Let me say up front that day trading is a waste of time and money. You are much better off investing in long-term trends and dominant companies that are consistently growing their earnings and dividends. Day trading is the exact opposite of buy and hold investing.
I first started day trading junior year in college. It was an expensive endeavor since each trade cost $10 at the time and I only had a $3,000 portfolio. The most I ever made was $500 one day trading Books-A-Million stock (BAMM), which is now no more.
I continued to day trade all throughout my 20s while working on Wall Street. We were allowed to trade ETFs and individual companies that were not on the restricted trading list.
Day trading proved to be a career-limiting move because it was a distraction. I was pulled aside a couple times by my manager to tone things down, so I did.
Once I hit my 30s, I no longer day traded nearly as much. I realized I could make much more money if I focused on my career. Further, having to reconcile all my trades during tax season was a royal PITA.
Temptations To Day Trade Re-emerge
Once the Gamestop (GME) mania hit, thanks to Reddit investors, I had a dream about day trading glory. In this dream, I dreamt that Bed, Bath, & Beyond (BBBY) would become the next multi-bagger as well.
After all, if GME could turn into a $20 billion company overnight due to aggressive short-covering and retail buying, why couldn't Bed, Bath, & Beyond?
Like GME, BBBY was going the way of the dinosaurs. BBBY was heavily shorted by the same hedge funds that shorted GME. At the time, BBBY had already started to move, but it was still only a ~$5.2 billion company.
I could not resist. I woke up at 5 am as usual, transferred $50,000 to my brokerage account, and prepared for day trading warfare!
Further, in the name of science and research for this post, I wanted to day trade to show you why day trading is a waste of time and money. Even with 23 years of experience day trading, it's just not worth it. Here's my latest day trading case study.
How To Day Trade
If you want to be a day trader, you've got to first set yourself up with a robust trading platform from a reputable brokerage house. Stick with the big guys like Fidelity, Schwab, Vanguard etc. They should offer real-time quotes and no fees so you can trade efficiently. They shouldn't crash either.
Here are some important fundamentals about day trading if you hope to make money. Remember, you can easily lose money day trading as you can making money day trading in the biggest casino.
First, you must come up with a thesis on what a stock will do that day. In this thesis, you must decide your risk / reward ratio.
Second, you must define your trading channel. The trading channel determines the likely range the stock will trade in during the day.
Third, you must decide how much risk you will take. The amount of capital needs to be worth your while.
Fourth, you must close out all of your position by end of day. Taking on exogenous overnight risk is not advised if you are a true day trader.
Now that you know how to day trade, please don't waste your time day trading! Your return on effort will be pitiful. And you will get stressed out.
Over the long run, market timing doesn’t work. If you want to time the market, it’s much easier to time the real estate market because it moves slower.
My BBBY Day Trading Thesis
Here was my set up for day trading BBBY on January 27, 2021.
- I believed BBBY would go up as investors looked to buy similar types of stock as GME that was heavily shorted. I believed my downside was 20% and my upside was 50% for a favorable risk / reward ratio.
- Once the stock gapped up at the open, I felt the trading channel was between $42 – $60 / share. Therefore, I was an aggressive buyer in the $40s with the hopes that it would trade in the mid $50s or higher. I believed the stock could fall to the mid-$30s.
- Next, I decided to day trade ~$55,000 worth of capital. I was willing to risk losing up to $10,000 to potentially win up to $25,000. At my brokerage, I'm in an account tier where I can transfer funds electronically and use the funds the same day.
To help get me motivated to day trade, I came up with a use of proceeds for any profits. My ultimate goal would be to make $25,000 so I could pay $20,000 for a new deck and fence at a rental property.
As I write my BBBY framework now, I realize it is much easier to write it out after the fact. I wasn't this methodical before my day trading began. Instead, my day trading thesis all happened in several seconds. All I dreamt of was making some big bucks!
How Did My Day Trading Go?
I ended up making roughly $3,300 day trading BBBY on January 27, 2021 before taxes and a certain event that I'll share with you below. $3,300 gross is better than a sharp stick in the eye. However, not great based on my investment thesis and my capital at risk.
At one point, I was down about $3,000 because I was buying on the way up and the stock corrected back down to the low. I had bought too much stock in the first 30 minutes, when the hype was the greatest.
If I was able to buy $50,000 at the bottom of the day (~$42/share) and sell $50,000 at the top of the day (~$52.5/share), I would have made ~$12,000. However, there was no way I could have done that because of two reasons.
- I was too scared to buy $50,000 worth of stock at once, and
- Timing things perfectly is impossible.
Here is the BBBY chart to give you a visual demonstration of the price movement on January 27, 2021. Sorry I didn't take a snapshot of just the 27th. Notice the peaks and valleys, and the surge towards the close.
