Is Day Trading Profitable? What percentage of Day Traders Make Money?

You’ve seen the stories: day traders who made quick profits off a few smart trades, leaving the nine-to-five behind and living free. Particularly around the Covid-19 pandemic, we saw “regular” people making massive sums trading in meme stocks like Gamestop and Bed, Bath and Beyond.

It’s a seductive proposition. 

But here’s the thing — while those success stories sound great, they’re mostly just that: stories. When you dig into the actual research, the reality is a lot different. The vast, overwhelming majority of day traders lose. They either lose early and quit, or keep trading despite their losses. 

As we’ll see, only 3% of day traders make a profit. And only 1% do so predictably. 

So, is day trading really profitable? And more importantly, what separates that 3% from everyone else? In this article, we’ll look closely at the research, and identify some of the factors that make day trading a losing prospect for most people. 

Let’s start with a quick definition.

What Is Day Trading? 

Day trading is the act of buying and selling the same security (any tradable financial asset) on the same day. Day trading can be both “institutional”—done by professionals at investment funds and banks—and “retail”—done by non-professional traders. 

Today, most retail day trading takes place via brokerage services. This tool ecosystem has democratized trading markets, making them available to the general public. 

The ability to trade quickly and easily creates a fairer market environment. But it also exposes people to new kinds of risks. Total newcomers can now become day traders in minutes, and many do so without knowing how to pick stocks or understanding the consequences. 

For many, the slim potential to make fast money outweighs the reality: it’s very hard to make money day trading. 

Can You Make Money Day Trading?

The short answer is yes. Some people do build a successful career and make a living out of day trading. But the vast majority don’t.

Those few Gamestop millionaires were massive outliers, propped up by a wave of enthusiasm and media attention. And many of them hit immediate hurdles when they tried to cash in. 

More than anything, they were lucky guesses. Colorado State University Associate Professor Hilla Skiba describes this form of trading as “pure speculation. There’s no way to think of this as anything else but a flip of a coin.” The vast majority of day traders worldwide bet wrong, and lose. 

What percentage of day traders make money?

For every splashy news story or social media meme, there are countless retail traders losing serious sums every day. 

The odds are firmly against you, and so is the research. A key study (we’ll refer to it as “Barber” [1] ) found that 97% of day traders are likely to lose money in futures trading. 

Remarkably, a second, unrelated study (“Chague” [2] ) found the exact same thing. It monitored nearly 20,000 day traders over a period of 300 days, and 97% of these day traders lost money.

What’s more, only 7% of this group actually persisted for the full time period—most gave up within 50 days.

Finally, a separate study from Barber et al [3] concluded that less than 1% of day traders can predictably and reliably earn meaningful returns, after fees. So despite the social media promises only of huge overnight gains, this is the reality for only one in every 100 people. 

Or as the Chague study concluded: it is “virtually impossible for individuals to day trade for a living.” 

Why Do Most Day Traders Fail?

The study found that 90% of all day trading volume is linked to traders with a losing history. Even when they removed people with less than 10 days’ experience, 74% of market volume came from unprofitable traders. 

The market is built on people who think they can make money this way, but end up losing out.

So why do so many day traders lose? Here are some of the key reasons. 

Most quit early

Given their very low success rate, it’s not surprising that many day traders don’t stick with it for long. In fact, Barber’s study found that only 15% of traders remain active after three years.

It’s an incredibly difficult, punishing way to make a living. And even as a side hustle, it’s not for the faint of heart. 

There’s a slight logic puzzle to day trading success. Barber found that “only the profitable and most experienced investors predictably earn future profits.” As we’ve seen, experience definitely helps. But you also need a past history of profitability to reliably see future profits.

We know that day traders are highly likely to lose. If you’re planning to make money day trading, you have to be prepared to lose along the way.

