The truth about getting rich through Day Trading!

Day Trading attracts millions of people as you can start with…

• low margin,
• get good leverage,
• low costs,
• a large number of opportunities and,
• it “feels” safe as there’s no overnight risk.

Many traders have this fantasy that you can leave your job, start day trading from the beach & make millions.

I have seen so many people saying to themselves that even if they earn just Rs. 500 per day, they can make a lot of money in a month & year.

But that is such a short-term view!

The real question you should be asking is,

Has anyone gotten rich through Day Trading?

Yes!

The following people have become rich through Day trading…

1.Your Broker:

The more you churn, the more the brokerage whether you make money or not. To get you more churning, you have intraday leverage.

You don’t have to look too far! Just look at where Zerodha has reached over the last 10 years.

Had the Kamath brothers remained day traders as they were earlier before starting Zerodha, they would not have been where they are today!

2. Your Trainer/ Mentor/ Coach/ Course providers.

Have you made as much money as your trainer or coach or course provider?

I see a lot of people posting profit snapshots every day by trading in Futures & Options. They make you feel like it’s so easy to generate 1–5% returns every day.

All you need is the right coach, trainer, strategy, or an intraday trading course and an account with Zerodha!

Throw in a little bit of psychology and behavioral mumbo jumbo and you’re set on your path to financial freedom. If that’s the case then you’d be sitting beside Rakesh Jhunjhunwala in a few years 😉

Just have a look at the above snapshot of a training provider who charges Rs. 354000 fees!

Holy Cow!

Just 10-20 students a year and he need not trade at all 🙂

Now, I have no personal vendetta against anyone teaching someone how to earn money from stock markets but this is outrageous!

3. Algo/ Software developers:

Many traders fool themselves into believing that the Algo would automatically print money for them while they soak up in the sun sipping a pina colada.

In reality, only the software developer makes the money unless you’re a professional trader with sufficiently large capital and a long stock market experience.

I have been there and done that. When I started out on my own to trade, I went through what every trader goes through. It’s called the ‘beginners cycle’ where every time there was a drawdown, I would change the parameters of my strategy to make it better and fit the recent market action.

In the process, I also spent a lot of money on developing an Algo to execute my Mean Reversion strategies. I thought it would help me execute the strategies but I was dead wrong. Later on, I realized that I was in fact duped by someone who was a known face in the Algo trading space.

Even if your strategies are automated, you would still need to keep the program running through thick and thin.

Algo trading is suitable only for experienced traders who have been profitable manually and want to transition to fully automated systems.

4. Tipsters:

There are many con artists in the stock markets to trap the poor retail traders in their get rich quick schemes. Just have a look at the below messages I keep on receiving daily…

I wonder how do they get my number?

Then there are sure-shot tipsters especially from Indore, who would call and ask…

“Good morning Sir, aapki trading kaisi chal rahi hai?”

Shut the f**k up I say!

5. HNIs/ FIIs/ DIIs:

Day traders provide liquidity to the markets for the big guys to enter or exit the positions easily. Think about it. If there’re no short term traders, what would happen to the liquidity of the markets?

6. Government/ Exchanges/ Regulators:

Government is also a beneficiary of higher stock market volumes as more & more STT is generated. Below is the screenshot shared by someone who trades HFT Algo systems on Nifty/Bank Nifty options intraday.

As you can see, the brokerage and statutory charges account for over 35% of the gross profits.

Add to that 33 % income tax if you’re profitable in the first place.

The above screenshot was shared with me by someone who is a highly experienced, well-capitalized HFT Algo trader!

What chance do you think the poor retail day trader would have to beat these charges and turn profitable?

Very slim I would say!

Here’s the truth…

Any successful businessman would tell you that if you want to succeed, you will have to provide what customers ‘want’, not necessarily what they Need or Should Have!

Why do you think cigarettes are being sold even though we know that it’s harmful to your body?

Well, that’s what people want!

So it’s available!

Why don’t the government shut the cigarette factories?

The government earns huge amounts in terms of taxes! Not to mention, a large number of people are employed in these companies.

The same goes for Alcohol!

And the same goes for Day Trading.

Al the parties mentioned above provide what traders ‘want’ and make a lot of money irrespective of whether you make money or not!

There’s nothing right or wrong about it!

You’ll have to decide what’s right for you!

Does that mean Day Trading is not at all profitable?

Well, it could be profitable as many other approaches but the odds are against you. Before you plunge into day trading and lose your hard-earned money, you should honestly answer the following questions.

Do I want to day trade for the next 10-20-30 years?

Any worthwhile skill requires you to be committed for a long time. Most professional traders are focused on long term performance even if they are trading a very short-term trading strategy.

Most people would drop the idea at the first question only 😉

Do I have an edge?

Trading success is achieved by having a positive edge and exploiting that edge consistently. Now, Trading or investing for the long term can create a natural positive expectancy as the winners could be much larger than the losers.

While in day trading, you have time limitations which makes it difficult to gain an edge unless you’re an HFT or Algo trading firm.

If you don’t have an edge, how are you supposed to survive against these highly sophisticated HFT & Algo trading firms?

Do I have sufficient Capital?

Most traders are undercapitalized and they usually have to go for higher leverage. Excessive leverage kills even the biggest of corporations & investors.

For example, if you have Rs. 10 lakhs as your only savings & you go through a drawdown of say 20 % which is quite common in markets. Now you only have Rs. 8 Lakhs left out of your total savings. Under the circumstance, you will either take up huge leverage or position to make up for the loss or be very conservative & miss out on many profitable opportunities.

Do I have sufficient time?

Are you willing to look at countless charts & systems & commit 8 hours a day for the next several years? You can’t be day trading part-time. You will have to watch market action for the whole day and pick your spot.

Can you survive the wear & tear of Day trading?

There are no old and bold traders. Unless you have some highly sophisticated Algos to execute the system regularly, it will be very much stressful to execute the systems manually for a long time.

If you answered Yes to all of the above questions, congratulations!

You are among the top 1% of the traders as almost 99% of the day traders lose money!

The reality is most people can’t sustain the wear & tear of day trading.

Why do you think most successful traders trade long term systems unless you are an HFT or Algo trading firm?

Just pick up Market Wizard series by Jack Schwager & see how many of those traders are day traders?

Additional Readings:

The Cross-Section of Speculator Skill: Evidence from Day Trading

Financial Speculators’ Underperformance: Learning, Self-Selection, and Endogenous Liquidity

Day Trading: Your Dollars at Risk

Should you be a full-time trader?

All the best!

P.S:

I believe, promote and teach #Passive #Trading along with your job, business, or profession. That’s the surest way to grow your wealth faster with less risk, time & stress!

If you want to trade passively and reclaim your life, I would recommend you attend the paid workshop that I am hosting on 16/01/2021. You can check out more details below…

Momentum Investing Masterclass!

Go check it out!