatever your peers pay attention to, you will also concentrate on — so following more-sensible people will help inoculate you against panic.

Other Links of Interest:
Video: Howard Marks on Risk Assessment, Market Strategy

Why you shouldn’t watch the market intra-day

The Stock Market’s Missing Ingredient

Even Warren Buffett Gets Killed In the Stock Market

An Important Dividend Cut Case Study

Video: Eric Falkenstein Interview on the Flawed Academic Notion of Risk

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