Day trading stocks and technical analysis is a scam. The people who make money from it are the fake gurus who sell programs that do not actually work.
Technical analysis and day trading scams / frauds rely upon misattribution - where a profitable trade is attributed to an indicator or pattern instead of expected probability.
This article will tell you everything you need to know about why day trading is a scam (and what you should do instead).
5 Main Points: Why Day Trading Is a Scam
- Day trading / technical analysis is gambling: intraday prices are random (no chart pattern statistically predicts future price movements)
- Every retail day trader, penny stock expert and forex trader who claims to be profitable is probably a fraud who relies upon marketing tricks (visit TradingSchools.org for reviews)
- Trading commissions, slippage & fees will be expensive when day trading because brokers expect you to lose money quickly
- The stress of day trading equities & sitting in front of a computer is detrimental to your health
- Selling option premium is, by far, your best options trading strategy because the probability of profit is on your side.
Humans look for patterns that are oftentimes not there. According to my former Cornell University professor, Tom Gilovich (one of the world's experts on patterns and cognitive biases):
I don’t like to call something a scam; it invites people to attack me, call me stupid & point to superstar day traders who (they claim) earn millions a year (yet these traders, conveniently, never post their full trading statements from legitimate brokers) - or they get fined by the FTC for misleading marketing, or they front-run their followers.
But let me be clear...I would never recommend that anyone becomes a day trader, or that they trade penny stocks or forex.
I think that all of the day traders, penny stock traders, and forex traders who claim to make money are frauds who rely upon psychological manipulation and clever marketing (fake reviews, television interviews, fake social proof, affiliate programs, pump and dump etc.)
Remember, there is no easy money! In most instances, making, and keeping, money requires skills and good habits.
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My Personal Experience as a Day Trader
I used to day trade. I remember feeling very good when I’d have a good day, like a temporary euphoria – similar to the feeling of when I win a poker game.
Overall, I lost a lot more than I won while day trading. Normally, I don’t mind losing, as long as I feel that I'm improving and getting better.
But I didn’t feel like I was learning or improving while day trading. Back in 2008, I would research and cycle through technical analysis indicators; I'd have a profitable trade with one of them and then I'd think that I found the “holy grail”.
But when I tried this indicator again...it failed. No indicator stood the test of time and was consistently profitable.
Whenever I day traded, I always felt like I was trying to explain why a stock didn't move in the direction I predicted - I blamed myself for "missing something", yet I soon realized that trying to guess future price movements is impossible.
Even if I made money on a trade, it became clear that it was just luck. I never received confirmation from the market that any day trading, penny stock or forex strategy was consistently profitable.
Day trading is like being blindfolded on a roller coaster and believing I could predict the roller coaster's movement.
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I’m sure that some of you are reading this and thinking, “Yeah! Your strategy probably sucked, but mine is better!”
And to those people, I’d say, “I doubt it. With enough trades, you will lose money.” Also, per the research studies (which indicate that 99.8% of day traders lose money), there is no learning component to day trading - so that $5,000 course will not teach you how to be profitable.
A lot of my members have lost money with day trading, technical analysis and penny stocks too (actually, I've NEVER met a profitable retail day trader of stocks).
If you ever have an opportunity to peel back the layers and review the results of many day traders (or ask them to login live and show you their account’s trading history / filled trades), it’s likely that almost all of them lose money.
And… the reason isn’t that they’re dumb, rather the reason is just that it’s virtually impossible for retail traders to make consistent money by day trading, trading penny stocks or trading forex (the expected outcome of every day trade is negative).
The ONLY way I know to be profitable day trading is below:
Whenever I day traded, I never felt comfortable that any indicator or pattern was reliably profitable. Even if I made money on the trade, it could have just been luck.
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Day Traders Pay High Commissions & Slippage
Currently, my trading commissions & fees are about .1% of my account size – yes, 1/10 of 1%!
I’m good at managing my expenses. The main reason is that ~95% of my trades expire worthless or are closed out for 10 cents or less (I pay no closing fees due to E*Trade Dime Buyback Program).
The other 5% of my trades I adjust until they expire or are closed. The majority of my yearly commissions are paid for trading the SPX with 0DTE and 1DTE trades.
When I was day trading equities, my fees would run around 8-9% of my account size; there’s no way to make money day trading when paying these fees.
I actually don’t think most day traders / penny stock traders would make money with ZERO commissions (due to bid / ask spread slippage) and also, humans simply don’t have the psychological makeup to be successful day traders (humans need to be more loss-seeking instead of having loss aversion, meaning they should aggressively close out their losing trades).
There’s virtually no way that day traders / penny stock traders can be successful by paying ~8% - 9% commissions. Brokerages charge high fees to penny stock and day traders because they know that most of these traders lose all their money.
Brokerages try to quickly capture the maximum amount from the trader’s account before the trader loses it all.
You can find out the best online brokerages on our blog.
Day Trading & Technical Analysis Strategies (or lack of strategy)
Day trading strategies oftentimes rely upon continuation of trends and trading breakouts.
But, to consistently make money in the stock market, I’ve found that being contrarian yields the highest profit potential - "Be fearful when others are greedy and greedy when others are fearful" - Warren Buffett.
For example, if the market falls ~5% in 2 - 3 days, and large companies like META / FB or Amazon fall 7% - 8% during that time, then your highest probability trade would be to sell puts and bet that META / FB and AMZN will not continue to fall.
