Yeah, I know this headline is going to piss you off. But it’s true — day trading Futures (and stocks) is for suckers. And I have proof.
We often hear through rumor and internet chatter that “90% of day traders fail.” But these have been just that — rumors. And innuendo, that courses through the veins of a ‘faultless’ internet.
But we also know that the internet is a great fountain of disillusionment, fantasy, misinformation, and “fake news.” The internet makes it hard to believe anything. Yet, we cannot live without it.
I have a lot of friends that are Futures brokers. And I don’t use the word “friend” lightly. In fact, a good deal of my review subjects come directly from the brokers themselves. And these conversations go something like this:
Emmett, you have got to write about that YouTube scammer selling his bullshit trading indicators and courses! My clients got burned real bad.
That scammer swindled an 88 year old grandma with a magic trading system. Do something!
Too often I tell the broker, “Fool, you knew it was a scam and you could have warned your clients months ago!”
It’s not easy for a broker to call out a trading educator as a fraud or a phony. You must understand, they rely upon each other. It is a symbiotic relationship. The broker, although he hates the scammers, he also relies upon them for the opening of new trading accounts. The grinding wheel always needs grease.
The honest brokers, that have been in the business for many years — they all know the truth. Yet they will never admit it. And the truth is very simple: the higher the frequency and shorter the duration of your trading, the higher the likelihood that you will lose everything.
Let me repeat, and as simply as possible. The more you trade, and the shorter your time frame, the less likely you will earn a profit. Doesn’t that sound so harsh? It hurts to read.
But many will say, “Where is the evidence!” And, “Lambo Boy and Warrior Boy are making millions from $500 dollar trading accounts.” Sorry folks, Lambo Boy and Warrior Boy are making millions from selling hyped up magical trading indicators and front running your trades. Let’s be clear, I am not accusing anyone of committing a crime. The real crime is the self-inflicted stupidity that consumers inflict upon themselves because they willingly swallow the BS.
Regardless, let’s look at the most comprehensive and current data that suggests that ‘day trading’ is a scam.
Brazilian Futures Traders
Many of my readers might be surprised to read that Brazil is really, really into Futures day trading. In fact, most readers might be even more surprised to read that the Brazilian Emini Futures contract is 300% more popular (in terms of daily trading volume) than the ultra-popular Emini SP500 Futures contracts. Yet, the population of Brazil is approximately 38% of the US population. (320 million vs 120 million).
Just like in the United States, and other English speaking countries, the Brazilian Futures industry is filled with nearly identical quacks and whack-a-doodles peddling all manner of indicator insanity, amazing trading systems, and social media day trading hucksters. In fact, many of the people I write about also have websites in Brazil, displaying both the Portuguese and Spanish language versions.
Same bullshit — different language.
People really are the same. It doesn’t matter the color of skin, the language used, or the minor differences in weight, height or appearance. We are all the same. Our motivations are especially similar. We all need resources to survive. And we all labor the same, eat the same proteins, study the same math books, and dream the same dreams. We all want an opportunity.
Why am I making such a pointed effort to draw comparisons of Americans to Brazilians? Because some readers might be biased into believing that “American exceptionalism” or anything American must be better than anything Brazilian. But this is false. The English speakers are no different than the Spanish and Portuguese speakers — we are the same in every imaginable way.
In Brazil, day trading is a national pastime. Even more popular than in the United States. But until recently, nobody in Brazil had performed a credible study that analyzed a large pool of investor data that specifically analyzed Futures day traders.
Day Trading For A Living?
On August 19, 2019, the Sao Paulo School of Economics published a highly controversial study about Futures day traders in Brazil. This published study made front-page news across the country. Literally, nearly everyone in Brazilian society was talking about the study. Day trading in Brazil is extremely popular, and extremely controversial. Its like soccer.
On one end of the spectrum were the brokers, the educators, the software providers, the soothsayers, and indicator gypsies that have been hyping (and profiting from) the industry for years. On the other end of the spectrum were the scientific community, including social scientists, economists, and data scientists. Let’s just say that the scientific community was in the extreme minority.
The scientific community was extremely skeptical of many of the claims of “people getting rich quick” and the constant television and internet ads that promised “day trading” glory and “work from home” opportunities.
And so, the Sao Paulo School of Economics commissioned a study that tracked a total of 19,646 day traders from 2013 through 2015. The data was broken down into bite-sized chunks to better understand the data.
The first group of day traders totaled 1,111 individuals that day traded only a single day. Of this group, 29.8% achieved a profit.
The second group of day traders totaled 9,978 individuals that day traded between 2 to 50 days. Of this group, 15.5% achieved a profit.
The third group of day traders totaled 3,100 individuals that day traded between 51 to 100 days. Of this group, 8.9% achieved a profit.
The fourth group of day traders totaled 2,738 individuals that day traded between 101 to 200 days. Of this group, 6.8% achieved a profit.
The fifth group of day traders totaled 1,168 individuals that day traded between 201 to 300 days. Of this group, 5.4% achieved a profit.
The sixth group of day traders totaled 1,151 individuals that day traded greater than 300 days. Of this group, 3.0% achieved a profit.
What does this data suggest? Ironically, the data suggests that the odds of achieving day trading success is nearly identical to playing roulette at a casino. The more you play, the greater the likelihood that you will lose everything.
The social scientists were particularly surprised to discover that ‘learning’ played nearly no part in the results. For instance, it was assumed that if a person had traded 6-months and 200+ trades, that they would learn to trade better or improve upon their trading strategies to achieve greater success because they were “learning from experience.”
And this is just what the trading educators want us to believe…that we need to “learn” and over time, this “learning” will improve our results. But the data absolutely destroyed these assumptions. In fact, the more a person “learned” to trade, the worse their performance became. It seems like “practice makes perfect” does not work in day trading Futures markets.
The Brazilian traders that actually earned an income
We all know that some folks, through luck or skill, are going to achieve success. Let’s take a look at those figures now…
The first group of successful day traders totaled 17 individuals that earned an average of $16 per day.
The second group of successful day traders totaled 8 individuals that earned an average of $54 per day.
The third group of successful day traders totaled 1 individual that earned an average of $310 per day.
But here is the sad part…of these successful Futures day traders, the standard deviation of their daily profit ranged from $632 to $3,308. What does that mean? In other words, in order to consistently earn $80 per day, you would also have to experience massive daily fluctuations of between $632 and $3,308.
And based upon the data, only one person was able to earn more than a minimum wage job.
It gets worse
For those 1,151 day traders that persisted 300 days, 97% lost all of their money once commission was factored in.
Even the highest performing trader that earned an average of $310 per day ended up barely profitable once the commissions were factored in. How sad are these numbers?
In conclusion, the study stated that “It is virtually impossible for an individual to day trade for a living, contrary to what the brokerage specialists and course providers often claim.”
So what should you do?
If you are stuck in that sad wheel of constantly funding a day trading account, and constantly looking for a new ‘Guru,’ then perhaps its time to put the mouse away. At least for a while.
The sad and sorry truth is that day trading is mostly a scam. Yes, some can pull it off successfully. Just like how some people will be cured of cancer by drinking apple cider vinegar. But the overall scientific data put the odds at roughly equivalent of playing roulette. The more you play, the greater the likelihood that you will lose everything.
For those that want to take a deeper dive into the data, I have included the study below. Also, you can read the report on a full page here. Thanks for reading.