Poor Day Trading Execution
Because conducting trades is now free, I decided to just buy and sell shares in multiple tranches. This way, I would protect my downside losses. It's similar to playing poker, where you “run it twice” or as many times as you agree with your opponent before the turn or the river.
I had imagined a scenario where BBBY would keep going up all day like GME did on January 26, 2021. However, when that didn't happen within the first hour, I had to be more careful with my trades.
Below is a trade summary of all my BBBY buys and sells for the day. As you can see from the price progression, I was buying on the way up, selling on the way down (mistake), and then selling on the way up.
BBBY started the day around $42/share, got up to a high of around $54/share, and closed the day at $52/share.
Best Buy Day Trading Chart Record
| Action | Symbol | Security Type | Quantity | Price ($) | Amount ($) |
| BOUGHT BBBY | BBBY | Cash | 100 | 42 | -4200 |
| BOUGHT BBBY | BBBY | Cash | 100 | 42.88 | -4287.76 |
| BOUGHT BBBY | BBBY | Cash | 100 | 42.89 | -4289 |
| BOUGHT BBBY | BBBY | Cash | 100 | 42.9 | -4289.5 |
| BOUGHT BBBY | BBBY | Cash | 100 | 45.23 | -4523 |
| BOUGHT BBBY | BBBY | Cash | 100 | 47.98 | -4798 |
| BOUGHT BBBY | BBBY | Cash | 100 | 49.85 | -4985 |
| BOUGHT BBBY | BBBY | Cash | 100 | 50.25 | -5025 |
| BOUGHT BBBY | BBBY | Cash | 50 | 42.09 | -2104.42 |
| BOUGHT BBBY | BBBY | Cash | 50 | 43.19 | -2159.33 |
| BOUGHT BBBY | BBBY | Cash | 50 | 43.45 | -2172.63 |
| BOUGHT BBBY | BBBY | Cash | 50 | 43.53 | -2176.25 |
| BOUGHT BBBY | BBBY | Cash | 50 | 43.77 | -2188.57 |
| BOUGHT BBBY | BBBY | Cash | 50 | 43.78 | -2189.22 |
| BOUGHT BBBY | BBBY | Cash | 50 | 44.18 | -2208.75 |
| BOUGHT BBBY | BBBY | Cash | 50 | 45.54 | -2277.06 |
| BOUGHT BBBY | BBBY | Cash | 50 | 50.5 | -2525 |
| BOUGHT BBBY | BBBY | Cash | 50 | 53.54 | -2676.84 |
| SOLD BBBY | BBBY | Cash | 13 | 48.37 | -628.85 |
| SOLD BBBY | BBBY | Cash | -50 | 46.44 | 2321.69 |
| SOLD BBBY | BBBY | Cash | -50 | 46.7 | 2334.94 |
| SOLD BBBY | BBBY | Cash | -50 | 47 | 2349.94 |
| SOLD BBBY | BBBY | Cash | -50 | 47.11 | 2355.42 |
| SOLD BBBY | BBBY | Cash | -50 | 47.25 | 2362.19 |
| SOLD BBBY | BBBY | Cash | -50 | 47.31 | 2365.44 |
| SOLD BBBY | BBBY | Cash | -50 | 47.75 | 2387.44 |
| SOLD BBBY | BBBY | Cash | -50 | 48.84 | 2442.13 |
| SOLD BBBY | BBBY | Cash | -50 | 50.08 | 2504.18 |
| SOLD BBBY | BBBY | Cash | -50 | 50.25 | 2512.44 |
| SOLD BBBY | BBBY | Cash | -50 | 50.5 | 2524.94 |
| SOLD BBBY | BBBY | Cash | -100 | 46 | 4599.89 |
| SOLD BBBY | BBBY | Cash | -100 | 46.31 | 4630.89 |
| SOLD BBBY | BBBY | Cash | -100 | 47 | 4699.89 |
| SOLD BBBY | BBBY | Cash | -100 | 50.88 | 5087.88 |
| SOLD BBBY | BBBY | Cash | -100 | 51.4 | 5139.88 |
| SOLD BBBY | BBBY | Cash | -100 | 51.88 | 5187.88 |
| SOLD BBBY | BBBY | Cash | -113 | 50.8 | 5740.27 |
Related: Why Real Estate Is Less Risky Than Stocks And The Irony That Follows
Made The Cardinal Day Trading Mistake
The reason why I didn't walk away with $3,300 gross in day trading profits is because I also made one more mistake.
For fun, I decided to hold onto 50 shares of BBBY instead of selling everything before the close. I figured, owning ~$2,600 worth of BBBY wasn't going to kill me. At one point, I had $61,000 in BBBY exposure that started making me feel uncomfortable.
