Can you make money by day trading in stocks?

US Economy
Posted on . 2 min read

You've probably heard about day trading and how it can magically turn you into a millionaire overnight, right? It sure sounds tempting, but let's get real. The cold, hard truth is that about 95% of day traders actually end up losing money. Shocking, right?

You might wonder, "If so many people are losing money, who's making all the profits?" That's where 'quant funds' come into the picture. These are the big players who are really good at making profits from the losses of regular traders.

How do they do it? Let's take a look at a guy named Jim Simons. His story is told in the book "Jim Simons: The Man Who Solved The Market," and it's a really good guide to how the stock market works.

According to Simons, there are three things you need to win at active trading:

  1. A pack of tech geniuses who eat, sleep, and breathe code.
  2. An exclusive stash of data gathered from all corners of the globe and every segment of the economy.
  3. A beast of a computer that can run algorithms designed by your genius squad and fed by your unique data.

Simons used these three things when he started Renaissance Technologies (RenTec) in the early '80s. How well did he do? His fund made an amazing 66% return every year from 1988 to 2018, while the S&P 500 only made about 8% per year in the same period.

Are you trading stocks without these three things? If so, you're probably losing money, and that money is probably going to firms like RenTec. So, if someone tries to sell you a course on day trading, remember: if they were really making money on the market, they wouldn't need to sell you anything. Simons, for example, never sold any courses because he was busy actually making money.

Feeling a bit down? Don't! Even if you're a small investor, you can still win at the stock market game. While firms like RenTec are good at short-term trading, you can use your knowledge and passion for certain industries to predict long-term trends. It will take some work—about 5-10 hours of reading and research every week—but it's definitely worth it.

So, instead of losing money by day trading, why not invest for the long term? And remember, even RenTec found out that they can't keep making money once their fund grows beyond around $10 billion. This shows that even the biggest players in the stock market have limits, which means we regular folks have a chance to succeed in our investments too.

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