The random character of day trading systems

One of the best growing sectors of the last ten years have been that of trading systems and its related services, thanks to the massive growth of the Internet around the World.  Many years ago the offer of trading systems was confined to the rich countries and to some investors and traders. The bulk of that market used to be in the United States.

People would trade options, futures and stocks and day trading was not as popular as it is today.

Random day trading

The majority of people did not have the means to do day trading in futures for instance.

All that changed with the advent of Internet, and the new market maker brokers, at a speed never seen before.

Now everybody have access to live trading data.

That facility made possible the appearance of forex market makers, and the growth of futures, stocks and day options activity.

There is no need to have big money any more if you want to do day trading. The improvements in trading conditions have been impressive, though directed in the wrong direction.

The majority of people are trying to do day trading, the secure way to go bankrupt.

Democratic day trading

Markets are now democratized. Hundreds of millions of traders have access to the markets and can be opening accounts with as little as $100.

Market makers of any type are delighted at the prospect of never ending day trading demand.

A great deal of day trading candidates, realize they have not got the time to do “proper” day trading. They are mesmerized by the astonishing amount of data pointing to the magic of day trading. Those traders end up looking for day trading “professionals” and system programmers that offer them the best returns.

Professionals say that you can make money while sleeping, as if it that easy.

“You can make €500 per day doing day trading”, are told many day trading candidates. It seems simple, but it is not. What is more, that is wishful thinking, product of the infantilized society we live in.

Randomness of trading

The intra-day moves in the markets are more erratic than people think they are.


It is true that you can find good day trading systems that work for a specific market, and for a specific period, even years. However, the dualistic forces of nature will make it impossible for those systems to work in the long run. What is more, the problem is that when those systems are performing the best, the likelihood of failure is bigger. That is why countless numbers of traders are attracted to very profitable systems at the worst moment: when they are about to collapse.

The day trading system that was making a 10% monthly for the last twenty months suddenly loses 90%.

The Internet is full of stories like that, in fact the same pattern is going on today with people copying or buying those types of “good” systems.

The cyclical character of markets

The markets are not lineal; nor have they followed an evolutionary path as some people think.

There is no day trading system that will provide us with the Holy Grail of trading.

I am not going to find the way of making 10 ticks or pips here and there, five times per day without a loss for the rest of my life. It unfortunately does not exist. The ones who do that are the market makers and/or brokers.

The traders will end ruined in that game of trying to find the “pattern” that moves the market every day.

If there is a “pattern”, it will be only a temporary one.

Random pattern trading

Let’s say that there are thousands of traders investigating the €$ cross. One hundred of them, for example, see that they get good results by applying the X indicator in the 5 minutes chart, by analyzing 10 years data.

Logically, those traders will start trading following that “pattern”. Some of them will even try to develop automated systems and sell them.

Those traders think that intra-day price fluctuations are more predictable than long-term ones, but nothing is further from the truth.

Just the opposite is correct.

Markets always “change”. The intra-day moves are nothing else than noise. The real move, the one a trader should be interested in is the long-term one.

When a pattern works in the short term, a lot of traders will join it and it will stop working over time.

What they gain “today”, is lost “tomorrow”.

Random trading system

A guy may find a system.

Then, more guys will discover that pattern as well.

Finally, thousands of traders will be doing about the same at the same time approximately. That is when they start to fail: when too many guys are doing the same thing.

Then, indicator X stops being good and people will “discover” another pattern. In all that process the vast majority of traders, if not all, end up losing everything.

The transaction costs of day trading are so important that no matter what you do, you will eventually lose.

Day trading systems are destined to fail miserably again and again, from patter X to pattern B, to C, and so on.

The long-term trends are not random. They are based on fundamental and mass psychology causes. They depend on the ying-yan model of human relations.

Doing day trading is one of the most ridiculous endeavors people can try. It is designed from top to bottom to serve the industry.

When a stock moves 30% up in a few months, the trend is clear. However, the intra-day moves in those months has a lot of ups and downs. Traders think they can master those moves, but the reality is that they are eventually random.

Unless you can work as a market maker, stay away from day trading.


Thanks for reading and sharing.