I thought perhaps there would be a chance that BBBY gaps up again the next day. During after hours, BBBY was trading up another 8% to $56+. However, as you can see from the chart above, BBBY ended up getting HAMMERED down 40%+ to $30/share the next day!
What the hell happened?
Robinhood, the popular trading app that steals from the poor and gives to the rich, decided to stop letting its customers buy stocks like GME, BBBY, and AMC. Customers could only sell.
On a CNBC interview with Andrew Sorkin, Robinhood’s CEO explained his firm did so to “protect the firm and its customers.” What a bunch of BS! Here are some Robinhood alternatives because Robinhood sucks.
You can’t help protect ~52% of your clientele that owns these stocks by enacting artificial trading sanctions and crushing them. I bet Robinhood had a liquidity crisis or was pressured by Citadel, which is an investor in Robinhood and Melvin Capital, which was short GME and other names.
Retail Investors Are At A Disadvantage
The game is rigged against the retail investor. The game game is rigged against the middle-class family who can't bribe their kids' way into private school. The big guys tend to always win in the end. You must find ways to be your own gatekeeper!
Due to artificial actions by Robinhood, my measly 50 shares ended up declining by ~$1,000! I went from being up about $500 on 50 shares to being down about $500. Therefore, my net gain is about $2,800 gross plus any tax-loss selling benefits if I do sell.
I'm still holding onto the 50 shares because I'm interested in seeing what happens. On January 29, 2021, I ended up selling my remaining $50 shares for $39 when BBBY gapped up again. Therefore, I recovered $200 of my $500 loss (was a $500 gain).
Therefore, my total gross day trading gain before taxes was ~$3,000.
Why Day Trading Is A Waste Of Time And Money
Sure, I made about $3,300 $3,000 gross day trading. I basically bought 1,313 shares at an average price of about $45.80 and sold 1,313 shares at an average price of about $48.20. I couldn't time the bottom or the top.
However, if I had held onto all 1,313 shares the next day, I would have lost about $26,000! Holy shiitake mushroom, I would have been pissed!
And If I held onto all 1,313 shares until July 11, 2022, I would have lost about $50,000! Always close your positions by end of day you day trading maniacs! As a DIY investor, you must control your risk exposure.
Returns Aren't Worth It
You can't look at your absolute returns in a vacuum. I risked ~$55,000 day trading BBBY stock. $3,000 divided by $55,000 is a 5.45% return.
However, I was hoping for up to a 50% return. And secretly, I was hoping BBBY would double or triple given my original thesis: Why can't BBBY be worth $20 billion if piece of junk GME was worth $20+ billion at the time.
The amount of capital I used to day trade BBBY stock is called “value at risk.” And I could have easily lost thousands of dollars day trading that day since I was down about $3,000 at one point.
It's so much better investing in an a long-term trends. This way, you ride the wave and forget about the minutiae of trying to optimize the returns of individual investments.
Couldn't Focus On Anything Else Because I Was Day Trading
A Day Trading Addiction Feels Bad
For the entire morning up until the market closed at 1 pm PST, I felt like a gambling addict. My anxiety shot up and I simply could not relax until I forced myself to take a nap. I had maximum investing FOMO, which is often worse than real estate FOMO.
Perhaps it's because I'm not easily susceptible to addiction that feeling addicted feels so overwhelming. I couldn't handle the rush for six and a half hours, which is why I had to take a nap so early! Usually, I take naps after lunch at around 2 pm.
While I was making several thousand dollars day trading BBBY, I was losing tens of thousands of dollars in my main portfolios. On that day, the S&P 500 and NASDAQ closed down more than 2%. This juxtaposition made me feel like I was really wasting my time.
Instead of day trading BBBY, I could have taken profits on some of my bigger positions and saved/made myself so much more! Or, I could have deployed my dollar-cost averaging strategy of buying X amount whenever the S&P 500 is down greater than 1%.
Reviewing my trades from January 27, 2021, I did end up buying about 40% of what I would have bought in the S&P 500 index. I was too distracted to follow through with my strategy of buying more when the index is down 2%+.
If you held onto BBBY in 2023, you'd be down over 90%!
Please Don't Day Trade
In an attempt to outperform, it's worth allocating between 10% – 20% of your equity investments in individual stocks. However, I don't recommend day trading with this 10% – 20% portion. It's just too stressful for the expected returns.
Imagine being glued to the computer for 6-7 hours day trading and losing money! This happens all the time. It's also so easy for traders to convince themselves they would have done things differently to make more money in the future.
You've also got to pay short-term capital gains tax with all your day trading profits. This tax percentage equals your federal marginal income tax rate. If you are in a higher tax bracket, your returns get culled even more. Thankfully, tax software and brokerage software today have made reconciling the trades easier.
