By Dr. Jim Dahle, WCI FounderI never thought I would have to write this post on why day trading is bad, but clearly its time has come. This blog has only ever run one post about day trading, but I didn't write it; it was a guest post back in 2017. However, over the last 6-24 months, day trading seems to be making a comeback among retail investors.
I suspect part of it is fueled by the huge stock market gains of 2019. Part of it likely comes from a volatile stock market in 2020 and lots of people sitting at home with extra time due to the COVID pandemic worried about their incomes. Perhaps the prominence, name recognition and outperformance of the large, well-known growth stocks (FAANG, Tesla Zoom etc) is drawing people in. Maybe it's also due to the fact that many casinos were forced to close for the pandemic.
Can Anyone Day Trade?
Yes, but you shouldn't. Some of the newer brokerages aiming to make trading fun, exciting, and accessible (I'm looking at you Robinhood, Thinkorswim, and Webull) are not helping the cause either. Robinhood alone opened 3 million new accounts in the first quarter of 2020. That's 1% of Americans. I'm even getting calls from friends who have never had any interest whatsoever in investing asking me about how they can trade stocks and what I think of Robinhood. I'm sure you can imagine my answer. They have an upcoming IPO, so soon you can buy Robinhood at Robinhood!
Physician financial blogs come and go. Over the years there have been at least 100. Some of the latest ones are no longer doling out sensible financial advice, but are instead advocating picking stocks and day trading. They read like a cocktail party conversation, only talking about their winners, sharing carefully crafted screenshots demonstrating success, inspiring Fear of Missing Out (FOMO) while using carefully crafted disclaimers to try to absolve themselves of moral responsibility for the acts of their readers (“Statistically speaking, you will more than likely lose money doing this, and could lose all of your working capital.”) Even the WCI Facebook Group has people advocating for not only individual stock investing, but day trading those stocks and asking fellow WCI group members how to day trade.
My favorite part of that particular question about day trading is that the asker thinks that owning stocks for a few months is “buying and holding”.
The last time day trading was really popular was before many of my readers were adults. In fact, it occurred before I ever started earning money. Back in the 1990s, day trading was cool, just like it is now. People were quitting their jobs to day trade. Doctors swapped stocks between patients. I even had a med school classmate or two who were checking portfolios and placing trades in the student lounge between classes. That all seemed to go away after the tech crash.
You see, many traders mistake a bull market for skill. They tend to trade the stocks with the best recent returns, which tend to fall the hardest. So for a while, they trade and trade and trade, making money the whole time, not realizing it is due to the tailwind at their backs. Since a good trader “should not require a tailwind”, they continue to trade when the tailwind becomes a headwind, and then find out their technique is not as profitable as they thought. As Warren Buffett has said, “Only when the tide goes out do you discover who has been swimming naked.”
Eventually, most day traders either run out of money or develop enough humility to realize this was all a terrible idea. If you do not know a doctor who has lost their shirt day trading, you have not talked to enough doctors about their finances.
Why Day Trading Is Not Worth It
Let's go over a few reasons why you should not day trade.
#1 You Don't Have to Day Trade
Here is the first reason. It's the same reason you don't have to buy Bitcoin or manage rental apartments. You have a very easy, nearly automatic, practically guaranteed pathway to wealth. You already have a high income as a high-income professional like a physician, dentist, attorney, etc. My typical reader is either already making or soon will be making $200-600K per year.
Carving out 20% of that money and investing it into a boring old static asset allocation of stock and bond index funds over the course of your career, mostly inside of retirement funds, is likely to leave you a multi-millionaire with more money than you know what to do with. This is a method that is easy to understand, easy to implement, nearly guaranteed, and completely reproducible by essentially every doctor in the country.
#2 Most Traders Lose Money
Here's an even bigger issue. Most traders lose money. Are there any successful day traders? Sure, but the academic evidence is overwhelming that day trading is not a good idea. Let me cite a few examples:
Here's one from Brazil:
Well, maybe it just doesn't work in Brazil. Or doesn't work with equity futures. How about this one from Taiwan?
80% lost money, before fees and taxes. It was even worse afterward. It's interesting to dive into the data on this one. Here's a table from the study:
Lots of numbers there, let's just take a look at the lower part of the table, Panel B. The top line there is the best of the best. These 393 investors (0.77%) are either very talented or very lucky. They were profitable on 71% of their trading days. On average, they made $7,532 in Taiwan dollars each day (about $256 US dollars). Kudos to them. The next line down, 2% of the traders, were profitable on about 50% of trading days. They did not make as much as the first group, but they did make money, about $1,445 in Taiwan dollars (about $49 US dollars). The other 97% lost money.
But wait, there's more. Again from Taiwan, but a different (and longer) time period. Here's the money shot from the paper:
As you can see, only a tiny percentage of day traders are profitable. The conclusion is pretty damning:
Same authors, looking at US Data.
The more you trade, the worse you do. Their abstract says it well:
Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high-beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.
Why Day Trading Is a Bad Idea
Still not convinced? Here is a two hour recorded presentation by a professional trader that likely will convince you. You really want to bet against this guy and his peers? Who do you think is on the other side of your little trades from your little computer in your little basement? Or those trades you're making behind the curtain in the exam room with your iPhone between patients? Here's one of his slides from the presentation, explaining all the marketing you're seeing from Robinhood, etc:
The whole point of this website is to help you get a fair shake on Wall Street. The point is to take a look at the evidence about investing, see what is likely to work, and do that. The evidence is pretty darn clear about day trading. It does not work for the vast majority. Thinking you are in that tiny minority is more likely a reflection of overconfidence than it is a reasonable bet.
