New York, NY
Day Trading: is it a game? A skill? A science? Instinct? Luck? I have no idea, but I do it for a living. Day traders employ a mix of speed, instinct, guts, knowledge and emotional intelligence to trade millions of dollars with a keystroke. The faint of heart need not apply. Ask me anything.
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It is very hard to come up with a hard "average." The problem is that at my firm and in day-trading in general the structure is very bottom heavy, skewing the averages. Not only that, but the market changes drastically from year to year. In 2008, a monkey could have made a lot of money day trading... the same was true during the dotcom boom. On the other hand, the years following the dotcom boom and the recent financial crisis have been very tough. Day-trading depends on volume and volatility. The ideal trading environment is under a very confident or very panicky market. Uneasy trading markets are extremely difficult. The market since the financial crisis of '08 has been very uneasy. With all that said, let me try to give some parameters. I am going to put all these numbers into Net Profits before the firm takes its share (the amount a trader takes home will depend on the % of his profits he gets to keep, which changes for everyone). That's the amount of money a trader has made on the market after he pays commissions and any taxes or other fees. To get an idea of what someone takes home, typically beginners keep 35% of their profits and advanced traders keep 60%+. Intermediates will fall somewhere in between depending on their success. A firm with 100 traders might have 30 first year traders ("beginners"), 30 people who are still finding their way in their 2nd or 3rd years ("intermediate") and about 40 guys who have made it and are consistently profitable ("advanced"). Of the new hires, break-even might be the average in a bad trading year like this year, whereas in a good year you could see the average first year trader make $100k. Of the intermediates, there is a wide range. Some traders are breaking through and can make $400-$500k, others are barely treading water. Id say the average intermediate is making $100k (keep in mind, that a lot of the failing traders have left before they reach the intermediate levels) in a bad market and significantly more in a good market, maybe $250k. The advanced guys are all doing really well. The best of the best traders at my firm will make over $1M in a bad year and can absolutely crush good years. That might be a handful of guys though. Most advanced traders are more likely to be making $300-400k in bad years and $700k+ in good years.
Generally, yes, you have to close out each of your trades every day. More successful and experienced traders are allowed to keep "overnights" but even they will only do that on a very small percentage of their trades. Nobody who starts out keeps trades overnight and even those who do do it rarely. Day trader, for the most part, really means DAY trader. Of course, there are exceptions to the rule, and there are a few people that trade on a much longer term basis. But they are exceptions.
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That's a great question. I think, weighing the totality of what I know and what I have seen, that it helps to be educated ... but not that much. At my firm the most successful guys are weighted more toward the former Ivy league types, but there are plenty of people who have almost no book smarts at all that have been successful. That said, I don't think that a top degree or a top education is what makes those traders successful. I just think that people that are driven to succeed, who are willing to work hard and who generally have good work habits are more likely to have been driven to succeed in both school and trading. If there is a high school dropout who is just as intelligent and driven as a Harvard MBA , I don't think you'd be able to predict who the better trader would be. However, I do think that you are more likely to find a smart, driven person who has a Harvard MBA than is a high school drop out. In other words, I think predominantly the best traders are well educated, but I don't think they are successful BECAUSE they are well educated.
I can honestly say I don't know of an accurate portrayal in movies about daytrading. There was a season of Wall Street Warriors that followed a day trading firm that probably gives you the best idea of what day trading is. I think it was Season 4 and you may be able to find episodes online.
Speed. Focus. Consistency. High Emotional Quotient. I think day trading for the most part comes down to processing information quickly, rather than accurately. Combine the ability to process quickly with someone who can also be unemotional focused and consistent, and chances are you will have a very good day trader.
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