Crypto day trading loses more money than HODLing

People who work for themselves, sitting in their underwear on their sofa all day generating millions, offer a false promise of "easy money" and the allure of self-sufficiency.

Harsh truth about crypto day trading

Based on various studies:

• 40% of day traders trade for only are active for one month

• In the first two years, 80% of all day traders quit

• Only 13% continue to day trade after three years. After five years, just 7% remain

• Individual investors underperform market indexes by 1.5% per year on average; active traders underperform by 6.5% per year

What is random reinforcement within crypto day trading?

The term "random reinforcement" refers to the use of arbitrary events to qualify (or disqualify) a hypothesis or idea; attributing skill or lack of skill to an unsystematic outcome; and gaining support for positive or negative behaviours from products that are inconsistent, such as the financial markets.

The market tends to reward poor habits with a limited sample size while penalising favourable behaviours.

Some amateur traders made money by investing in random altcoins and selling for large, quick returns. In the 2017 crypto market, everyone was a "genius." Then, in 2018, the bubble burst, and inexperienced traders with leverage on their margin could not deal with the drawdown resulting in their account being liquidated. They did not sell their assets and kept holding them until they lost everything.

Many retail investors involved in crypto day trading overheard "big names" on social media discussing an altcoin, leading them to examine the chart and notice that the price is rapidly increasing. They start to buy and sell for a quick profit after a few successful trades, amateur traders begin to believe that they are skilled traders.

Retail traders involved in crypto trading often begin to believe that a favourable outcome on a few random trades indicates success in the future. However, in hindsight, the market rewarded their poor behaviour. However, as they continued to trade impulsively, they eventually lost their capital, as was the case in the 2018 crypto day trading crash.

On the other hand, some retail investors involved in crypto trading spent several months developing a trading plan with risk management, proper portfolio allocations and trading rules.

However, as they continued losing several times in a row, they began doubting their system. Amateur traders then began to places high-risk trades that breach their strategies rules and succeeded a few times, putting the retail trader back to square one, trading without a strategy because the market has rewarded their bad behaviour.

This is how stock trading can sometimes be compared to gambling.