#3 Few Traders Accurately Track True Returns
I am amazed at how few investors actually know how to track their returns. Of those who know how, even fewer actually do it in any sort of meaningful way. If you really want to know what you're making, use the XIRR function in a spreadsheet. However, that's just your gross return. If you really want to know your true return, there are a few things you may need to subtract from that return.
- Expenses. While commissions, advisory fees, brokerage fees, and bid-ask spreads likely come out of that trading account of yours, you will need to separately account for any other expenses. Buying books on trading? Count them. A trading course? Count it. That new, faster computer? Count it. Those software programs? Count them.
- Taxes. You know how you qualify for long term capital gains rates if you sell an investment you have owned for more than one year? Day traders don't get those. If they should be so lucky as to have profits, they pay ordinary income tax rates on them, further reducing their return.
- The Value of Your Time. Responses in the Facebook group suggest people are spending 2-3 hours a day with their trading activities. If a typical physician makes $200 an hour, that's $500 a day in opportunity cost. If you trade 20 days a month, that's a $10,000 per month hurdle you have to get over just to begin making money.
- The Cost of the Stress. All the traders talk about how stressful it is to do this. There's a cost to that. While it is difficult to quantify, ignoring it completely is not the correct answer either. Add a factor in for this.
- Market Returns. Since market returns are basically free with a simple index fund, you may also want to subtract those from your profits since that portion of the return did not come from your efforts.
I'm confident that the vast majority of day trading doctors who think they are profitable will discover they are not if they would simply track their true returns.
#4 Day Trading Is a Lousy Job
While most doctors tempted to do this will attempt to day trade using a few minutes at lunch or between patients, there are a few who will take it on as a job. They will spend their day doing research, watching the markets, and putting in trade orders. It becomes their job. They report to their computer each morning and sign off each day when the market closes.
Now, I want you to go back in your mind to high school or college and try to remember the dreams you had about your life and your career. How many of them involved you sitting in front of a computer screen watching numbers go up and down for years on end? Oh, none? Weird. You mean you had a dream to actually help other people and make a difference in the world? What happened? Yes, doctors spend entirely too much time in front of computer screens, but they don't spend all their time there. I'm sure there are plenty of jobs worse than day trading, but it still sounds like a terrible job to me.
#5 It Takes You Away from an Important Job
You have an important job. A job that matters. A job you are respected for. A job that makes a serious difference in the lives of your patients or clients. If you leave it to day trade, that job will not be done. If you are constantly thinking about your positions while the patient is in front of you, you're going to do a terrible job. Imagine rushing through a surgery to get back to the lounge or your phone to check on that trade from this morning? Imagine explaining to your patient what you were really thinking about while their bowel or EKG was in your hand? Your work matters. Far more than the work of the vast majority of people in the financial services industry. Don't throw that away due to your FOMO. Day trading adds zero benefit to the world. Zero. In fact, the benefit is probably a net negative. I thank doctors for what they do every time I record a podcast. I never thank day traders for what they do. And don't give me that baloney about “making the market more liquid.” We already have ten times the trading going on that we need to keep markets liquid enough for the purposes of real investors.
#6 Day Trading Encourages a Gambling Mentality
Gambling is addicting. There are Gambler's Anonymous chapters all over the world. That dopamine rush brings people back to the tables, the lottery, and yes, the stock market, over and over again. Buying shares of a company because you want to share in its earnings over time is investing. Buying and holding index funds for decades is investing. Buying that house down the street and renting it out is investing. Buying a stock you only plan to hold for minutes or hours is pure speculation. It's gambling. And it encourages a gambling mentality.
Even if you totally luck out and it turns out you are good at this, you will view it as a money-making machine you can return to at any time and you will cease to be a good steward of what you already have. Gambling might be harmless when you are betting quarters at your weekly poker game. But everybody knows someone whose life has been destroyed by gambling. As Warren Buffett said, “If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.”
Don't believe me? Don't think most day traders are gambling? Let's look at the academic evidence. Again, from Taiwan.
Multiple natural experiments of large jackpot lotteries in Taiwan are used to document that some individual investors trade stocks as a form of gambling, whereby those investors substitute lottery gambling for stock trading. Our study accentuates the following findings. First, when the jackpot exceeds 500 million Taiwan dollars, the number of shares traded by individual investors decreases between 6% and 10% among stocks with high individual trading fraction, low market capitalization, high past returns, and high past turnover, and the effect is statistically significant. Second, the reduction in individual trading ranges between 5.4% and 7% among stocks with lottery features. Third, the magnitude of the decline increases monotonically with the jackpot size. Fourth, firm-level trading activity reacts negatively to large jackpots and is statistically significant for a sizable number of firms. Fifth, the aggregate trading activity by individual investors declines by about 5% on large jackpot days. Sixth, the substitution effect is preserved when the lottery sales and the size of the jackpot are employed as alternative instruments for gambling. Finally, the substitution effect is found to adversely affect the liquidity among certain types of stocks, while it fails to show up in the options market and in stock trading by institutional investors.