Capital Gains Tax Chart For Singles
If you must day trade, then only day trade if that's what you do for a living. Day trading is mostly done during the day, which means it will negatively affect your day job. Sure, you can take days off from work to day trade. However, I just don't recommend it.
As you get older, owning many individual stocks may start to be a waste of time. They are hard to keep track of. Further, you might own too little to care.
Invest For The Long Run Instead
Your Return On Effort (ROE) will be much greater if you can just invest in a long-term winners and let it be. For example, I decided in 2016 to invest in various real estate crowdfunding projects in the heartland of America due to positive demographic trends and technology. I haven't had to do one thing since I made my investment. Yet, the distributions are now regularly coming in.
The goal of investing is to make money in a way so that you DON'T have to work. By becoming a day trader, you are essentially working one of the most stressful jobs in the world!
I worked with sales traders, position traders, and algo traders closely for 13 years. Those guys were not a healthy bunch. Their mood swings were intense as yours will be too if you decide to come a day trader.
Yes, you will see day traders over social media highlighting their huge wins. But chances are, you won't be able to replicate their success.
Speculate With 10% Of Your Capital Or Less
Go ahead and hunt for unicorns with a small portion of your investments to try and get rich quick. And for further reading, here's why you should just say no to Angel investing.
For the vast majority of us, the real wealth will be gained by making long-term investments.
Resist FOMO if you can! Let me leave you with my favorite day trading commercial by E*Trade, which also rigged the system by halting trades in name like GME. It encapsulates a day trader's motions perfectly. May good fortune be with you!
Wealth Management Recommendation
Stay on top of your overall finances by signing up with Empower. PC is a free online tool I've used since 2012 to help build wealth.
Before Empowerl, I had to log into eight different systems to track 35 different accounts. Now I can just log into Personal Capital to see how my stock accounts are doing. I can easily track my net worth and spending as well.
Empower's 401(k) Fee Analyzer tool is saving me over $1,700 a year in fees. Finally, there is a fantastic Retirement Planning Calculator to help you manage your financial future.
Empower will help you focus on the long game so that years from now, you'll be thankful to have stayed on top of your finances. Using a free wealth management app like Empower will help you become a good-enough investor so you can focus your time doing more enjoyable things.
Steadier Returns Through Real Estate
Instead of day trading, consider investing in real estate over the long-run instead. Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
Take a look at my two favorite real estate crowdfunding platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain exposure.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$380,000.
Invest In Private Growth Companies
Investing in private companies is where you might be able to find the next Google, Meta, Figma, Apple and more. Personally, I allocate about 10% of my capital to venture capital. Buying and holding versus day-trading is the way to go.
The most interesting fund I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. I don't want my kids asking me in 20 years why I didn't invest in AI or work in AI today!
The fund's investment minimum is also only $10, as Fundrise has democratized access to venture capital as well. Most venture capital funds have a $200,000+ minimum.
Readers, anybody like to day trade? How can there not be some major repercussions after this brokerage and shorting debacle? Are you willing to invest with a brokerage that can randomly shut off your ability to buy certain stocks?
For more nuanced personal finance content, join 65,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
I for one appreciate that day-trading is a waste of time.
Thank you Financial Samurai for this sage advice.
Thanks also for losing a lot of money.
Without people like yourself I would still be an over-the-road tractor trailer driver, instead of owning Cirrus aircraft.
“ Thanks also for losing a lot of money.”
You’re welcome! I’m glad me losing a lot of money has helped you invest better.
no offense your just not very good at day trading.
I don’t wanna pick this apart too much, but that was like a youtube transcript of a video called “so i tried day trading for a day, this is what happened”
If you were bagging 300k a day you would think different. to each their own.
hope you buy lots and lots of houses.
For sure I’m a terrible day trader. No arguments there!
Are you making $300K a day? If not, what’s your experience and profits?
I’m a buy and holder. Better return on effort, given there’s not much effort. Portfolio is up 7 figures this year.
Haha…. HAHAHAAAHAAA :-))))
YOU MUST BE ONE OF THESE SO CALLED EXPERTS, WHO GETS PAID FOR BRINGING NEW CLIENTS TO FX COMPANIES :-)
You should be put to prison for your LIES !!!
‘TRADING’ IS A DEADLY WASTE OF TIME AND MONEY JUST LIKE THE AUTHOR SAID !!!
YOU CANT PREDICT RANDOM WALKS !!@!!!!@!!!@#!!!!!!!!!!!!
I trade futures… then I lose… then I trade futures… then I lose… then… you get the idea
GameStop stocks did go crazy for a couple days and kind of wished i had been more in the loop about it but hey I’m sure there’s gonna be more opportunities sometime. And I’ve always thought of trying to day trade but never got into it and I’m glad i read this before really trying it ! Ill just stick to normal long term trading for now. Thank you really breaking down why day trading really isn’t worth it it’ll help a lot of people who are considering giving it a try like me.
