Who is more profitable?

[ironchef]

Since I like numbers, let's take a closer look.

1) Buy and hold so far this year using e-mini S&P 500 futures which trades at $50 per point. Let's assume a $15K account (maintenance margin at CME is $ 11.200).

Long the Open on the 3rd of January at 3881,00. Using today's closing price of 4399,75, that's a net gain of 4399,75 - 3881,00 = 518,75 points x 50 = $ 25 937,50. Excluding costs.

In % = (25 937,50 - 15 000) / 15 000 = 73 %.

2) Day trading

If we sum up the daily RTH ranges so far this year that comes out at 7333,75 points with an average RTH range of 46 points over 159 trading days.

That's a multiple of 7333,75 / 518,75 = 14. So, the sum of the daily ranges exceed the net trend by a factor of 14. Clearly, there's a lot more points on offer.

There's been some claims about extracting 2-3 x the daily range, but let's not be that ambitious.

Let's say you can capture half the daily range consistently.

That's an average daily gain of 23 points / $1150 per contract.

Without compounding - that's a gain of $1150 x 159 = $182 850. I won't do the math, but clearly hugely more profitable than buy and hold.

With compounding (let's assume $15 000 per contract and add one contract per each new $15 000 in your account, but stop at 100 contracts). Initially, progress is modest, but eventually snowballs due to the compounding effect:


View attachment 321500


By the end of day 159 you have $11 740 400 in your account.

Hell, even a modest 5 points per day consistently will take you far.

View attachment 321501


Now, this is of course all theoretical and idealized which is the reason I asked if the question was which is most profitable in theory or in practice.

In practice, I'm sure buy and hold is more profitable for 99 % of would-be traders as most would-be traders would end the year with a net loss.

It also shows clearly that anyone who have any kind of edge in the market would be wise to monetize that, instead of teaching (selling courses) or otherwise being a vendor (selling indicators, systems, etc.).

The obvious answer is you can have the cake and eat it too:

Do both.

 

[Goldlover]

Who is profitable is always happy.
Who is happy is not always profitable.

When you're feeling happy, your focus improves and you can make better decisions that lead to profits.

 

[Laissez Faire]

Until last year happens.

Correct. Last year was a net loss both for buy and hold and for 99 % of would-be day traders.

However, since buy and hold typically is un-leveraged it probably was not a realized loss for long term holders of equities.

 

[Laissez Faire]

The obvious answer is you can have the cake and eat it too:

Do both.

I think the obvious answer is that if you don't have a reason to expect making profits as a short term trader, then don't. And invest instead.

Losing money in the markets is a choice as you can always choose to not trade.

 

[Overnight]

...

However, since buy and hold typically is un-leveraged it probably was not a realized loss for long term holders of equities.

It also wasn't a gain, either, for some assholes like me who bought the Q at ~370 in Q3 2021 and am STILL underwater AS OF TODAY, NEARLY TWO YEARS LATER.

 

[Laissez Faire]

It also wasn't a gain, either, for some assholes like me who bought the Q at ~370 in Q3 2021 and am STILL underwater AS OF TODAY, NEARLY TWO YEARS LATER.

Sorry for your loss, but if you're investing and feeling bad about being underwater within a 2 year period I think maybe your time horizon is too short for an investor. If you're able to hold I'm sure you'll be fine.

 

[ironchef]

Losing money in the markets is a choice as you can always choose to not trade.

Only for some retails.

For many of us, me included, typically we started off doing day trades because it looks like easy money.

Some turn into swing trades since we don't want to let go of losers.

Finally they become long term holds. We are stuck with those losers.

 

[ironchef]

It also wasn't a gain, either, for some assholes like me who bought the Q at ~370 in Q3 2021 and am STILL underwater AS OF TODAY, NEARLY TWO YEARS LATER.

Two years is a short time for buy and hold.

I bought some of my MSFT back in 2000 @ ~$60, it took till 2016 to finally breakeven.

 

[DevBru]

Two years is a short time for buy and hold.

I bought some of my MSFT back in 2000 @ ~$60, it took till 2016 to finally breakeven.

Exactly, i made my first major buy and hold investment in augustus of 2012 and have been holding ever since, every major dip i have been adding, can't complain.

I also do some day trading but i am not matching those returns.

 

[ironchef]

Exactly, i made my first major buy and hold investment in augustus of 2012 and have been holding ever since, every major dip i have been adding, can't complain.

I also do some day trading but i am not matching those returns.

Yes, it takes a lot of convictions to just hang on through thick and thin.

I started trading full time in 2010, first day trading but never made any money. Later, switched to options, quite happy with the results.