Don't kid yourself that you are immune to this effect. Here's another one from Alok Kumar:
This paper examines whether socio-economic and psychological factors which are known to influence lottery purchases lead to excess investment in lottery-type stocks. The results indicate that, unlike institutional investors, individual investors prefer stocks with lottery-type features. The demand for lottery-type stocks increases during bad economic times and such demand shifts influence the returns of lottery-type stocks. In the cross-section, factors which induce greater expenditure in lotteries also induce greater investment in lottery-type stocks – poor, young men who live in urban, Republican dominated regions and belong to specific minority (African-American and Hispanic) and religious (Catholic) groups invest more in lottery type stocks. Additionally, investors who exhibit stronger preference for lottery-type stocks experience greater mean under-performance. Collectively, the evidence indicates that people’s attitudes toward gambling are reflected in their stock investment choices and stock returns.
As George Goodman explained, “If you don't know who you are, [the stock market] is an expensive place to find out.” If you are treating the stock market as a casino, it works just like a casino–the fewer trips you make through it, the better you do.
#7 It Is Difficult to Distinguish Luck from Skill
Here is another dilemma I hope you face if you start day trading and accurately tabulate your returns. You might find out you are winning. Now you are left to decide whether you are actually skillful or whether you got lucky. While our natural tendency is to attribute all of our successes to our skill and to ascribe our failures to bad luck, the best course of action moving forward is highly dependent on whether it was luck or skill. Good luck with figuring that out. Just like with choosing actively managed mutual fund managers, by the time you have enough data to be reasonably sure that results are due to skill, the game is already over.
#8 Techniques Stop Working
A bigger dilemma with day trading is that you may stumble onto a technique that works. The problem is there are millions of other people out there looking for techniques that work. So if you find a technique that works, for heaven's sake don't tell anyone about it. And don't go out and teach a course about it. Once the word is out, the profits will be arbitraged away by all the other people doing it. Thus you should not expect any technique you learned in a trading course to continue to work. When this technique you found stops working, what are the odds that the next one you find is also a winner? Not very good.
So Should You Day Trade?
So, dear reader, while it is not impossible to beat the market day trading, nor is it impossible to quit your job as a nephrologist and make more sitting in front of your computer putting in trades, the odds are not only against you, but overwhelmingly against you. If the match rate for your medical school were only 3%, nobody would spend four years of their life studying there, much less borrowing hundreds of thousands of dollars to do it. Yet those same doctors are willing to bet similar amounts of money on a <3% chance of successful day trading. Good luck.
What do you think? Do you think day trading is a smart thing to do? Do you think most of our nation's doctors should leave medicine to day trade? Why or why not?
Spot on!
I just joined the WCI Facebook group recently and it seems like 50% of posts now are about day trading or timing the market! And are likely from the same people who were terrified of the market just a few short months ago.
You are spot on that there is just no reason we need to take on the risk of day trading. Every decision we make in medicine is a calculation of risk and reward. Yet somehow in our personal life we become blind to that decision process.
Is there a possibility that you can beat everyone and make money day trading? Well you just presented evidence and the answer is yes. Is the risk inherent with that worth the pay out compared to just approximately the market, the evidence shows the answer is a resounding NO!
Index fund advocates are now being dismissed as boring and following the majority thinking. This is true and not true. If making money reliably without stress is boring, then yes I am boring! And index fund investing is not the majority’s strategy. But that is what Wall Street would like us to think.
Stay strong and resist the urge for a shortcut.
The Prudent Plastic Surgeon
This guy clearly lost some money in the market. I lost money in the market also! It takes years to become consistently profitable and I have done it myself. This blog is clearly not the place to come for motivation. But don’t let this man discourage any of you aspiring traders. I promise pulling consistent profits from the market is possible! I hate seeing blogs like this that keep people from seeking out of opportunities to potentially make life changing money.
Potentially is such a useful word, isn’t it?
What if you’re completely burned out in your healthcare job and not making anywhere near 200-600K? I am a dentist giving day trading a shot. I can’t afford to set aside 150K a year…I don’t even make 150K a year. The corporations taking over dentistry have made it a pretty horrible job. Your analysis would make more sense if your numbers were close to true, but for many of us it is not the reality. Check out the blog Dentistry Sucks for starters.
Many conclusions about recent surge of day traders are coming from the masses which are going to interpret this as some get rich quick scheme they can do from their phones. It quickly turns into a casino if you look at every 18 year old with a smartphone and Robinhood account with only enough capital to trade penny stocks. I’d like to think my colleagues and I are a little smarter than that. I trade carefully with money I have painstakingly earned on Medicaid fee schedules from drilling little holes and filling them back up again. I’m not treating the market like a roulette table. I have a great respect for it. Informed speculation is different than complete speculation. I buy books on trading and finance because I like to learn all kinds of things, and my new superfast computer is also good for flight simulator. I’m so burned out with CE on practice management and root canals. It’s a breath of fresh air to take some time off and learn something new. And trust me, my job isn’t that important – nobody misses me. The world will keep spinning just fine whether I spend my time drilling or trading. You never know, I just may be able to pay off my ridiculous amount of student loans one day.
I empathize with your frustration. Doctors, particularly dentists, are caught in a big squeeze between the cost of their education and the difficulty in making enough money to make that investment worth it. I would still submit that growing your practice is likely a better use of time than reading trading books and trying to do what they say. There are lots of dentists out there making $200K, $300K, $400K etc. Figure out what they’re doing differently than you. If you want to free yourself from your practice, building it up and hiring associates will likely work faster than day trading.
