The Truth About Day Trading (Guaranteed To Fail)

i'm definitely gonna be stepping on a lot of toes ruffling some feathers and possibly even ruining some people's dreams because today i'm going to talk about day trading and why almost all day traders fail if you're a day trader in 2021 then you most likely got into it because you saw some youtube videos or maybe some ads from a millionaire day trading guru and their pitch typically goes something along the lines of telling you that you can quit your job and make six figures a year by spending a few hours a day trading stocks you don't need any prior stocks or investment experience to do this just buy their 8 hour long trading course for 497 dollars maybe at worst suffer through a little bit of trial and error and soon you'll be well on your way to making a fortune online but unfortunately the truth is that the data and studies done on this topic show that most day traders actually don't make any money at all over a long time horizon which means that the stock trading gurus trying to sell you their courses most likely didn't make their millions from trading stocks they made it from selling you their courses for anyone that doesn't know day trading is the practice of buying and selling a security such as a stock within a single trading day they use various strategies such as trading based on events in the news and technical analysis to try and capitalize on small price movements of stocks the goal is to basically make lots of trades and try to be right more times than you're wrong so that on average you make money and this idea of making a few more profitable trades than losses seems very possible to most people you might think well if i make 10 trades surely if i'm educated and do stuff like analyzing stock charts then surely i can be profitable on six or seven of the trades and overall make a profit on a consistent basis but believe it or not the data shows that actually most people can't do this it's easy to make a profit on a few trades by getting lucky but over a long time period of several years it's very difficult to consistently profit from year to year and there are several studies that have looked into the success of people that day trade to name a few one study on brazilian futurist traders found 97 of day traders lost money over a period of 300 days another study of day traders in taiwan between 1995 and 2006 found only five percent of day traders to be profitable a study by the us securities and exchange commissions of forex traders found 70 percent of traders lose money every quarter on average and traders typically lose 100 of their money within 12 months and finally a study of etoro day traders found nearly 80 percent of them had lost money over 12 month period and the median loss was 36 so to summarize these studies it is indeed possible to make money day trading but it's just very unlikely and the chance of making significant gains from day trading to the point where you can quit your job to trade full time is just so unlikely i have to say it's not really worth trying to do for the average person you're better off investing your money for the long term instead of trying to buy and sell stocks on the same day but here's why i wanted to make this video the day trading gurus you see on youtube don't ever tell you how unlikely it is that you'll make money and that you'll likely make a loss instead they usually tell you that it is realistic to make a consistent one percent daily return on your money that one percent daily return number seems to be like the standard of what fake gurus tell you what they make i've seen so many of them claim to make one or sometimes even two percent a day and then of course they tell you that you can also make one percent daily gains when you learn the secret trading strategies taught in their course and honestly making a one percent gain a day doesn't sound too unrealistic at first i mean all you would have to do is buy tesla stock at let's say one thousand dollars and sell it on the same day for one thousand and ten dollars and you've made your one percent in fact tesla went up one point nine one percent today so if you bought at the start of the trading day and sold at the end of the day you would have exceeded your goal of one percent but like i said before it's easy to do this a few times but can you consistently make one percent on average a day like most day trading teachers claim to be making well let's take a look at how your trading account balance would grow if you were to make one percent a day over a long time period so let's say you start off with one thousand dollars in your trading account now there are around 253 trading days in a year and if you were to average a daily one percent return in one year then you would have around 12 000 in your account and i feel like that's not too crazy turning 1k into 12k sounds pretty reasonable but then at the end of our second year of daily 1 gains we would have an account balance of 153 000 this is where it starts to sound a little bit less reasonable but i think you know where this is going so let's skip a few years if you were to make daily one percent gains for five years you would have 267 million dollars and in your eighth year you would start to surpass the wealth of people like bill gates jeff bezos and elon musk who all have net worth of over 100 billion dollars so when people on youtube claim to be averaging daily one percent gains just know that it's impossible and this example i just showed is something day trading gurus have been confronted with before and they never have an actual good reason for why they aren't extremely wealthy some of them say well i don't trade with my entire account balance i take profits after each trade but if i were to run through an example again on excel where this time the hypothetical trader makes one percent daily but now withdraws 50 percent of their profits after each day they would still make billions after a couple years it would just take longer so this isn't a great argument as a comparison warren buffett who is considered one of the greatest investors ever has averaged around a 20 annual return over his career which is about double the annual return of the overall stock market it's pretty fair to say that day trading gurus are straight up lying about how much money they're making since most of these gurus frequently get called out for lying about how much they're making from trading they've started including in their videos screenshots of their brokerage account on days when they lost money so that they can always be like you don't always win when you day trade even an expert like me gets a red day every now and then and it's basically their attempt to come across as an honest person that shows not only their profits but also their losses but it doesn't really prove anything if they actually wanted to prove that they are legitimate and make a large amount of money consistently day trading then they would show you a video of their trading account balance history so that we could see from year to year how much money they are truly making and this is something that they'll never do because like i said they probably aren't making much money trading at the end of the day day trading is a zero-sum game so for every person that makes a profit there is someone that's on the receiving side of that transaction that makes a loss and considering that the majority of day trading is done by professional traders working for hedge funds and other large institutions it's very unlikely that a retail trader like us who took an eight-hour day trading course from an 18 year old kid will be able to compete with the resources speed and algorithms that these institutional investors have access to so a question you might have is if it's very unlikely that you can make good money by day trading how can you actually make money in the stock market well an investment technique that is likely to make you the most amount of money for the least amount of risk possible is investing long term into a stock index fund when it comes to the stock market you're best off buying stocks and holding them for a very long time rather than attempting to time the market by trading stocks and by investing in a stock index fund you get fantastic investment diversification for example vt sacs is an index fund that tracks the performance of thousands of stocks across multiple industries such as technology real estate energy all that sort of stuff index funds like these that follow the overall stock market have averaged around 10 a year and i know that doesn't come close to what gurus are promising with day trading but it's actually a very good return that can create millions of dollars in wealth for you when it's compounded over a long time in fact index funds actually outperform the majority of professional money managers that try to time the market so a stock index fund is definitely a good choice if you're looking for somewhere to invest your money but that's all for today's roasting session on day traders and if you're interested in actually learning how to make good investments check out the rest of the videos on my channel because we have a lot of good low risk investment options for you but thanks so much for watching and i'll see in the next one take care

Channel: Karson Gaule

Views: 36,233

Keywords: day trading, how to day trade, stock market, day trading strategies, trading strategies, beginner trading strategies, trading, how to trade, stock trading, why traders lose money, how traders lose money, stock market for beginners, day trading for beginners, day trading stocks, how to day trade for a living, how to make money trading, graham stephan, andrei jikh, mark tilbury, why day trading doesnt work, why day traders fail, why day traders are not millionaires, stocks

Id: JVIYWQ3sp3U

Length: 8min 13sec (493 seconds)

Published: Mon Nov 01 2021