The above chart is actually from the Wall Street Journal today, and shows “the average daily daily returns on shares owned by individuals ($2.54 billion), which is the average daily daily performance. It looks at the performance in the 12-month period ended in December 2013.”
The chart shows that day traders (i.e., individuals who own and trade stocks at least five days a week) have fared well over the last three years with profits averaging $35,542.51 over that time period. Even though the average daily return for the last three years was 3.05%, it pales in comparison to the performance of day traders on average.
A few things to note that makes this look good for day traders, versus the performance of hedge funds:
Day traders have seen a huge increase in the volume of their trades. With their volume, day traders have seen annualized returns of about 15%. So, in a lot of ways, they have done better than hedge funds over time by paying for their stock positions in “street value”, i.e., at the stock price. Note that during this time period, a huge part of the performance of hedge funds was based on large short sales. Now, with the popularity of short selling and so-called “asymmetric returns” with some big gains over more stable long positions is one of the things that made these hedge funds work as well over the years as they did.
Day traders, despite their large gains over the last three years, have also been able to sell off their short positions for a lot less money than hedge funds. Hedge funds are paid a lot more money to go long. Day trading is also a bit different than the overall stock market in that trades are usually done in increments based on a moving average. However in day trading, you do have the option of going down or up in value (which makes day trading more speculative than hedge funds). This is a huge advantage in my book as they are trading their stock positions as if the market is going down and not going up.
In my book the main points that day traders would make are:
1.) They are less concerned about “pushing the market up,” and “pushing it down” to make a profit at the expense of the “market.”
2.) They believe in the power of momentum, and their own self-interest over the long term. They will generally “go long” when a rising stock price starts to pull back and