Every trader thinks they’re not speculating. Every trader thinks they’re not gambling. Every trader thinks their actions are going to pay off. But the data is pretty clear on this. Most of them are not going to come out ahead doing this. If you want to try it, I would suggest carefully tracking your returns, including the value of your time. Within a year or two, you’ll know if you’re wasting your time and money, and if you’re not, you can close your practice and open a hedge fund and make the big bucks.
If you really want to learn a useful skill on the side/transition into a new career, I would suggest active real estate investing over day trading.
WCI IS SPOT ON. After I graduated from dental school, my friends and I started actively trading stocks in the late 90s. I spent hours reading financial books, magazines and periodicals. I became well versed in understanding balance sheets, price to earnings ratios, debt ratios, etc. I was lucky to sell prior to the doc.com bust. When I first started, trading individual stocks was new, fun and exciting . I found that success in trading individual stocks led to confidence, more success led to over confidence, which led to excessive trading, which led to higher frictional costs and lower yields. Example: I bought Qualcomm at $30/share and sold at $90/share. I should have held on until it hit $800/share. After a while, trading individual stocks became time consuming and compulsive, like checking your pulse every 10 minutes. Overall, I was moderately successful, hitting singles and doubles, but I never hit a homerun. If it were not for my real estate investments, index funds and job as a dentist, I would not have been able to retire at 52 years old. Trading individual stocks did not get me where I am today.
I empathize too. It sounds like you’re in a pretty negative mindset, which in my experience is a large part of the problem. I was there too regarding my job, but over time I’ve found a way to morph into a part of my practice that I enjoy more. And more recently when the pandemic hit I started listening to a coaching podcast which has helped immensely. The negative thinking we do harms us and our lives immensely, while the opposite is true; a positive mindset can take you places you never thought you’d go. Give it a shot.
I appreciate the responses. I do not have my own practice, I have no desire to have my own. I know some dentists making a lot more money doing things I wouldn’t. That’s an ethics discussion for another time and place.
As for me, I am tracking trades and setting goals for what to learn each week. I am starting small and learning constantly. I don’t know if I will ever be hedge fund material but it’s fun to think about. I do know for certain it will never happen if I don’t try. I’m not saying it’s for everyone. I just don’t understand the certainty of saying it’s a totally bad idea. The banks and investors all said Dr. Burry was nuts for shorting the MBS and we all know how that turned out.
I know what will happen if I continue shucking teeth, I have a decade of data as an associate…it’s not a negative mindset, it’s realistic based on experience. Maybe the joy of learning something new is worth something. I don’t have a practice, a spouse, a kid, or even a goldfish. I decided to devote some time to learning finance and trading. There’s worse things.
The question isn’t “What about Dr. Burry?” it’s “Where are all the other Dr. Burrys?”
I can understand your mindset.
If trading is empowering for you I think you should continue. I believe what WCI is trying to say is that it is unlikely it’ll be an income source like a practicing dentist i.e. even 150k a year.
If you can disassociate yourself with actual expectation to ‘rake it in’, then I think it is fun to learn stuff like this. I’ll admit, couple of folks here on the boards making some serious $ has me interested in LEARNING about options. I hope to pair this with my other skills to see where it goes just out of curiosity. I do know, however, that sitting in front of a screen trading is not my thing.
I can attest as mentioned above: the biggest bang for buck in terms of ROI for me has been entrepreneurship in multiple businesses and active RE. It adds tangible value to the world, and by product is money.
Good luck with your journey. I am with you though, couple of dental friends are in the same boat: large debt, (with COVID), not commensurate income.
I think the whole point of the WCI post saying this is a “bad idea” is that it is not statistically conducive to building wealth. You know what else isn’t conducive to building wealth? Heliskiing. And if there was a sudden surge in doctors taking up extreme sports with hopes of getting sponsored and earning enough endorsement money to quit their day jobs, I would hope that somebody would inject a little reality into that fantasy as well. If you choose day trading as a hobby that’s your right, but know that you’re probably only helping the very people you envy get richer at your expense.
I also have to say that Taylor’s suggestion that any dentists making decent money must be doing something unethical is insulting. There are plenty of WCI posts about managing debt load in school; that combined with a focus on keeping expenses low and paying off debt for a few years while building a practice can make for a very comfortable lifestyle in all but the most HCOL areas. Corporate dentistry has its own problems, and if you’re not willing to put in the work to grow your own practice, then that leaves associate in a small practice, but I wouldn’t hire anybody with an attitude that clearly projected such dissatisfaction with their chosen profession.
I never said any dentist making more money is unethical. I said I’ve seen plenty of it because I have – I didn’t invent the concept of aggressive treatment planning, I merely referred to it. It has nothing to do with you I hope, so it shouldn’t be insulting to you.
I don’t envy anyone so I’m not sure who you’re referring to there. I fail to see how being consistently profitable trading makes these hypothetical people rich.
I also would never refer to trading as a hobby, it is a business. Thestockmd made a disinction between people who trade daily and day traders and that makes perfect sense here. Perhaps some have lost money without putting the time in to backtest their strategies and are envious of those who are successful at it.
I’m not sure what the emphasis on attitude is about. Graduating with student loan debt is the norm and the numbers of today’s graduates are even higher. Recognizing a changing field has nothing to do with a bad attitude. In 2007 Aspen dental had 107 locations. In 2020 it has 700 locations. That’s just one of many corporations, it’s not even the biggest one. The landscape has changed since I graduated and it has nothing to do with me or my attitude.
