Can you make money day trading? 'The short answer is no,' says portfolio manager: Here's why

"If you happen to buy at the wrong hour, you could lose a substantial amount of money really quickly."

Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE) at the opening bell on October 3, 2019 in New York City.
Drew Angerer | Getty Images

Interested in making some quick money trading in and out of stocks? You're not alone. A combination of pandemic boredom, an uptick in disposable income for some, and a red-hot market have led to a sudden surge of interest in day trading.

Google searches for "day trading" – generally defined as buying and selling shares of one or more stocks over the course of a single day in the market – jumped to all-time highs in 2020, and again earlier this year. Meanwhile, several online brokerages have reported spikes in investor activity.

The million-dollar question for aspiring day traders: Will I actually make money?

"I hate to be a spoilsport, but the short answer is no," says Raife Giovinazzo, a partner and portfolio manager at Fuller & Thaler, an asset management firm that invests based on behavioral finance principles. "Most people won't make money day trading."

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Decades of research back him up. Study after study, examining investors all over the world, has come to the same conclusion: Most day traders lose money.

The fact that a new generation of investors is taking a crack at market speculation isn't surprising, though. As Giovinazzo explains, day traders are often sucked in by the same set of unconscious biases. Read on for the psychological reasons you're interested in day trading, and why it's smart to tread carefully if you pick it up as a hobby.

'People are more likely to share good news'

Timing the stock market is basically impossible, even for pros. Nevertheless, Giovinazzo says, amateurs are willing to try it because they're being influenced by three psychological phenomena:

  1. Selective disclosure. Your social media timeline may be filled with traders boasting of huge returns or posting screenshots of their gains. That doesn't mean that these people never post losses or that there aren't even more folks out there losing money, though: "People are more likely to share good news, stories that make themselves seem smart," he says. "If you have a friend who lost money day trading, you'll probably never hear about it."
  2. Availability bias. "We judge the frequency of events by how available they are," says Giovinazzo. "It's very memorable when someone says, 'I made 10x on a trade,' even though it might be one in a hundred people who have that experience." Because stories of day-trading success loom larger in your mind, in other words, you might tend to think they're more common than they actually are.
  3. Recency effect. People tend to prioritize data and information that they've gotten more recently — and recently, the market has been booming: The S&P 500 has returned more than 38% in the last 12 months. "If you've been paying attention over the past year, the market has gone up, and that more recent data is going to loom large," Giovinazzo says. "The long-run history is not nearly as positive."

Day trading is 'harder than it looks'

Investors, especially younger ones, finding the stock market alluring is positive news says Karen Wallace, director of investor education at Morningstar. "It seems to have excited people's passions, or at least piqued their interest about investing," she says. "It's a good thing that people are more interested in investing."

However, "investing" is the key word. For young people, the real money to be made will come not from short-term gains, but from harnessing the long-term power of compounding interest. "Time arbitrage is what's on young investors' side," Wallace says. "If you have a diversified portfolio and an appropriate asset allocation, you're set up for decades. That doesn't mean that day trading is something you can't learn about. It can be a great hobby."

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Investors looking to day trade as a hobby need to understand the risks and potential impacts, says Charles Rotblut, vice president of the American Association of Individual Investors. "It's important to look at your volatility on a daily basis and understand that if you happen to buy at the wrong hour, you could lose a substantial amount of money really quickly," he says. "It's much harder than it looks."

"A good analogy is sports betting," he adds. "You're stepping into a competition with skilled professionals with access to much more information than you have."

As is the case with sports betting, don't risk more money on day trading than you're willing to lose. "Treat it like you're walking into a casino," Rotblut says. "If you lose every penny, this shouldn't financially hurt you or keep you from reaching your goals. And don't confuse luck with skill. Your profits are likely a result of luck. Treat them accordingly."

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