Is day trading profitable?

If You are a beginner to the world of trading, You day trading is profitable… to someone else. Interesting dichotomy between those who have something to sell (with the usual disclaimer “yes, if You know what you are doing”), and those who have real day trading experience: “things got bad before they got worse, and then they got a lot worse, until one day they got better”.

Disclaimer: I am not a day trader. Even though we trade the same periodicity as day traders, we do not think of markets in time segments. Secondly, I have nothing to sell, but a few things to share

What is a day trader?

The world of money management has its 55 shades of grey. HFT is not the only automated form of algorithmic trading. Day traders account for only a small percentage of the retail accounts and prop shops. Earning a living from trading does not mean You have to close all positions opened within market hours. If You trade every day but leave some positions opened overnight You qualify as a position trader

Another common myth is the number of hours per day. Being a successful day trader is not about staying glued to your screen 5 hours straight. It is about figuring the few hours when you are most profitable. I know someone who makes money in the London pre-opening and loses it all plus some chasing imagined patterns thereafter

1. Pros & Cons of day trading

The only 2 advantages of day trading are: 1) higher intraday leverage and 2) no overnight risk.

Overnight risk boils down to a position sizing issue. If You are simply afraid of what might happen, then trim your positions and reduce risk. If fear persists, go find another job before you end up donating your saving to thankless traders

Is there a mathematical edge in day trading?

Day trading is NOT $50 per day 200 days per annum as someone wrote. It is more like $50 three days in a row and then -$200 the next two days.

Trading edge = Win% *Avg Win% - Loss% *Avg Loss%

The problems with day trading are: 1) poor signal to noise ratio and 2) short right tail (trades have by definition no time to mature). Interestingly enough, not holding overnight risk reduces is risky: it shortens right tail profit potential. This means it takes 1 loss to erase the gains of a few winners. Problem is stop losses happen fast, but profits take time to mature. Fourthly, unlike other forms of trading, diversification does not help. Day traders trade a small universe of stocks/futures/pairs they are familiar with. 8 years of bull market…