Cognitive bias leads them astray

Most people who get into day trading believe they’ll be better than average. Their natural intelligence or financial knowledge gives them some advantage. And given the success rates we’ve already seen, virtually all of these traders are wrong. 

Your early trades are likely to confirm or deny these beliefs. If you win early, you figure you must know what you’re doing and you keep trading. But if you lose early, you probably just got unlucky. 

According to Barber, biased trading means “successful traders become overconfident and unsuccessful traders are slow to realize that they have low ability and to curtail their trading.”

Profitable traders stand out because they refine their strategies based on data and market feedback. Most traders, however, persist despite losses due to overconfidence and cognitive biases, contributing to a market largely driven by unprofitable activity.

Most have limited experience

Time and experience in the day trading market seems to correlate with better results. Barber et al found that traders with more than 50 days of experience are more likely to show some profitability. 

Even so, the vast majority of experienced day traders still lose out. Only 9% of day traders with 400+ days of experience earn positive lifetime net returns.

To put this another way: you are very likely to lose as a day trader. But if you have the patience, the persistence, and most importantly, a strategy, you may be able to survive those early losses and succeed in the future.  

It’s too time consuming

Institutional traders have a clear advantage over retail traders: they’re paid to trade. Sure, they make more if they’re successful, but they (hopefully) make a living either way.

This is important, because day trading—when done well—is incredibly time consuming. Before you even start, you need to learn the world of brokerages, fees and taxes, and how your particular financial system works. 

But then you need to monitor the market essentially non-stop. You’re constantly looking for undervalued assets, which means an incredible amount of reading and data analysis. And as a retail investor, you’re competing against teams of people doing this around the clock. What’s more, the vast majority of trades are made by algorithms trading automatically. 

Most individuals just don’t have the time to compete with the pros.

How Emotions Impact Day Trading

We’ve mentioned cognitive bias above, but it’s important to delve deeper into the way that emotions fuel trading. 

In a perfect world, people would trade impassively—they would follow a data-driven strategy and not their own biases and beliefs. But this is rarely the case. 

Bias overrules rational decision making

Barber’s study found that many traders, even after experiencing persistent losses, continue to trade. This includes both unprofitable and profitable traders who remain attached to the market, despite negative feedback.

Researchers Mahani and Bernhardt [4] write that “inexperienced traders realize losses, conclude that they are unlikely to be skilled, and leave the markets; survivors expand their trades and make more profits.”

This makes sense and seems like a rational response. But many traders have a biased response and give more weight to their successes and less to their failures. 

Emotional attachment to trading often overrides logic. Whatever strong beliefs caused you to start trading in the first place are still there. Even in the face of consistent losses, previous biases make it harder for traders to quit or change their approach.

And biased trading seems to be far more prevalent than rational, as we’ll see next.

Traders don’t always learn from past performance

Another fascinating finding from Barber’s research is that profitable and unprofitable traders continue to trade at nearly the same rate. Unprofitable traders with 50+ days of experience have a 95.3% chance of returning to day trading within 12 months, compared to 96.4% for profitable traders.

This statistic helpfully removes those traders who don’t last 50 days. Many of those are merely testing the waters. Others lose everything quickly and are forced to stop trading—probably for the best.

But once traders have built a few months’ experience, they seem to build an emotional attachment to trading regardless of the financial outcomes. 

A rational person would probably stop after 50 days of unsuccessful trading. But clearly, most traders aren’t making purely rational decisions. 

Overconfidence reduces performance

Merely getting into day trading requires a high level of confidence. It’s the very definition of trying to “time the market”—believing you know exactly when a certain security will make a significant gain. And as expert after expert will tell you, timing the market is virtually impossible. 

Once in the market, overconfident traders also tend to make poor decisions and see reduced profits. They attempt larger trades than their portfolios can handle, and double down on losses without thinking through the consequences. 

And most traders give more weight to their few successes than to their many losses, causing them to believe they can still succeed. This cognitive bias explains why unsuccessful traders continue trading, fueled by the belief that they can turn things around, despite evidence to the contrary.