I can see how speculative dabbling with day trading in between patients with no plan could lead to catastrophic results. I can’t see how choosing a profession of doctor, dentist or attorney when you’re in college inherently precludes you from being successful at something else, such as trading.
Backtesting unfortunately provides no guarantees. The equivalent of retrospective data in medicine, but worse actually because markets are far more affected by past returns than physiology is.
What is the name of the coaching podcast?
Hi how is your trading going? I assume you are a day trader? I am a scalper. I like your train of thought. It’s the kind of mindset needed to be consistently profitable as a trader in the stock market.
I, like a few others, a the people who make a profit by scalping or occasionally day trading. But I am extremely unique in that I am one on the few people who win %100 of our trades. In fact, I am the only traders know who can win %100 of my trades. It’s actually extremely simple and simplicity is in my case the key. If you want to talk I might be willing to give you some pointers.
I left the Facebook group a couple days ago for this very reason. Without moderating/approving posts (or automatically including links to WCI blog topics), I don’t see how the issue will possibly get any better. It’ll get worse due to the absolute inundation of speculation posts and hot tips. I suspect the Forum will soon face this problem, too–I notice there are an increasing number of individual stock tips…
It’s not a WCI Forum/FB group specific problem. It’s happening everywhere. It’s a trend in society. The WCI social groups just reflect that society.
Follow up article needed: How can I get my mother in law to stop day trading???
Good luck!
Get me in contact with your mother in law and I well set her straight with her addiction to day trading.
I’m not a day trader but have a few partners who are. They seem to think stop loss orders on robin hood will prevent any major losses and so far (by their telling at least) they are making a reasonable profit from trading. I’m sure it’s not that simple but the rational seems compelling. What are your thoughts on how protective stop loss orders actually are?
They work fine in a liquid security that trends down slowly. But as you know, in a big nasty market day, liquidity dries up and everything drops fast. So you may have a stop-loss order set at $90, but actually end up selling at $82 a share. And by the end of the day it is back to $92 a share.
Using a sell stop limit order on your example would prevent you from selling at $82 a share. You could place the sell stop at $90 & the limit at $89 so you would not sell any lower than $89. Doing this would not stop the price from going back up to $92.
It wouldn’t help you if it went to $80 quickly and stayed there though.And then went to $50 the next day.
[Ad hominem attack deleted.]
It would help you by preventing you from selling low (below $89). There would just be no execution.
Sorry to be commenting off the main purpose of this excellent post.
I agree.
I feel like intuitively I know what a “lottery-type” stock is, but is there a definition or concrete explanation anywhere?
Not that I know of. Although the “lottery effect” is a term often applied to small growth stocks.
In the finance literature “lottery-like” refers to the distribution of investment returns. High positive skewness with negative expected return.
“Only when the tide goes out do you discover who has been swimming naked.” Freaking brilliant! Thank you for sharing that quote, and for this reminder to fight the temptation.
Just start buying Powerball tickets in bulk. All the benefits of day trading with a fraction of the effort.
“How many of them involved you sitting in front of a computer screen watching numbers go up and down for years on end?”
I am an anesthesiologist. I spend 60-70% of my day literally doing this for a living 😉
Touche’
But when the numbers got all wrong, did you pull your hair out and cry you lost money or did you bring somebody’s mother back from the dead?
There are people that trade during the day, and then there are day traders. The two are polar opposites. I was once one, and now I am the other.
The path to successful day trading is arduous, but not nearly as impossible as you are told to believe. This is obviously the wrong forum to discuss the benefits of day trading, so I won’t even try. Yet, here I am, retired from medicine in my early 40’s…all thanks to trading.
To be clear, I do not endorse trading in the way most physicians attempt to trade. That’s undoubtedly the losing approach that is well described above. Is there a better way? I think so.
Figured you would show up here today. Congrats on your success. I wish it were more common among doctors trying to do this. Unfortunately it is not, as the data above clearly demonstrates.
It’s noteworthy that one of us is teaching a method that is completely reproducible and allows people to continue to work in medicine while the other teaches a method he admits that most people cannot successfully do that pulls doctors away from medicine. I think I would have trouble sleeping at night if I were doing that.
You misunderstand. When you say I “admit most people cannot successfully do that”, what *I* mean is that most people are doomed to fail because they have spent almost zero time preparing / acquiring the knowledge necessary to trade. What strategy are they employing? How long did they back test their strategy? Of course they are doomed to fail.
However, I know a number of doctors that are successful traders. Like me, they are universally regimented in their trades. At least two of them are much better traders than I am, while maintaining a full time medical practice. Big surprise — rads and anesthesia.
It is also noteworthy that you sell books and courses for money. I haven’t charged anything, ever. It helps me to sleep very well. Not to mention never having to answer a call pager again.
Interestingly, I don’t think you understand that I am actually agreeing with you — I don’t think doctors should ‘trade during the day’. This is what you describe as ‘day trading’. Me? I consider day trading an entirely different thing.
All the best
I’m not a day trader, blogger, or poker pro. They share similarities though blogging would seem to have less financial risk.
Wow…I even got a shout out at the beginning. Thanks! Even if the rest of this post directly contrasts what I wrote, I will take it! 😉
In reality I agree completely with the fact that most physicians need to spend their time investing in themselves and their practice and the rest will come. I have spent a lot of time and money investing in my practice and my own knowledge base. This has payed bigger dividends than any other investments I have made. I even made this point when I wrote the post 3-4 years ago.