I heard a great proposal on the “All-In Podcast” last week in where they pointed out that investing has evolved into a game of predicting and chance, not unlike casinos and has lost its fundamental purpose of investing in a company to provide capital to allow it to grow for the long term. The incentives are not aligned with the current tax code. If there was a larger capital gains tax applied to day trading events and no capital gains tax for investors that held onto 3, 4, 5+ years, then it would incentivize long-term thinking and strategies, allow more companies to invest that capital in their business and hire more employees and overall grow the U.S. economy.
Thoughts?
We are already highly incentivized to hold for at least 12 months because the capital gains tax differential is 10% or more for higher income earners. Therefore, you could do a trade in your 401(k) or IRA to avoid taxes.
See: Short Term and Long Term Capital Gains Tax Rates By Income
Sam,
Nice articles across the board, always very informative. I’ve invested in most everything from Bitcoin to futures. A lot of successes but also lot’s of fails.
Anyways my question is with your dollar cost avg. strategy. Is that something you have automated where orders are placed without you being there per your set criteria or do you have to do it manually.
When Crypto surged late last year, I couldn’t take my eyes off my phone too. The first thing I would do in the morning was a price check. Brewing Coffee? Check again. Reading to my little ones? Check while turning the page. Having a conversation? Take a small break to check again.
It was insane.
What was equally insane was seeing BTC’s price and my crypto portfolio doing the opposite of an avalanche. It just kept going up. 10%. 8%. 20%. It was mesmerizing to see. So I could see why day trading would be stressful as heck especially if was like a pendulum.
This was a fantastic article here W. I like how you captured all the negative externalities e.g. stress, distraction while with your kids, value at risk etc. You nailed it.
We now just need to have a transaction tax at 0.1% per trade so that Wall Street stops wasting its time and energy doing the same! We can then remove capital gains tax and all this human energy can be more efficiently allocated to improving the wealth of humanity rather than just for zero sum gambling.
This article is bang on ! Completely agree ! So yes don’t waste time day trading but what is the best strategy then for the stock market, as I assume there is a decent percent of the portfolio that needs to be in stocks. Sam – would you be able to share your thoughts on this topic – How to invest a million dollars in the stock market.
I’d rather trade the time spent day trading to researching and buying a solid income property. Once you buy right and position the property right, you are done for the year and get paid to infinity and beyond.
Greed and FOMO are two tough mistresses.
Hi Sam, I’m one of your many ardent followers but have yet to comment until now. I wanted to thank you for all your intelligent and honest (wow, so honest) reflections on finance and your personal life. I wasn’t quite sure how to do that so I just decided to comment on this feed (btw great post).
I sold my business in September of last year. What an emotional roller coaster. Your articles were a great comfort to me during such an arduous time. So far, so good in early retirement.
Keep up the great work.
Thank you for your story, Sam. Playing devils advocate, if you could average that 2k gain everyday that would be like making 500k a year before taxes! ;)
I’m interested in day trading, but I wont dabble in it until I’m financially independent and retired. Wouldnt count on it to make a good living. That’s what my day job is for!
I remember the day trading craze in the early 2000s. I nearly quit my job and jumped in but thought better of it. Just like fashion, ideas (and mistakes) come back around in different forms. The younger crowd doesn’t understand (or doesn’t want to understand) the dangers of day trading and I would bet my last dollar they aren’t considering the tax ramifications until the end of the year when its time to pay up to the IRS.
Those who don’t know history are doomed to repeat it.
Dude… spot on. Most stressful week of my life, ending up with a loss of less than 0.5% of my assets and a lot of sleep. I don’t know how people live like this. Back index funds for this guy!
Did you buy any GME?? What are you thoughts on how that will turn out?
I’m new to investing and have all my money at Vanguard. Is this bad?!
As much as I know that day trading is a waste of time and energy, I can’t help but still do it! You know in breaking bad at the end, Walter White says “and… I was alive”? I feel like that when I day trade.
But of course, I’ve lost so much money so I will never recommend my readers to do it as often as I have!
Not a day trader so I wasn’t up to date with what was going on in the markets. Imagine my surprise when I was in Robinhood and saw my Doge coin purchase from 5 years ago was up 1,000+%!!! Yes 1,000%. I didn’t sell though because my initial investment wasn’t much. Though, I’m wondering if I should cash out now since the value is artificially inflated and I might not see it this high ever again.
I would cash out at a 1000% gain.
NEVER GET TOO GREEDY or the paper gains will disappear.
I find it is easy to buy and hold for x period of time, while day trading is like playing hot potato.
