Paul Farrell observes that 95% of traders don’t make it. 80% of all day traders lose money. One study found active investors turn over their portfolios excessively (258% annually) but made less than 12% on their money. Passive buy-and-hold investors with only 2% portfolio turnover had significantly better returns.
And, most day traders suffer negative health consequences from their hyper active market moves.
To find out what your trading instincts mean — to grade your own Traders Psychological Profile — answer the following questions Yes or N:
Traders Psychological Profile
Y N You’ve tried more than one new investment strategy this year
Y N Feel you’re buying and selling funds at the wrong time
Y N Rarely open up to anybody for feedback about your losses
Y N Subscribe to two or more newsletters, feel overwhelmed
Y N Can count on one hand all the good laughs this week
Y N Have a lingering resentment about someone or something
Y N You love cable news, but need more time to trade
Y N Rarely break a sweat when exercising the past few weeks
Y N Wonder whether you bet too much on recent investments
Y N Need more than three caffeine and alcohol drinks a day
Y N Feel “something” keeps you from making more money
Y N Frequently don’t trust your instincts or your strategy
Y N You’ve had a major family or personal loss recently
Y N Believe losses are caused by the market manipulators
Y N You’re overweight and snack often on comfort food
Y N Fear your future trades may fail due to a losing streak
Y N Diet and sleep are disturbed by worries about money
Y N Your retirement portfolio’s not growing fast enough
Y N No vacation in a year, and lack an active social life
Y N Nothing (or everything) interferes with making money
Add up the number of Yes answers. Farrell notes that if your total number of “yes” answers is six or more, then day trading is too stressful and risky for you.
The alternative to active trading is intelligent asset allocation. At the very least, he advises that you segregate your “untouchable” retirement money . . .
Stress test for traders: Do you need a new job?
Paul B. Farrell
MarketWatch, June 14, 2012