That being said, I am still trading some…but in an extremely limited fashion right now. I pulled almost all of my initial investment money out of my day trading fund (put it in BTC) and now I have a just a little bit sitting in a couple of stocks that I firmly believe in going forward. I still enjoy it and I’m pretty sure that I would be very good at it, but don’t have the time to perfect the art. I also haven’t felt the environment to be right for my day trading tolerance level and feel that the best and easiest long term returns will come from BTC at this time.
Thankfully, my day trading ventures did lead me to Bitcoin….which I know you have much love for (sarcasm). But I am in for a long hold on BTC at this point and have made it part of my AA.
FYI – I have tried to discuss this on the General Investing forum but the moderators have closed and/or deleted the 2 threads I brought up. There was nothing belligerent, vulgar or inappropriate said. And I’m not selling anything. But for some reason they really want to suppress my opinion on that forum.
Having followed you for 10 years, been very appreciative of your work, and contributed many times to the comments, I have learned a ton. But I thought you should know that it’s kind of silly to be moderated for trying to have a logical conversation. I honestly feel that your readership would strongly benefit from allocating at least a small amount of their portfolio to Bitcoin. Disagreement is fine on this topic… but censorship of my comments is a turnoff and in my opinion it is a disservice to your readership and your underlying mission of the site (i.e. boost financial literacy among high income individuals). With all the other irrelevant discussions that are on that forum, why is my opinion on BTC not allowed? Seems kinda silly. Just thought you should know that this has happened although you may already be aware.
Thanks!
HODL!
Not sure what’s going on in the forum with your threads. There are obviously no rules precluding a discussion of Bitcoin on the forum or subreddit and certainly not the FB group where it is a frequent topic of discussion. Did you message a moderator about it?
HODL! See you at 100K. I knew I could get you on board 😉
I honestly have no idea if it will hit $100K or $1K first. That’s why I don’t “invest” in it, among other reasons, like I don’t need to to reach my goals.
“If you just spent enough time and effort on it, you would be good at it.”
Sorry, don’t buy it. In fact, the available data suggests that many of those who spend a great deal of time and effort doing this are not rewarded.
The fact that there is not universal failure hardly weakens the argument against doing it. There is not universal failure at the roulette table either, and that’s not accounting for the existence of any skill at all, which is obviously likely to exist in some amount.
But someone has to sit back, look at the 3% chance of doing okay at this and really ask themselves how likely they are to be in that 3%. Even with all the intelligence and hard work, maybe they increase their chances a bit. Maybe it’s 5%. Maybe it’s 10%. But it’s still certainly nowhere near a winning bet.
Doctors becoming day-traders and millennials trading on RobinHood as if it were a video game – it’s the 2020 equivalent of being offered stock tips by shoeshine boys. Clearly the sign of a top!
Makes you wonder doesn’t it. Crystal ball so cloudy though.
I am seeing an uptick in this as well. Everyone is a genius in a bull market. I like the example with Apple stock. Regarding tracking returns, an independent auditor should be utilized if the result is publicized. A common tactic is to post the successful trade, but not the one that went to zero. If you want to see who you are up against, study Jim Simons of Renaissance Capital. He became a billionaire day trading. It is a nice case study that demonstrates (1) it can be done, (2) probably not by you, and (3) is not likely to succeed because the person on the other side of the trade is likely a lot smarter than you. Furthermore, the ones that can do it are quiet about it.
When the evolving pandemic caused a swift drop of 34% in the market, my accounts dropped 24%. I was over invested in REIT stocks and preferred stock, chasing yield, and had not counted them as “stocks”. Some dropped 60 to 70%. My 55% stock allocation was really more like 70% stock. I had been selling some individual stocks in early February and had about 5% cash and 25% bonds. Since I am 56 and am close to dropping from full time work to part time work, my allocation was too aggressive.
After the March declines, I watched as even bonds declined and then the FED took action and propped up bonds and treasuries and cut interest rates to zero. After my bond funds recovered to a degree, I sold some of my index funds and my bond funds to raise cash for “bargains” and to day trade on the volatility. I did not touch my 401 and 457 plans which held one fourth of my assets.
Fast forward to August and the predicted “two to three year rebound” had occurred in 5-6 months. The monies from my liquidated bond ETF’s and the monies from the sale of several index funds was used across this time frame to day trade while working from home. I was lucky to have a job in psychiatry that lent itself to telephone appointments and my workplace laid off no one. In addition, my side gig continued to be available for weekends and holidays and I took on extra work to raise cash and pay down debt.
In short, the day trading produced a 10% gain on this cash hoard that at one point was 40% of my portfolio. This 20% annualized return across the six month time frame essentially made up for the gains and returns that would have occurred in my bond ETF’s and index funds. In other words, I made $45,000 and I would have made about this anyway, with the rapid recovery from June through August.
The day trading was done on the same home computer and smart phone that I was using for all my regular work from home. I also worked on the front lines on an inpatient psychiatry unit (my side gig) and even took extra weekends when one of the psychiatrists missed a month due to contracting COVID-19. Across the six months, I lost no money. I tracked my day trading and my fund and ETF sales and the $45,000 made from day trading was about the same as unrealized gains and yield from the liquidated assets. I paid off debt and put more money away in the kids college funds and Roth IRA’s.
