Blog - Investing Notes
October 22, 2004 – Do Day
Traders Make Money?
Could we make a bundle day trading? In their May 2004
paper entitled "Do Individual Day Traders Make Money? Evidence
from Taiwan", Brad Barber, Yi-Tsung Lee, Yu-Jane Liu and Terrance
Odean assess the success of day traders in the Taiwan stock market.
Using detailed individual trading records, they find that:
- Day trading accounted for more than 20% of total trading
volume during the sample period.
- Individual investors account for almost all day trading.
- About 1% of individual investors account for 50% of day
trading and 25% of individual investor trading volume.
- All categories of day traders tend to move the market; they do
not bid low and wait for bargains.
- Over 80% of day traders lose money after transaction costs.
- The most active day traders earn a daily spread of 31 basis
points - insufficient to cover transaction costs. Occasional day traders
experience both gross and net losses.
- In general, day traders must hold unrealistic beliefs
about their chances of success.
- A few day traders persistently earn profits sufficient
to cover transaction costs, achieving a daily spread of 62 basis points.
These successful day traders react more quickly than other investors
to changing market conditions.
In summary, day trading is risky business. Practice and speed appear
to be critical success factors.
