Day trading, for most people, is a disaster. One study of retail currency traders found 70% lose money every quarter on average, and lose it all within 12 months. Another, in Brazil, found 97% of equity futures traders who traded more than 300 days lost money.
So a new study saying day trading can be profitable is certainly a challenge to that view. It’s written by Carlo Zarattini of Concretum Research, a Swiss firm that focuses on intraday U.S. markets, and Andrew Aziz, the founder and chief executive of Vancouver-based Peak Capital Trading and the author of the book, “How to Day Trade for a Living.”
They argue that a strategy called the opening range breakout can outperform a standard buy-and-hold strategy. The idea is that traders can profit on the volatility at the beginning of the trading day, by buying, or selling, when the stock breaks out of the high and low range during the first minutes of trading.
They studied the first five minutes, from 2016 to 2023 — which had two bear markets and abnormal volatility — and examined the TQQQ TQQQ, +0.07%, an exchange-traded fund that aims to triple the daily move of the Nasdaq 100 index.
Their model would jump into action if the move was in the same direction of the first 5-minute move. If during the first 5 minutes the market moved up, it took a bullish position starting from the second candle’s opening price. In contrast, if the first 5-minute candle was negative, they took a bearish position at the open of the second 5-minute candle. A doji — when a security has open and close positions that are virtually equal — resulted in no action. Read this explanation on candlestick price charts.
They assumed a starting capital of $25,000, maximum leverage of 4x and a commission of $0.0005 per share, and trading size was calibrated so that if a stop was hit, they would lose 1% of capital.
The results: an annualized return of 46%, versus an annualized 15% gain for the QQQ QQQ, +0.01% over the same time period. They also say it produced returns uncorrelated with the broader market.
The biggest risks, they say, are not from the strategy but from operational risks, such as not properly executing stops, not respecting basic day trading rules or exiting too early before reaching a target.
“The proposed [opening range breakout] strategy can significantly enhance the profitability of a trading account, but it requires a high level of effort and attention to market fluctuation,” they say. “Contrary to what is commonly believed by those who are skeptical about the usefulness of using day trading strategies, we believe that there may be great value in combining lower-frequency investments (such as long-term buy and hold equity indexes) with higher-frequency approaches. Further, those willing to also diversify in terms of trading frequencies should expect to generate better risk-adjusted returns.”
They also answered questions about the paper over Twitter, where one question was whether brokers would allow the necessary leverage for such a strategy to succeed. Zarattini told MarketWatch that U.S. investors could use micro futures contracts on the Nasdaq to get similar leverage. He added that while the paper is not currently being peer reviewed, they may seek to do so in the future.
The market
U.S. stock futures ES00, -0.54% NQ00, -0.80% were pointing to a weaker start, with the latest U.K. inflation data coinciding with a downward lurch. The yield on the 10-year Treasury TMUBMUSD10Y, 3.611% rose 5 basis points to 3.62%. Gold GC00, -1.40% fell back below $2,000 an ounce.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
The buzz.
Netflix shares NFLX, +0.29% weakened 1% as the streaming-service provider posted weaker subscriber numbers than hoped while announcing a crackdown on U.S. shared accounts. It’s also ending its DVD-by-mail business.
Morgan Stanley MS, +0.63% shares fell despite the Wall Street heavyweight topping earnings estimates, with IBM IBM, -0.03% and Tesla results coming after the close. Tesla TSLA, -1.46% separately made another round of price cuts to its U.S. cars.
U.S.-listed shares of Dutch microchip equipment maker ASML ASML, +0.67% slipped as the company reported weaker-than-forecast orders.
Fox FOX, -0.06% shares may see pressure as the broadcaster paid $787 million to settle a defamation lawsuit brought by Dominion Voting Systems as it still faces a lawsuit by voting technology company Smartmatic. Fox and News Corp., which owns MarketWatch, share common ownership.
Shares of regional bank Western Alliance Bancorp WAL, -0.94% surged after saying deposits have climbed by $2 billion from March 31 to April 14.
The Fed’s Beige Book is due at 2 p.m.
Best of the web
How a gold rush may have fueled the fighting in Sudan.
Mexico is the biggest user of a controversial Israeli spy tool.
Credit Suisse CS, -0.08% limited investigations into Nazi-linked accounts, a Senate committee alleges.
Top tickers
Here were the most active stock-market ticker symbols as of 6 a.m. Eastern.
| Ticker | Security name |
| BBBY, +22.46% | Bed Bath & Beyond |
| TSLA, -1.46% | Tesla |
| BUD, -0.86% | Anheuser-Busch InBev |
| NFLX, +0.29% | Netflix |
| AMC, -2.88% | AMC Entertainment |
| GME, -3.01% | GameStop |
| AAPL, +0.75% | Apple |
| NVDA, +2.46% | Nvidia |
| NIO, -3.66% | Nio |
| INFY, -1.51% | Infosys |
The chart
Liquidity has peaked, and so it’s likely the the stock market has too, says Citi strategist Matt King. King says market moves this year “have had a decidedly QE-feel to them” because of $1 trillion in global liquidity, which he says is the equivalent of 50 basis points off investment-grade credit spreads. But he expects $600 billion to $800 billion in global liquidity will evaporate in the coming weeks.
Random reads
This French engineer is aiming to bring fine food and wine to a balloon — at the edge of space.
Speaking of food, London police are worried “crime and disorder” will be caused if a popular bakery chain sells hot food at night.
Vikings discovered America long before Christopher Columbus, a study finds.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.
This article was originally published by Marketwatch.com. Read the original article here.