Some people trade for non-financial reasons

Day trading is often compared with gambling. And there are both “healthy” and “unhealthy” reasons why people gamble:

• For entertainment, excitement, or a challenge. All of which can be healthy if done responsibly. 
• For escapism, to chase losses, or for control. These are problematic, particularly for day traders who have very little control over their results. 

Some gamblers do so specifically to make money. But most compulsive gamblers have other social or psychological reasons, just like day traders. 

For example, a study by Grinblatt and Keloharju [5] found a clear connection between people who have speeding tickets and those who trade often. The same desire for sensations that makes people speed, causes some to make a high volume of risky day trades. 

As noted above, excitement, entertainment, and “the challenge” can all be healthy reasons to day trade. But it must be done responsibly, and you certainly need to understand your risks. 

Most importantly, consider why you want to trade before you get in too deep. If it’s just for fun, you should have no issues stopping when the fun runs out. 

FOMO leads to risky behavior

Another emotion-based reason to trade is “fear of missing out” (FOMO). People see those supposed meme stock wins and social media success stories, and are eager to be part of the action: 

“Don’t miss this once-in-a-generation wealth creation opportunity.” 

This is an emotional trigger that pretends to be financial. You race into the market because others are telling you there’s money to be made. But really you don’t want to look back and feel like you missed out. 

But trading out of FOMO isn’t a rational trading strategy. What worked for someone else may not work for you. In fact, it may not even work for them a second time. 

This can be compounded by broader stock market growth. The Barber study found that “strong recent market returns may lead to increased day trader entry because:

1. Investors are paying more attention to the market,
2. Investor overconfidence increases with strong market returns, and 
3. Investors may believe that strong market returns are indicative of strong day trading opportunities.

Your day trading strategy should be built on emotional discipline and a sound thesis, rather than a desperate attempt to keep up with the crowd. 

How to Maintain Emotional Discipline in Trading

Controlling your emotions is critical for long-term success. Numerous studies have shown a clear link between trading driven by emotions and poor performance in the market. 

A fascinating study by Lo et al [6] showed that “subjects whose emotional reactions to monetary gains and losses were more intense on both the positive and negative side exhibited significantly worse trading performance, implying a negative correlation between successful trading behavior and emotional reactivity.” And this was just one of many such studies. 

Profitable traders distinguish themselves by managing their emotions and avoiding FOMO, greed, and overconfidence. This leads to better decision making, particularly in volatile markets or as losses pile up.

A few simple rules:

1. Understand why you’re trading. If it’s for a bit of fun or a calculated and controlled risk, that may be fine. If it’s an uncontrollable urge or a desperate hunch, you may have a problem. 
2. Create rules and stick to them. For example, you could decide to set a maximum risk on any single trade as 1% of your total balance. You can also set stop-losses, which automatically sell your position if it dips too low—limiting your losses. 
3. Take breaks, particularly if you keep losing. If this feels hard, that’s confirmation that you’re trading for the wrong reasons. 

Day trading is fast, and often exciting. But the real risks come when you’re chasing that excitement and make spur-of-the-moment decisions. 

Day Trading Success Is Possible, But Rare

As we’ve now seen from several studies, a tiny minority of retail day traders make consistent, predictable returns. Even though you’ll see some brokerage apps claiming 30% or more of users making money, these are likely to be misleading numbers. 

Barber found that number to be just 3%, and it falls to 1% once you factor in fees. And Barber is just one of many studies that show this. 

To be one of the very few successful day traders, one must have a clear strategy, discipline, emotional control, and good risk management.

Finally, before you risk your hard-earned money, test your strategy in a paper trading simulator. These (often free) tools let you test your trading strategies in real market conditions without risking real money. They’re a great way to see what would happen—and how you would feel—by following a certain plan of action. 

Be smart, be sensible, and never exceed your limits.