Yep, I feel good about cashing out. My friend told me to think about the $ amount and be happy about that rather than feeling FOMO if doge keeps going up after I cash out.
I felt that way too when I had a very large position with a 1000% gain. I sold most of it over the years, but today that stock went on to a 50,000+% gain. Ugh…
Three guesses which stock it was… :-D
TSLA!
Dogecoin to the moon! LOL. Thanks Elon.
Hmm. I added BBBY to my watch list about a month ago when they announced selling off World Market, meaning to look into it more, and have been shocked to watch it climb up 120%. Didn’t know it was part of these hoodlum shenanigans until this post.
Agree 100% on the waste of time aspect.
I have also been somewhat involved in day-trading the last few days and what do I have to show for it? Maybe 6% return (most of which I’ve lost the last two days anyway) after a pretty significant risk where I could have easily lost 30-40% of what I put down and almost an entire wasted workday getting nothing done.
Guess who gets to work on Saturday this week to meet the deadline I probably could have hit just fine had I been working instead of day-trading? This guy!
Hopefully lesson learned though. Maybe one day I’ll set aside 10% of discretionary investing (after taking advantage of all the readily available tax-advantaged stuff) on hand-selected stocks based on my belief of those companies, my knowledge of the industry, or an insight I get from friends who are more in tune with investing than myself. But day trading has proven to be a pretty massive waste of time.
I’m glad you didn’t lose the 30% to 40% either. The trading really sucks up our time. It’s hard to do anything else productive.
Let’s hope the stock market doesn’t crash too hard after this week’s correction.
I have a question maybe you can answer.
Got in an argument with a friend today that he’d rather daytrade than “get rich slowly” because he thinks we’re actually taking in more risk by thinking things will be ok 15, 20, 25 years from now when we are in unprecedentedly unstable times and assuming our job situation will also remain stable when it’s never been less stable, and all it takes is one good “40-bagger” from his starting position and he’s set for life (which GME was one but he got in late).
He thinks he found a shortcut to FIRE through joining r/WSB and so far save Thursday with GME, BB, and Dogecoin he’s been doing pretty well. Meanwhile, I’ve stayed mostly in the sidelines and watched.
Where would be the flaw in his argument that the get rich slowly people are actually taking in more risk by assuming things will remain ok in 20-30 years?
Your friend doesn’t have a crystal ball and neither do you. You mentioned the two sides as day trading vs. get rich slowly. If “get rich slowly” means investing more broadly for the long term, then the flaw in his argument is obvious. He needs a LOT of miracles to happen in a short span with a small number of stocks, whereas the long term play needs reasonable performance across a broad spectrum of the market. Which sounds more realistic to you? Not even the pros can outperform the market consistently over long stretches.
The question I’m grappling with is how much our long term investing thesis is based on “old” ways where the masses couldn’t compete with Wall St. Had we had regulation in place where Robinhood and all these brokerages couldn’t interfere like they did last Thursday, I think the outcome would have been way different. I think last Thursday got hedge funds and all financial institutions shook and woke to the fact that the power dynamics have shifted. The FIRE movement is largely based on index investing, which is dependent on the old models. If these models are no longer accurate or dependable, then how can we expect the 7% return and 3% withdrawal thesis to hold true over the next 30 years? I think the investment models we have hung our FIRE hopes on will have to reevaluated.
These things will continue to happen. But it’s hard to time it right. Check out day trading is a waste of time and money.
Best to invest in great companies over the long term. You can certainly speculate with a minority portion of your investable assets though.
Thanks for this article Sam. I’ve been following you for years and you’ve helped me tremendously. I share alot of your perspective on things..I worked for a brokerage firm for 23 years and dabbled with day and swing trading. I have an impulsive personality so I obsess over things. When I swing and day trade or even just take a single stock position, I can’t focus on anything else and cannot sleep. I wake up every 3 or so hours to check the futures. Here’s the thing, win or lose..I’m irritable the rest of the day. I snap at family easily. I studied this and the dopamine hits and the constant change in emotions (up and down) drains you mentally and physically. Here’s the worst part, the long term damage is quite severe. Day trading resets your “baseline” of happiness levels. In other words, basic things you used to enjoy like hiking, tennis or sadly even playing with your kids will lose its degree of satisfaction because your brain has adjusted it’s threshold of happiness. Anyway, your other point about being more risk averse as your net worth increased is so spot on. Now that I’m comfortable, I can’t even stomach the thought of a 5% correction because I’m looking at it in terms of real dollars and opportunity cost. It’s crippling because no matter how conservative I set my portfolio, the volatility bothers me. Sigh…I guess it’s true what they say, mo money, mo problems.