I was still able to get my work done by telephone and Zoom in 6 hours a day and took a long lunch every day to walk or hike and our clinic productivity stayed about the same for myself and others. It was an interesting experiment. I’d like to say that it was a mistake in some ways (selling assets in a bear market) but it worked out. I guess I was lucky. My 401 and 457 assets that were left alone are up 17% YTD and my overall account balances are back to where they were plus 7% and I still have 35% of my funds in cash to pick through the COVID-19 rubble with. I suppose I could just repurchase the bond funds, but they produce about 2.75% in yield or $1000 a month. I made $800 yesterday with two trades. It’s reasonably easy to make more than $1000 in a week, let alone a month. My daily target from trading was $500 and this was regularly achievable. I averaged about $8000 a month across the six months time frame from the crash to now.
I have tended to day trade only equities that I would be satisfied to hold long term if they became losers for a few weeks. They have been mostly large cap blue chips or the FANG crowd. Despite the luck and some success, if I could do it over again, I would simply have left my assets as they were. But really…who knew that the recovery would take six months and not three years?
I can’t figure out why you’re saying you were successful. It seems to me you’re saying you spent a bunch of time and effort trading and really in the end only made what you would have made just leaving your money invested in an asset allocation of index funds. That feels like breaking even, not counting the tax costs and value of your time, and losing with counting them.
I’m not sure I said I was successful. I’d be right at the same spot or close to it if I’d done nothing. However, I did get an S&P 500 market return on all assets combined with 35-40% of my money in cash.
I still have 33% cash. I am free to look about and re-allocate as I wish. Otherwise it was a bit of a wash. I did buy a few distressed assets at low prices and hope that some of those choices pay off.
We won’t really know exactly how I did for a few more months. So far, it was a bit of work for not a lot of gain. There were no tax consequences as all trading took place inside my rollover IRA. I was “stuck in my chair” anyway and I did learn a some about trading, but used no fancy methods and no options. I earned my salary regardless and my side gig is only operative on weekends when the market is closed.
We also took family vacations in June, July, and August and I did no trading then.
Ahhh…I see.
I switched some of my bond allocation to VTI near the bottom of the market since I have a higher risk tolerance than I thought and kept that VTI until now. Made something like 45% on that “day trading.” Unless you are only in Amazon and Tesla and not in others that did worse than 45%, it’s hard to say day trading is a smart move. And it’s impossible to know in the next downturn if the stocks you pick will do as well as the Amazons of the world did this time around. And now that the market is near highs, I’m replenishing my bonds with new money.
A podiatrist friend of mine who is forty told me in March: sell bonds and buy stock.
He has a 20 year horizon to my 3 year horizon, but he was right and so were you.
Selling my 25% allocation of bonds and simply buying an index fund or better yet, QQQ, would have been simple and effective.
But with a two year horizon and an unprecedented opportunity (or sentence) to “the chair” made my focus getting my money back as quickly as possible.
When my accounts were off 24%, I darn near soiled my undies. It made it clear my allocation was too aggressive for my time frame. But then again, the market swoon from a 100 year “black swan” event was quick and severe. In 2008, I sold nothing and did nothing…but it took five years for that 45% hit to come back.
Of course the last two days were painful as the high flying NASDAQ corrected 6%, hitting my portfolio with $30,000 in paper losses.
Coulda shoulda woulda. If I had a functioning crystal ball I would invest very differently, but I don’t. So I invest in a way that seems likely to me to allow me to reach my financial goals in many potential future scenarios.
Thank you! I recently graduated from residency and have been trying to follow WCI advice. One of my friends who recently finished his fellowship is trying to get into trading and I have been telling him exactly this thing…. Set the financial plan on autopilot (index, 401K, etc) and spend your time improving your skills as a physician/surgeon, there is something great in being able to serve the purpose we are made for vs running after money. We are doctors, seen as healers and held in great respect in most cultures. We really need to keep our attention on the right things. Of course we also need to know what’s right 🙂
Thank you!
Lol sounds like someone’s jealous
Thank you for this post! As a med student spending a lot of time at home due to the pandemic, I thought I found something exciting in the Reddit Wall Street craze. I bought a few shares of stock one night last week, and when I woke up the next morning, I lost about $200.
I didn’t put down a ton of money, but out of principle, I felt determined to get it back. In a way, I felt taken advantage of and wanted to correct my loss. I spent more time than I’d like to admit reading about trading, and I did some day trading throughout the week. No matter what I did, I couldn’t seem to reverse my loss. In fact, I’m now about $250 in the red.
After a few days doing this, I realized today I’m going to sell all my stock (even at a loss), transfer all my money back to my checking account, and plan on paying someone to do my investments for me when I’m older. To me, day trading isn’t fun because being analytical isn’t necessarily rewarded. In medicine, when working with a patient, we have access to medical history, detailed imaging, etc. It’s in nobody’s interest to hide the ball. In the stock market, things are obfuscated to day traders, often times purposefully. I don’t know what companies are doing or planning to do. And even if I did research, I could be wrong.
At the end of this day, I now view this $250 loss as payment for getting rid of the world of stocks. I’m sure it’s interesting to some people, but I already have an exciting enough career ahead of me. I’m looking forward to not losing sleep tonight looking at my stock portfolio while laying in bed.
A lesson that is commonly learned, but I’m not sure you’re taking away the right lesson. The right lesson is to invest for the long term with index funds, not hire someone else to trade for you or to avoid the stock market.
