What is the threshold to be considered a successful day trader?

[Bugsy]

Given the number of traders who fail, beating a buy and hold strategy might be a place to start.

I'm sure there are traders who manage to achieve a 50 to 100% returns. And there are hockey players who can play in the NHL, but buying a pair of skates and a hockey stick won't get you the big bucks.

Granted you might make a few percentage points in a couple days, however you are going to have a loss or two of the same magnitude every so often.

Kudos to the traders who are making a living trading a small account. I'm not one of them. I day traded for a few years and found I make the same returns swing trading. Stress level is reduced, and I have time for other things in my life.

That may be a good point. It's odd because to me the stress of it is like my therapy. I guess you could say it's more like a game of Chess. I found it fascinating almost to the point if an obsession. I think you may be right on using beating an index fund as a minimum.

There are over 2000 futures day trading rooms and all claim to be successful, to increase your financial wealth, make you financially independent,, etc. and yet none can define or measure such success. So how about this: the median salary in the US is ~$50K per year. If you were to day trade 50 weeks per year, then you would need to earn $1000/wk or $200 per day take home after $5 round trip per contact to earn the median US salary. Would that work?

It's odd isn't it? I've searched for the answer to this question on several occasions across search engines and never found even close to an answer. I always assumed there was one, but either I was asking it wrong so I got poor search results or it was such an obscure answer Google couldn't find it. I guess the truth if it is an answer may not exist yet. I would say it may lie somewhere in the root of both you and Deaddogs answers though.

 

[deaddog]

I suppose it is something that should be front and foremost in your trading plan.

How do I measure success?

 

[Bugsy]

I suppose it is something that should be front and foremost in your trading plan.

How do I measure success?

Well my trading has been solid this far, and thus the desire for a benchmark. I mean, how do I know it's not variance for me? If poker requires 100,000 hands in order to deem it is skill and not short term variance (and even with the speed of online poker, 100,000 hands requires a significant length of time) then how much more so for trading? The fact not one person has managed to give a solid formula to measure success makes me question if any person might have it as part of their trading plan.

 

[themickey]

.....The fact not one person has managed to give a solid formula to measure success makes me question if any person might have it as part of their trading plan.

Here's the formula: After all costs including your labour at market rates, is you bank account accumulating sufficient dollars to live a comfortable lifestyle.

 

[Bugsy]

Here's the formula: After all costs including your labour at market rates, is you bank account accumulating sufficient dollars to live a comfortable lifestyle.

That's not a formula. That could work one year. Fail the next 2. Work the next 3. Fail the next 3. Could a person build a career on those results? A formula measures success against criteria.

Value and growth investors utilize financial history (balance sheets, income, cash flow) utilizing formulas to measure intrinsic value for future success because the formula has a high probability of returning consistant sustainable results over the average of time. Same with poker players. Same with businesses across industry. There are verifiable and measurable ways consistant with high probability of success.

When does one conclude it is skill and not sheer variance. What is the formula. How many trades over how long a time period with what percentage profitability? Sports betting has 55% to 70% profitability over X number of bets. Poker 5BB for every 100 hands over 100,000 hands to ensure it is skill and not variance. Just because it has not been mentioned, or has not manifested, does not mean it cannot be. It just means it has not yet been quantified.

Actually, in typing this reply I'd almost think sports betting may be the closest formula. They use signals and models and choose based on the most likely outcome. They deem 3000 sports bets, with 52.38% (to overcome the juice) profitability, the minimum needed to consider it skill vs sheer variance. However, with sports betting you win 1X your amount or Lose 1X your amount and pay juice on the bet (akin to moneymaker spreads). In trading you may risk 1% to win 1% to 2% or more depending on your strategy.

I would say it is fair to count an entry as one trade and an exit as a different trade. Both require skill in and of themselves, even if it's a stop out, because correctly setting your stop is just as important. If a person traded 2 round trip trades a day (4 trades total) whether in the same stock or multiple, 5 days a week that would equate to roughly 1,000 a year. So roughly 3 years of trading 2 stocks a day with a profitability of

X = Final Value
W = Expenses (taxes, spread, commissions, margin interest etc)
Y = Win Profit
Z = Loss Profit

Y - Z - W = +X after 3,000 trades (minimum) verifies skill and not luck

This is a rough formula and I suck at math so I may have written it wrong or there may be a more appropriate way of stating it. Obviously there are many who trade far more frequently, but the formula would still hold the same.