I Bought 1000 shares of AMC at $15.75. Sold today for $13.25. I’m super grateful this lesson didn’t cost me more. Unlike your experience, I had a hell of a lot of fun.
Buy high sell low!
That’s what I do Vlad! Good lesson, fun time!
One of my friends kid has turned 20k into 100k. He’s been buying some crypto I’ve never heard of or would invest in for a half a penny and it’s up to.08 cents. He got into GameStop early as well and sold. He’s on another website other than wallstreetbets. One where a bunch of kids get together and try to move a security. Not all of us are losing money, just me. As long as a 18 year old can make 5x in a week I’ll keep believing. I wouldn’t believe him but his dad told me this and I believe his dad. I’ll invest 99 percent of my money the old fashion way but damn it, every once in a while I’m gonna take a shot!
Hey Sam, great article! One other thing for your readers to keep in mind, and another reason to stay away from day trading unless you properly set it up as business trading in securities with mark to market accounting, is the wash sale rule. I bet a lot of “pandemic traders” will have some huge surprises come tax time this year!
Good call! Will add the wash sale rule in the post.
Reconciling taxes after doing hundreds of trades a year was the worst part of the day trading, after losing money.
Day trading can be very stressful. What are your thoughts about swing trading, with setting pricing alerts so the system will notify you when a price hits or will automatically sell your positions at those prices? It seems like a lot less time and effort.
Same thing… not a good use of time. Too tough to outperform in the long run, even if you are a professional trader. Always got to be alert regarding ends and exogenous variables.
Day trading
I think day trading serves a useful purpose, by keeping derelicts off the streets.
Classic frugal entrepreneur! :)
“My ultimate goal would be to make $25,000 so I could pay $20,000 for a new deck and fence at a rental property”
Great article.
Hah, yeah, I want to always turn any potential funny money profits into real assets. I’ve been doing this since 2003 and it has worked out well.
Just needed motivation to justify wasting my time and money day trading!
The amount of attention needed for successful day trading sounds crazy making! Especially when you throw in unexpected spins like platforms halting trades.
I realized yesterday I have some cash in my investment accounts. I’m going to go with my trusted and true method of buying an index in the late morning, once the morning rush of trades have been processed. I’ll hold it for at least 5 years.
Was that ETrade ad an actual serious advertisement lol? Why would you ever show depression, suicidal thoughts to promote a business, crazy.
But, day-trading is an interesting business, I studied a lot in the past about the psychology of traders and how to build good risk-loss systems. It’s not for me, but it seemed you had better results with consistent planning/analysis of losses/measured bets. Exactly like poker success.
You can see from the current market euphoria though that a lot of people are just here, instead of Vegas, with predictable results. But the hype is hard to stay away from when it’s all you’ve been hearing about on Twitter for the past week =)
Glad you came out with your nerves in tact.
Yep, a serious commercial run in the early 2000s I believe.
Studying the psychology of traders is one thing, but trading with enough money that will make you feel uncomfortable is another thing! You learn A LOT about yourself when day trading or making uncomfortable bets outside your risk parameters. Sometimes you get lucky, sometimes you get DESTROYED.
I can’t believe I was almost destroyed by $26,000 thanks to Robinhood’s decision.
Heh, I missed the whole GME mania because I’m in Thailand. I doubt I would participate even if I was in town. I’m too risk-averse. The thought of losing $50,000 would stress me out so much. I don’t need that. We’re already comfortable, why add a ton of stress for a little more money.
Respect to all the reddit traders, though. I never knew you can take down a hedgefund like that.
Sam, thanks for calling out what Robinhood did to retail traders. I call BS, too! I have stuck to long term fundamental investing. I feel day trading is too complex, stressful, and time consuming. Your post validated it for me! Congratulations on walking away profitable for the stress you endured. :)
You made $3,300…. so then after taxes…. ~$2,400?
Minus ~$500 for the 50 shares I still hold at a cost of ~$45/share. The Robinhood decision to arbitrarily shut down buying of 12 names crushed my remaining position. When I was writing this post, the event occurred, and I did not pay attention b/c I was writing this post! How ironic.
If I had held onto my entire 1,313 share position, I would be down about $26,000 from yesterday’s close. So net down over $22,500.
The system is rigged. Day trader beware. BBBY and other names are trending higher in the after market b/c some platforms opened up trading again in these names. So I’ve got some hope my remaining 50 shares will recover somewhat.
Waste of time! And if I didn’t have this site to share the story, it would have been a bigger waste of time.
Update: I ended up selling my remaining 50 shares on 1/29/2021 when BBBY gapped open to $39/share. Hence, I recovered ~$200 of the $500 loss, whoo hoo! Waste of time… ugh
I was a full time futures day and position trader for 13 years. I walked away in November. It burnt me out. The stress, especially with futures open all night, became too negative on my life. And as a full time trader the financial stress to produce hurt my performance as commitments grew.