Add in the fact that volatility would substantially increase while the market falls, and therefore the premium received for selling those puts would increase, and it’s no surprise that selling puts during periods of high volatility is one of our core principles at BestStockStrategy.com.
You can learn more about the Top 3 Stock Market Trading Strategies here
With day trading, many patterns will show that META and AMZN have broken through their support lines and that a downward continuation is likely.
While betting on the continuation of the downtrend will be profitable in some scenarios, statistically (with enough trades), it will not be profitable.
I don’t believe any technical analysis indicators are statistically significant, meaning that if you increase the number of trades / occurrences, these indicators will not prove to be reliably profitable.
Scientific Research About Day Trading
A study examined 360,000 day traders. It found that the average trader lost 15% a year.
The top 500 out of 360,000 made only 5% above simply holding the SPY index.
The study is available here: Day Trading Study
Basically, by holding SPY and selling an occasional covered call, you'll be more successful than close to 100% of day traders.
Negative Health Consequences of Day Trading
Day trading will not provide you with freedom or flexibility. Instead, you’ll be in front of a computer all day (oftentimes viewing multiple monitors) – and this very unhealthy.
And while a photo of you in a suit, staring at 2 - 3 computer monitors might look cool on Instagram or Facebook, people who’ve done it know how miserable it is and that you’re not being productive or effective.
There is an emotional toll of being a trader, and with day trading, it's worse because you have only a ~0.2% chance of not losing money while day trading (and those that make money earn less than minimum wage).
Summary
Maybe there are a few legitimate people who make millions day trading, just like there are a few fashion models who make millions every year – but most of the fashion models I know don’t make much money.
As I've said, I've never seen a successful retail day trader (institutional market makers are profitable by profiting from the bid / ask spread differential).
The ONLY successful day traders I know are institutional market makers. I’ve never met a successful penny stock trader – it’s shocking that Tim Sykes has been able to defraud people for 15+ years.
In my opinion, Tim Sykes is a fraud. Ross Cameron and Warrior Trading were sued by the FTC and paid a $3 million fine. Raging Bull was sued by the FTC too.
Sorry for being so blunt. I’m sure that there are things I’ve written in this article that have offended some people or made you angry. If so, I apologize – that’s not my intention at all.
My intention is to share my experience to help others and prevent them from losing money while trading. You have every right to make up your own mind and draw your own conclusion.
If you are a successful day trader, penny stock trader or forex trader, please share your full trading statements with me from a legitimate brokerage!
To be successful selling options, you don’t have to be special. You can be average; and as long as you don’t get greedy or trade too many contracts, you will consistently make money (you also need to hedge and aggressively close out your losing trades).
So while I’m sure there are a lot of brilliant day traders out there who think they have a proprietary system that works, the facts are that day traders, statistically, will almost always fail because it’s gambling and not investing.
What To Do Instead Of Day Trading
Retail day traders of stocks and equities do not have the odds in their favor.
Day trading is like paying money to bet on the outcome of a coin flip.
The next time someone tells you that they’re a day trader, look them in the eye and say, “I’m sorry to hear that. Selling options is consistently profitable, but with day trading, you will lose all your money.”
Selling option premium is the absolute best way to consistently make money. When I make money now, I don’t get happy because I expect to win.
Most day traders rely on technical analysis, charts and patters. I barely ever use charts. The only time I’ll use them is to review a stock’s trading range over the past 6 - 12 months.
For example, if Meta is currently trading at $280, I’ll look at where the stock has traded over the past 6 – 12 months. That’s the extent of my chart usage.
Once I know the trading range, I’ll then decide what price META has to fall to for me to sell a put option, then I’ll select my strike price and decide how much premium I would accept to open the trade.
Why My Strategy Is The Best
I make it very easy. I don’t overwhelm you with unnecessary information or talk down to you. I can teach you everything in 4-6 weeks.
My goal is for you to learn a skill as quickly and easily as possible so that you feel comfortable using this skill for the rest of your life to create the lifestyle that you desire.
Plus, the results speak for themselves. Review our YouTube videos that show the exact trades that we send to our subscribers:
Frequently Asked Questions (FAQs)
Is day trading worth it?
No, virtually 100% of retail day traders of stocks lose money. This is scientific fact. If you don't believe me, then I encourage you to try it and learn from experience.
Is day trading legit?
It's legit for the day trading fake gurus who front-run their followers - their biggest problem is avoiding Government lawsuits.
Day trading ruined my life?
Yes, that is common since I've never met a profitable retail day trader of equities who is consistently profitable.
Who is the richest day trader?
Virtually all retail day traders lose money.
Do investment banks day trade?
Investment banks make money as market makers, or transactional traders, they profit from the bid - ask spread differential and by making markets. These are riskless trades.
Retail traders are not market makers and therefore assume substantial risk when day trading.
Can you really make money by day trading?
Can you make money by day trading? Yes.
Will you? No.
Just like, can you make money by playing the lottery? Yes.
Will you? No.
Why do most day traders fail?
Day trading is at best, a 50 / 50 statistical probability (it's actually less when commissions and slippage are factored in).
When losing, you need to win MORE than you lose in order to get back to even.
As a result, from a statistical probability standpoint, day traders have a negative expected edge.