 

[deaddog]

There is a method to calculate expectancy for your set-ups.

It doesn't give you a benchmark but lets you know if the set-up has a positive expectancy.

As a benchmark you may want to use a number that you can achieve with the same effort you put into trading.

 

[themickey]

I doubt there is any formula which would be meaningful unless the trading was purely robotic high frequency type.
My experience, trading has a high discretionary factor, we take some trades, we leave others.
Then over the years our trading style is continually changing. That's one reason why backtesting is nearly useless. I doubt any traders trade a consistent method for years.
After +30 years of trading, my styles and algos continually are changing, how I trade today in reality is about 180 degrees removed from 3 years ago. How I trade today, I never dreamed in my wildest dreams 3 years ago, like chalk and cheese.
We can theorize about all sorts, to me I measure success by the rate of profits, am I accumulating money faster or slower.
Then another factor is the market, is it allowing us to trade. Some weeks or months trading might dry up due to market conditions.

 

[deaddog]

I doubt there is any formula which would be meaningful unless the trading was purely robotic high frequency type.
My experience, trading has a high discretionary factor, we take some trades, we leave others.
Then over the years our trading style is continually changing. That's one reason why backtesting is nearly useless. I doubt any traders trade a consistent method for years.
After +30 years of trading, my styles and algos continually are changing, how I trade today in reality is about 180 degrees removed from 3 years ago. How I trade today, I never dreamed in my wildest dreams 3 years ago, like chalk and cheese.
We can theorize about all sorts, to me I measure success by the rate of profits, am I accumulating money faster or slower.
Then another factor is the market, is it allowing us to trade. Some weeks or months trading might dry up due to market conditions.

That's all very nice but doesn't answer the question "How do you determine if you are successful"?

 

[themickey]

That's all very nice but doesn't answer the question "How do you determine if you are successful"?

Do I really need to do this?

 

[tiddlywinks]

I do believe there is some win percentage and profitability percentage that could measure it rather than the need to make a continually scaling advance to greater heights

There is no "threshold". There is no "win" or "profitability" percentage for being deemed "professional" or even successful. There are metrics however, like drawdown, beta, MFE/MAE, and others than can be used to quantify how much of a cowboy/risktaker the trader is.

Trading is NOT poker, where no matter how many decks are used, how many players, or how much a player bets, there are FINITE and DETERMINABLE outcomes for the next card, and the entire hand. When a card is dealt, it can not be un-dealt. If you have a pair of Jacks, it exists for as long the pair remains in your hand. You have a pair of Jacks at minimum.

In trading, using the card metaphor, the card CAN BE un-dealt, meaning ANY beneficial or adverse outcome or effects of the last trade price (which occur timed in milliseconds) can completely reverse the previous outcome or effects of the last card dealt, thereby un-dealing the previous, AND simultaneously introducing a new set of market dynamics (fresh decks). Meanwhile, in poker, you still hold the pair of jacks even though a new card has been dealt.

a person could still make a living in poker at a set limit without needing to scale up and be considered a professional because they make a living at it. Same for daytrading. A person could never keep more than $30,000, and risking no more than 1% of their bankroll still make a living.

Who is to say what is successful? Some people like hard rock music, some people like country, some people like both. If someone is happy trading or playing poker or whatever, making 60K a year (which is near the US average annual wage working in a "normal" profession), that is no better or different from someone who is happy making 100K every week or every day. Your definition of success is no better and no worse than anyone else's definition of success. There is no one-size formula for "success". In fact, many people would not, and do not even include money as a measure of success!!!

I want to live in a rural area. You?

That's all very nice but doesn't answer the question "How do you determine if you are successful"?

themickey DID answer the question!

Here's the formula: After all costs including your labour at market rates, is you bank account accumulating sufficient dollars to live a comfortable lifestyle.