I can’t imagine trying to successfully do it while working a full time job. It takes too much time and attention. I concur on your conclusions.
It was fun to be a spectator this week, but I had zero impulse to jump in.
May I ask why you decided to be a futures trader instead of a trader during the day? How profitable was being a futures trader? It’s a world that I have not delve deep into. I think for most of us, we just watch the futures market to get an idea of how to trade the next day. Thanks
I grew up in Chicago so I started at the CBOT and learned grains. Then branched out from there to trade pretty much everything futures. It’s more interesting to me to study macro and physical markets than company or sector analysis.
I traded 90% during the day, but everything has a full or at least partial night session now. Thus some loss of sleep based on risk or opportunity.
One lesser known advantage is 60% LTC, 40% STC gains tax treatment on all profits of any time frame. Equities are all short term gains for traders. And the margin and returns can be crazy. I was shooting for 100-200% return each year and had a couple over 300%.
I had several years in the upper 6 figures, low 7 figures. Plenty $150-500k. 1 year lost $300k. More struggle the last few years, which made the decision easier.
Non-algo, purely manual trader that survived HFT and algo proliferation. A few of my best trades became obsolete, but I think if I was aiming lower I could still do it. Stumbled into something new though, so I’m happy to move on.
Fascinating stuff. Thanks for sharing! And good job making $150K – $500K consistently. Not easy to do!
I’m assuming your net worth grew over the years as well? I’ve found as our net worth has grown, the commensurate desire to take proportional risk declines. Therefore, day trading and whatever is no longer worth it.
For example, I’ve been taking $50,000 positions in individual names for 15 years now. It’s very hard for me to take larger positions, despite my net worth growing.
My risk tolerance grew or declined based on how much capital I had. I think a good trick is to think in percentages rather than a flat number.
I thought of day trading account almost like business equity rather than investing. So I think that’s also different. For example, I’d bet you’re willing to take more risk in your business than in your investments. I am like you that I have less risk tolerance investing though as my net worth grows
Well said. I used to dabble in this type of thing in my 20s with the same type of feelings. I felt addicted, stressed and overall it just wasn’t worth it. On a good note, it led me to the path of setting up a long term portfolio that only check and rebalance periodically. I no longer have FOMO cause I remember how bad it made me feel.
I don’t see how anyone can day trade when they’re working fulltime, however trading on the daily, weekly, and monthly charts is feasible. If you day trade, it’s important to have a large enough account to be able to trade a minimum of 1k shares at a time and then sell on .11 to cover the sec fees. I don’t trade very many individual stocks because you can have too many surprises. But if you stick to the SPY, Q’s, TNA, etc. you can do very well. It’s been a lifesaver in retirement to make the money you want for the extras and then to put your profits into a balanced mutual fund. Unfortunately as you get older it’s harder to take the stress but your technique is also perfected and you can trade less but make more. Btw, a good rule of thumb is to only trade an account that is 25% of your entire portfolio. Don’t rule out day trading but be sure to paper trade for a length of time to have a good percentage of profitability.
Don’t day trade, but here’s how to do it :). But please don’t! I do really like the article, especially the reasons for not doing it. I definitely do not have the nerves for something like day trading, or the time! Even investing in stocks can pull me away from family life and my stock portfolio is VERY small!
Great article!! I have zero interest in day trading, but really enjoyed reading your experience. Always interesting to get a perspective on something that interests me, but I would never do. I love to gamble, but I don’t believe the stock market should be one big casino, because the only person who wins at a casino is the house.
The excitement and anticipation exiting Flamingo road on to the strip. Then the dejection and uncomfortable fatigue when leaving.
Indeed. Everybody always has dreams of winning big. I am shocked RobinHood would randomly restrict buying of 12 or 13 securities. The game is so rigged. As a traitor, the one thing you could’ve counted on was the brokerage firm always being open for business during the day with no restrictions.
There is no way I would ever trade on Robin Hood now. What if they decided to shut down one of my securities in the future? That would be a nice 30% to 40% slamming out of the blue.
The counterparty risk.
Day trading certainly is not for me. As for myself, once I was down I feel I would start ‘chasing’ it like gambling.
If you’re into day trading, hats off to you. It’s just not my bag.
I’ve never day traded before because I simply have no knowledge or conviction to make a one-day investing convictions worth going for. So props to you for trying. I can imagine how stressful it must be just looking at your log of trades. They make my pulse start racing just thinking about trying to do that. I don’t know how people can enjoy that type of investing. I guess there’s the thrill factor, but the stress and frequency of losses would definitely make me a miserable person. I already have a hard enough time getting things done. If I day traded I would never do anything lol