Comparing Stock Market Strategies

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comparing aggressive trading strategies to buy and hold of a quality index fund

the short term trader will owe up to 37% on Federal capital gains tax obligations and possibly quite a bit more to the State (depending on the State)

the long term capital gains Federal tax rate is capped at 20%

if a trader has a down year and loses for example $100K in one year, there is more bad news - he can declare a loss of only $3,000 - that is the maximum

if part of the reason a long term trader is investing is to pass along wealth to his his heirs he will have incurred ZERO in capital gains tax obligations as heirs do not have a capital gains tax obligation on what they inherit - they are taxed at what is known as "stepped up basis." They are only taxed on gains made after the inheritance is pocketed.

from the first link - "around 95% of day traders lose money. Only about 1% of day traders are consistently profitable"

"Studies consistently show that only a tiny fraction of day traders are profitable in the long run."


the 2nd link is from the Berkeley School of Finance and it analyzes the investment performance of individual investors and is titled "Trading is Hazardous to your Health"

it is referring to all short term traders - not just day traders

from the article:

"of 66.645 household accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4% while the market returns 17.9%"


https://www.daytrading.com/beat-stock-market#:~:text=Performance%20of%20Day%20Traders&text=Studies%20consistently%20show%20that%20only,day%20traders%20are%20consistently%20profitable.


https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf

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It's 2025. I'm unsure how relevant articles and studies from 1991-1996 and a paper written in 2000 are today.
Taxes and fees have changed tremendously in the last quarter century.

From 1991 to 1996, active traders got hit with fees every time they bought or sold, and the market was an entirely different animal. 1994 for example, I was paying $50 plus every time I bought or sold shares in Marvel Comics. If I bought 100 shares for $17, I'd pay $50 to buy them and another $50 to sell it. If I bought at $17, and sold at $18, I'd have made zero. Today, those fees are gone, and the same transaction would result in $100 profit.

Quote: billryan

From 1991 to 1996, active traders got hit with fees every time they bought or sold, and the market was an entirely different animal. 1994 for example, I was paying $50 plus every time I bought or sold shares in Marvel Comics. If I bought 100 shares for $17, I'd pay $50 to buy them and another $50 to sell it. If I bought at $17, and sold at $18, I'd have made zero. Today, those fees are gone, and the same transaction would result in $100 profit.
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that's a good point
but my link referred to a large discount broker
discount brokers weren't charging that much or nearly that much
also, you are referring to a very small trade of $1700
many, probably most, would be involved in a trade much larger than that which means the % they had to pay would be a much lesser amount
and most discount brokers charged a flat fee for the trade no matter how large it was

from the link re the 90s - "Charles Schwab charged $25 for a trade placed through a broker and $5 for a trade placed by automated phone"

"Charles Schwab charged $0.65 per contract for options trades"


https://www.google.com/search?q=what+did+charles+schwab+charge+for+a+trade+in+the+90s&oq=what+did+charles+schwab+charge+for+a+trade+in+the+90s&aqs=chrome..69i57j33i160l4.13728j0j7&sourceid=chrome&ie=UTF-8

Quote: billryan

It's 2025. I'm unsure how relevant articles and studies from 1991-1996 and a paper written in 2000 are today.
Taxes and fees have changed tremendously in the last quarter century.
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you seem to be implying that since time has passed short term investors have become more profitable
there is no proof of that at all - it is an unfounded assumption
and capital gains taxes have not changed since 1985

also, the link on day trading was published in 2024

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I assume one reason traders lose money is either because undercapitalized maxed out and incapable of holding longer than that day, or because simply jittery, they sell at a loss.

I've almost never (seriously a limit approaching 0) lost money on a trade simply by holding until the stock comes back. Sometimes I might need to average in, but that just accelerates the recovery period - in all cases the original target price is surpassed. The very few times I have lost money on a trade were because I was unwilling to wait it out. A week may be an eternity in this market.

The way I trade, I trade additional shares of stocks I already hold long term. So, I could just buy more shares and hold them and not trade, I suppose I might (might) make even more money that way, but not have as much fun.

Quote: MDawg

I assume one reason traders lose money is either because undercapitalized maxed out and incapable of holding longer than that day, or because simply jittery, they sell at a loss.

I've almost never (seriously a limit approaching 0) lost money on a trade simply by holding until the stock comes back. A week can be an eternity in this market.
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I believe that based on your thread, although I haven't followed it closely, that you are a superior trader
my thread is aimed more at the middle of the road
I would never claim that a great trader shouldn't trade aggressively
I would only claim that only a very small % are truly great
and that a great many may overestimate their abilities just as a new card counter wrongly thinks he can easily beat the game of blackjack
I might take issue with your "holding until the stock comes back" - some stocks may never come back - but if you're only trading high quality that may not be an issue

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I do agree that most traders lose money, especially options traders.

