Almost 80% of Private Day Traders Lose Money
I re-read Michael Lewis&#x27; Liar&#x27;s Poker once every few years.  In new reprints he&#x27;s added a prologue where he says something along the lines of &quot;I tried to write a book about the horrors of wall street and instead it became a recruiting tool for wall street&quot;<p>In a similar vein whenever something like this comes up I write something that says don&#x27;t try and do this and inevitable I get 10+ emails from people saying &quot;Ok I understand but I still want to do it anyway.&quot;<p>So if you really want to try and day trade, here is my 5 points of advice<p>1) You haven&#x27;t done anything until you trade with real money.  Ever played poker with friends that wasn&#x27;t for money?  You always get some jerk bluffing and going all in on Ace-7 because why not, it doesn&#x27;t matter.<p>If you want to trade you need to learn your own emotional limits.  Get invested as soon as possible.  Learn what kind of stress you can deal with.<p>2) The average successful individual algo trade looks like John Turturro charter Joey Knish in rounders.  You are always grinding out a living $100 to $1000 at a time.  If that isn&#x27;t&#x27; appealing then stop before you start.<p><pre><code>  http:&#x2F;&#x2F;www.imdb.com&#x2F;title&#x2F;tt0128442&#x2F;fullcredits&#x2F;
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3) You need money to begin.  It takes as much effort to trade 2000 as it does 200,000.  Above a million or so things change.  A minimum amount I&#x27;d use would be 50,000.  If you can&#x27;t set that aside to trade then don&#x27;t start.<p>I mean if you have a great year trading 5,000 and make 20%  you have made $1,000.  That&#x27;s not worth the effort.  But at say 100,000 your 20% is starting to be real money!!<p>Be clear to yourself that you are doing this for the money. Any other reason just gives you an easy out.<p>4) The most important number to look at is draw down, not sharp ratio.  I see lost of people on quantopian show great backtested algos that return 200% over 5 years, but have a 70% draw down at one point.<p>Most people don&#x27;t have the psychology to loose money.  At 10% down you start to question yourself.  At 20% down you get really grumpy in all aspects of your life.  Most people don&#x27;t have the ability to let their positions fall to 30% down.  If your backtest has a draw down of more than 30% you don&#x27;t have a workable algo.....period.<p>Sharpe ratio is great if you are an HFT firm trying to decide how to divvy up your money across 30 successful algos.  You don&#x27;t have 30 successful aglo&#x27;s.  You will be lucky to have one.<p>5) Don&#x27;t use leverage....... you can break the other rules, this one you can&#x27;t.  I&#x27;ve seen people go bankrupt.  Don&#x27;t use leverage.