Only 1. A study of Taiwanese day traders over a year period, from to , showed only slightly better results. Day trading is popular in Taiwan. In an average year, about , Taiwanese individuals engage in day trading, according to the authors.
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Their conclusion: "Consistent with prior work on the performance of individual investors, the vast majority of day traders lose money. What about the tiny group that might do better than sheer luck? The authors speculate that "One way in which day traders could be earning profits is by supplying liquidity through passive limit orders to uninformed investors who are too eager to pay for quick execution. In other words, the tiny fraction of day traders who actually make money in Taiwan do so by trading with "dumb money" — other day traders and general investors.
An older study, going back to , fared no better for day traders. Brad M. Barber and Terrance Odean of the University of California, Berkeley, analyzed 66, trading accounts at Charles Schwab from to They found that those who traded the most earned an annual return of Good investors think of ways to not lose money.
In short, most people think they are long-term investors, but they act like very bad traders. We have come up with some trading rules to help investors better navigate the trading markets. If you double your money, sell and take profits. Don't be greedy. A quick way to determine profit potentials is determining how a changing stock price influences options prices.
The math is simple. All you have done is subtract the strike price 23 from the stock price. Another good trick is the Rule of 16, which sounds more complicated than it is. Divide a put's or call's implied volatility by 16 to determine how likely a stock is to move, up or down, until the expiration date of the option. Sixteen is the square root of the number of trading days in a year. The Rule of 16 is not high finance, but traders spend all day dividing volatilities by 16 to size up the expectations baked into stock and option prices.
If you do not take profits, sell half your position. If you bought 10 calls, and you are sitting on a bankroll because the underlying stock price has surged through the strike price, sell five calls and take a profit. Condition yourself to always play with house money and to always protect your own. You are up against options market makers whose preternatural trading acumen is sustained by undisciplined, greedy, dumb investors. Don't be one of them. Remember this: It is easier to charm the fangs off a rattlesnake than to regularly outfox market makers.
Time is your enemy. Options are wasting assets. They lose a little bit of value each day.
The phenomenon is called time decay, and it is why many investors prefer to sell options against stocks that they own or want to buy. Some people will sit on a position even with a loss.
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Losses bother people and they cannot think straight. Do not fall in love with positions. I should have been taking money out and paying myself that whole time. Was making a a partial cash out ever a consideration? This this this this this. When you're talking about enough money to live off of for significant amounts of time, it's time to stop taking such risks.
The larger the stakes, the more thrill, but also more consequences. I had a similar experience as OP similar story, same ending, though with waaay less money involved in which I also overstayed my welcome riding the oil recovery FOREX train - and the thing is, you get realy sucked in, after a few good wins, cashing out is seen a quitting and that tends to be easily dismissed when you're winning.
Well, lesson learned.
Options Trading: The 5 Rules | Barron's
I appreciate OP for sharing this story, as it may teach others how your own results affect your behaviour, and why you should never dismiss crash risk. If you know what you did wrong, why can't you answer your own main question of this thread? Is it because you don't understand what happened, or don't trust yourself not to repeat it as an addict? I'd think it would just take discipline. Set how much you're willing to put into giving it another go, and decide how long you're willing to make it last. Then force yourself to make smaller bets, making it unlikely you'll "fortune" again but also less likely you'll lose it all so quick.
Keep the bets modest even if you make a ton, so that 10 lost bets don't wipe you out. If you can't trust yourself to do that, don't try.
I am not anyway experienced. But my commonsense tells me that once I hit milestone like k, I would keep aside 50k and keep trading with the remaining 50k. So that my losses are minimum. I think you have a gambling addiction. I have nowhere near that much assets but if I were you I would have at least put a third if not more in a separate account or in bonds so I wouldn't be tempted to touch it. If you would have put some downside protection in place, how would you have done? It sounds like you were blindly placing bets with no risk management in place. Obviously if I had downside protection I would have done better.
How much better I don't know. It was foolish of me to not have purchased a decent amount of puts anytime I was riding one of my longer contracts through earnings. Some of my contracts that I lost huge on were for Jan , so I figured even if earnings is bad I can recover. Even so I should have had downside protection at the minimum four times a year.
Besides buying puts, there's also selling higher-priced calls, and using stop losses. If your system always ends up losing it all, stay away from options and invest in the underlying.
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That's how to "take profit" in a much more sensible way. You've already proven you can win trades when the dollar amounts aren't enormous.
What To Do When Your Options Trade Goes Awry
So keep the dollar amounts down at a level you're comfortable trading and just be happy trading. Have you read the market wizards books? Yeah, they're outliers, but most of them had some early blow ups while they were starting out. As long as it's money you can afford to lose, I say keep going. Look at it another way. Couple of nice vacations, but not the end of the world for you by the sounds of it. If it's not impacting the rest of your life negatively, I say keep at it. You need a serious lesson in getting out while you're ahead. Pulling money out little by little isn't sexy, but you end up in the black.
Set profit margins ahead of time for when you start pulling money out. You won't reach the same peaks, but you end up ahead. Take what you've learned and stop thinking about making homeruns and start thinking about managing risk.
It's a zero sum game - you had better be good, because there are a lot of real good traders in there with you. Unless you are able to devote all your time to this, you are really just gambling. Consider this a cheap lesson. Options and commodities are dominated by some very highly skilled people, and they love to see people like you. You seem to have pretty good instincts if you did that twice in two years. Once you have a decent size of disposable cash to play with, fucking go all out I do believe that the answer is to always "pay myself' should I become successful again.
I trade derivatives quite successfully too, but I haven't made nearly as much as that. It seems like you were taking too much risk and had too much of your capital exposed at once, in other words you got greedy. Whatever your trading strats you should always work out the max you can lose from a position. Don't make trades for the sake of having something to do either, sometimes the best thing to do is do nothing. I'm looking at this thinking, "your taxes must be a mess.