I have heard the 90% of day traders lose money figure, and it may be true. Or it might apply more to those still in a learning curve? I don't know.

Another reason why a lot of traders lose money might be - unrealistic goals. The vast majority of my trades, I could have made more money. This means that the target sell price is easily achievable and realistic. While sure it does mean that I made less than I could on most of my trades, it also eliminates those trades where I would have gotten stuck by being too greedy.

I have a similar theory about why a lot of high rollers get blown out again and again - unrealistic goals given their bankrolls and max bet.

Day trading is around ten percent of the daily market. If 90% of them lose money, it simply makes it easier for the 90% who don't engage in day trading.
I made under 100 trades last year, and fifteen of those were changing brokers and priorities. I had a great year and couldn't care less if I beat some made-up standard.

Quote: billryan

I had a great year and couldn't care less if I beat some made-up standard.

what you call a great year - I am assuming not beating the "made-up standard" - (the standard most go by is the S&P 500 index) a great many would not call that a great year - I believe in earlier posts you stated that you didn't beat it - if I'm wrong about that I apologize but I don't think I am

you pat yourself on the back for doing great when in reality you didn't do great

if you want to say you did okay but more importantly you really enjoyed it and had a lot more fun than a buy and hold guy - then okay - I can accept that

Quote: billryan

Day trading is around ten percent of the daily market. If 90% of them lose money, it simply makes it easier for the 90% who don't engage in day trading.

day traders losing money doesn't make it any easier for other traders to make money - I wonder how you came up with that one - I can't imagine

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For every trade, there is a winner and a loser. When a day trader loses, someone else wins.

I have a target. If I reach or exceed that target, it's a great year. What you do, what my neighbor does, what the rest of the market does, is irrelevant. You disagree, but I don't care.

If Derek Jeter goes 4-4 with 3 runs scored, he had a great game. If ARod hits 3 HRs and drives in 10, did Jeter still have a great day?
You keep telling me how wrong I am, yet each year, I end up ahead of my projections. Perhaps we are both right.

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i played varsity college ball my soph year (small college) and averaged 8 p.p.g. -
I guess I could say that I had a goal of averaging just 5 p.p.g. and that I had a really great year______________________(-:/

nuff said - by me anyway - feel free to get the last word

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Quote: billryan

From 1991 to 1996, active traders got hit with fees every time they bought or sold, and the market was an entirely different animal. 1994 for example, I was paying $50 plus every time I bought or sold shares in Marvel Comics. If I bought 100 shares for $17, I'd pay $50 to buy them and another $50 to sell it. If I bought at $17, and sold at $18, I'd have made zero. Today, those fees are gone, and the same transaction would result in $100 profit.
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The discount brokers may not charge you upfront fees but you pay in other ways.

My largest equity lost 1.6 % percent last year. Luckily, the loss was slightly offset by its 34% dividend.

My goal is to LAG the S & P 500! I’m not making that up. And I’m not plain stupid. Let’s say I have 80% of my portfolio in stocks that mimic the S & P 500, and 20% in that 5% money market account. If the S & P goes up 20%, I expect to go up 17%. (Conversely, I expect to outperform the S & P 500 if it goes down).

Quote: billryan

For every trade, there is a winner and a loser. When a day trader loses, someone else wins.

I have a target. If I reach or exceed that target, it's a great year. What you do, what my neighbor does, what the rest of the market does, is irrelevant. You disagree, but I don't care.
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One small detail- "how everyone else did" is related to inflation of the money supply. Inflation is a number and everyone is swimming upstream against that number in any kind of investing. Thus I consider overall market performance to be a metric of what I need to do for my profits to retain their value, rather than just a number of dollars or a percentage of bankroll.

I consider inflation to be built in at 30% a decade. I try not to waste much on things I can't control.

Quote: MDawg

I do agree that most traders lose money, especially options traders.

I have heard the 90% of day traders lose money figure, and it may be true. Or it might apply more to those still in a learning curve? I don't know.
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I can't find a primary source for that number. Many secondary sources cite a Brazillian study from 2020 but it doesn't come up when you search for it specifically. I suspect the statement is made-up or a distortion of some piece of research.

I would expect the majority of day traders to lose after vig. Common sense would dictate that there can only be a certain number of positive expectation opportunities in a mostly efficient market or it wouldn't be efficient. Moreover making a large volume of bets means that your edge on each would be small leading to extreme volatility.