I’ll invest for you now. But you won’t have to pay me any money. Just split the profit I make for you. You can give me a trading account of $100 and I’ll get it over $25,000 in less than a year. Once over $25,000, I’ll show you a new way of thinking and living. Bit it’s true what the author says. Most people suck and fail at day trading, most never even get to find out what scalping is. I do not day trade but I instead scalp. Scalpers are kind of like a unicorn ‘breed’ in the stock market.
If you can win 100% of your trades, why in the world would you need someone else’s $100? And if you can turn $100 into $25,000 in less than a year, why are you not yet the richest person in the world? That’s a 24,900% return. At that rate, you’d be worth $1.5 Billion after 2 years. After 4 years, you’d own the entire planet. Forgive my skepticism that someone who has time to post as “dadadies” on a random blog has that ability.
I’m a derivatives trader, specializing mainly in income options, I’m not a day trader by any means even though I do sometimes day trade futures. I wanted to take a minute to let you know that what you’ve written here is a load of BS and speaks volumes to your ignorance of the industry. I’ve brushed shoulders with many Pro intraday traders and I’ll have you know they make a whole lot more than physicians to say the least. Pro commodity intraday traders easily clear 7 figures. People fail at trading because they have no respect for it. They think they could prop open their computers and pull charts up and call themselves traders, with no experience, training, or mentorship. They fail to realize it’s a profession like any other and you have to train for years before you could actually see any notable results. Your cynicism is very telling. I ask you this, How would your long term investment strategy work in this market we’re in now? Index funds have taken quite the dip. We’re headed towards a recession, do you even know how long that might be? I hope you can stomach the drawdowns.
Even when the market is in adequate shape it returns about 3-5% per year. That is pitiful. Options traders, including myself make that kind of return on a monthly basis and experienced pro day traders can do more than that. Passive investing will never beat active investing. If, that were true prop firms and hedge funds wouldn’t exist. Get a grip on reality and stop letting your envy delude you.
So you agree that a doc trying to day trade between patients is not likely to do well?
Given that I stomached the last 4 drawdowns, I’m confident I’ll be able to do the same with this one.
Given that you work in financial services I’m kind of amazed you don’t even know the track record of the overall market though. The annualized return of the market from 1871 to now is 9.37% per year.
https://www.moneychimp.com/features/market_cagr.htm
You have to remember he’s mostly talking to people that’s in a high intensity profession already such as doctors lawyers etc. Maybe not lawyers cuz they may have time to take a break but not doctors. Doctors Physicians and people of similar fields usually just do not have the time to day trade or nitght trade or swing trade or scalp trade. Much less do forex. Realistically they’re already clearing what many new Traders aspire to clear. Sure they’re doing it much slower but for them their passion comes from them healing people. And that’s perfectly okay and people like that shouldn’t be in the market because they just have not enough time in the day barely for their spouse and children let alone watching the market. So for the purpose of the audience that he speaks to which is mostly doctors teachers lawyers I’d say stay out of it. Teachers don’t want to be looking at charts all day, doctors are too busy looking at Medical charts and healing bones and diseases, and other such high net worth positions such as running even a Amazon FBA are too busy running their business to be bothered watching the charts all day. It’s not for everybody and like you said it’s a profession that you take time to learn and understand just like anything else. The best use for doctors are being the game is to lose their money and we take it. But we don’t Advocate that because that’s not right.
Good luck with your “profession.” Imagine if everybody in the world did only this profession.
Agreed….most fail, but the article makes an attempt to discourage it without even trying. Poor advice. Don’t be a mentor. If people relied on data and opinions, the world would lack innovations, creating a business, becoming a professional athlete, and so on. It’s obvious the author is a pessimist and people like that are needed to drive those to prove them wrong. I learned to trade from my neighbor many years ago, who was a former hedge fund mgr, now retail trader. If you’re not following rules, studying charts, not getting screen time, have no strategy, trading illiquid stocks, not journaling, relying on chat rooms, and the list runs on…then you are certainly going to fail. That’s the message your article should portray.
I disagree. Maybe you’re a successful trader, maybe you’re not. Most I run into that think they are actually are not once one actually calculates their returns, adjusts for risk, adjusts for taxes and other costs, and in particular, adjusts for the value of their time.
If you are one of the few who is truly gifted at this, then you should be managing A LOT of money. How much are you managing?
At the end of the day you are right that it is a full-time job. However with today’s technology and today’s resources, you don’t need to look upon one particular technique. If you do you do due diligence you take this very very seriously you can become profitable consistently. It’s not a race it is a marathon, but that doesn’t mean it’s impossible. I think the biggest problem is most people as you said when I win big quick and in a hurry. So what happens if you are willing to win big but willing to be patient and take the long run.?
I know for me, I’m pretty young and I think the best thing that helps me is understanding like literally everything in life, you dont start big, you start small and grow. Because you start small, when you lose it doesnt hurt as much until you keep getting better. The same reason why so many windfall people burn out when starting an business or the pike they fall is harder when starting from the top.
Sorry for posting my reply here, I just couldn’t find anywhere to post a new comment.
All I have to say is people force their limita5on others. The world’s richest trader Jim Simmons is a day trader. His quant system never holds anything more than 24 hours. In life everything is doable and achievable.
It all depends on how badly do you want it. Most people do no want to put the effort but only want rewards.
My 2 cents. Trading is the most lucrative and a simple business one can do. We make it complicated.
I suspect you do make it complicated.
How come there aren’t more Jim Simmonses if it is so easy? How many billions are you worth doing “the most lucrative and simple” business?