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Day Trading Profitability Analysis

The document summarizes several studies on the performance of day traders. It finds that: - 70% of randomly selected day trading accounts from 1997-1998 lost money, with only 11.5% being profitable. - A 1999 study found that only 20% of US day traders were marginally profitable. - A 2005 study of Taiwanese day traders found that over 80% lose money each six month period, though a small group consistently perform well. - A 2005 study of Finnish day traders found only 30% earned positive profits in a typical month, and day trading profits were negatively correlated with long-term performance.

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46 views2 pages

Day Trading Profitability Analysis

The document summarizes several studies on the performance of day traders. It finds that: - 70% of randomly selected day trading accounts from 1997-1998 lost money, with only 11.5% being profitable. - A 1999 study found that only 20% of US day traders were marginally profitable. - A 2005 study of Taiwanese day traders found that over 80% lose money each six month period, though a small group consistently perform well. - A 2005 study of Finnish day traders found only 30% earned positive profits in a typical month, and day trading profits were negatively correlated with long-term performance.

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lowtarhkY
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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  • Day Trading
  • References

Day Trading

Martin Sewell
Department of Computer Science
University College London

2007
Harris and Schultz (1998) found that Nasdaq day traders made money at
the expense of market-makers, despite having less information.
As part of Shellenberger, et al. (1999)s report into day trading, randomly
selected short-term trading accounts which existed within the period 1997
1998 were analyzed. Seventy percent of the accounts lost money and
were traded in a manner that realized a 100% risk of ruin (loss of all
funds), whilst only 11.5% of the accounts reviewed evidenced the ability
to conduct profitable short-term trading.
In 1999 Mark Barton, a daytrader who had lost $105 000, shot and killed
nine people at two day trading firms in Atlanta, US. Barton committed
suicide hours later.
Jordan and Diltz (2003) considered US day traders and found that approximately 20 percent were more than marginally profitable.
Barber, et al. (2005) analyzed the performance of day traders in Taiwan.
They found that in the typical six month period, more than eight out of
ten day traders lose money; however, there is strong evidence of persistent
ability for a relatively small group of day traders.
Linnainmaa (2005) examined the complete trading records of day traders
in Finland. He found that only 3 out of 10 day traders earned positive
profits in a typical month, individual day traders are reluctant to close
losing day trades, and day trading profits and long-term performance are
negatively related.
Lo, Repin and Steenbarger (2005) performed a clinical study of day traders
and found that subjects whose emotional reactions to monetary gains and
losses were more intense on both the positive and negative side exhibited
significantly worse trading performance, implying a negative correlation
between successful trading behavior and emotional reactivity.
In conclusion, 70%80% of day traders lose money.
1

References
BARBER, Brad M., et al., 2005. Do individual day traders make money?
evidence from taiwan. Working paper available from SSRN eLibrary.
HARRIS, Jeffrey H., and Paul H. SCHULTZ, 1998. The trading profits of SOES
bandits. Journal of Financial Economics, 50(1), 3962.
JORDAN, Douglas J., and J. David DILTZ, 2003. The profitability of day
traders. Financial Analysts Journal, 59(6), 8594.
LINNAINMAA, Juhani, 2005. The individual day trader. Working paper, The
Anderson School at UCLA, Los Angeles, CA.
LO, Andrew W., Dmitry V. REPIN, and Brett N. STEENBARGER, 2005. Fear
and greed in financial markets: A clinical study of day-traders. American
Economic Review, 95(2), 352359.
SHELLENBERGER, Esq., David E., et al., 1999. Report of the day trading
project group. Technical report, North American Securities Administrators
Association, Washington, D.C.

Day Trading Martin Sewell Department of Computer Science University College London 2007 • Harris and Schultz (1998) found tha
References BARBER, Brad M., et al., 2005. Do individual day traders make money? evidence from taiwan. Working paper available

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