Enamored with Day Trading? (Part 1)

The next two posts are an absolute must-read if you have any interest in day trading for a living (second-to-last paragraph).

As I have discussed many times, data is the financial industry is frequently absent. This blog mini-series focused on the lack of performance reporting. This post focused on the lack of evidence to support technical analysis.

Now we have some actual data!

Today’s post is based on “Day Trading for a Living”: an August 2019 article by Fernando Chague, Rodrigo De-Losso, and Bruno Cara Giovannetti out of the University of São Paolo in Brazil. I encourage you to take a look at the full manuscript.

Chague et al. talk about the lack of quality data about the odds faced by people who choose to try their hand at full-time day trading. The few studies that exist do not focus on individuals who trade regularly, which “largely overstimates the odds” of having success. Second, the few studies that exist do not follow individuals from their first trade, which makes it difficult to understand whether learning is possible in this domain. Finally, the few studies that do exist sample periods that predate the modern-day trading landscape, which includes “fierce competition of algorithms and high-frequency traders.”

Futures trading in Brazil is very popular. Chague et al. cite a 2018 report from the Futures Industry Association stating annual volume of the mini-Ibovespa futures totaled 706 million contracts: much greater than the E-mini S&P 500 Futures (445 million contracts) and S&P 500 Index Options (371 million contracts). Futures and options trading volume of the Brazilian Exchange ranked third worldwide (2.57 billion contracts). The population of Brazil is approximately 40% that of the USA.

This is basically to say that day trading in Brazil is virtually a national pastime—much more popular than in the United States.

The Brazilian futures industry is similar to the USA. On one [large] side of the spectrum are the social media day trading “gurus,” vendors selling day trading systems, and lots of [supposedly?] profitable indicators/newsletters for sale. These are entities that have been presumably advertising and profiting throughout the industry for years. On the other [tiny] end of the spectrum are economists, social scientists, and data scientists.

Remember this excerpt?

         > The oft-quoted statistic that 90% fail within five [1-2?]
         > years supports this. I don’t know who [if?] did the original
         > study but it is consistent with what I’ve seen of human
         > nature from attending trading groups.

The time has finally arrived to see how this shakes out by putting some actual context behind it.