Is Daytrading More Profitable Than Long-Term Trading?

August 29th, 2018

When traders dream, they dream of daytrading.

They dream of multiple monitors and CNBC on in the background and barking out trades to ready-and-waiting assistants.

No one ever dreams of quietly taking four trades a year.

Because no one gets rich on long-term charts–or so the thinking goes.

But is it true? Is daytrading more profitable than long-term trading?

There are two big issues when having this discussion.

The first is the number of trades.

A daytrading system is obviously going to have many more trades than a long-term system.

And if that system is fundamentally sound and produces some sort of profit on a regular basis, it would seem like daytrading should win out in the end. Yes, a big winning trade on a Daily chart might be a monster, but it still feels like the overall high quantity of trades would win out.

We’ll see what the numbers say.

The second issue is more important.

That issue is mindset.

If you like action and love going to work in the markets every day, then daytrading will definitely be more profitable for you. Unless, of course, you can’t take losing.

If losing affects you in any significant way, then daytrading might be disastrous. Waking up every day and taking losses might drive you out of the game before you ever really get anywhere. You might skip a few trades after a losing streak (missing winners) or take a month off out of frustration (again, missing winners).

Or you might get burnt out from looking at screens all day and quit.

In those cases, long-term trading wins every time. Diligently taking four trades a year and calmly living with the results beats frustrated decision-making and quitting.

In short, if daytrading causes you to not trade the system correctly or abandon it altogether, then it’s no contest. Long-term trading is the clear winner.

But if we throw that scenario out and assume both ways are traded properly, then we’re back to our original question: which style is more profitable?

There are multiple ways to try to answer this question, but let’s use a system we’ve just recently discussed to see which type of trading makes more money.

Last week we talked about the Slingshot trading system, This is a daytrading system that uses trend-following tenets and has an oddly crafted entry method. The system we discussed trades on a 15-minute chart.

What if we moved to a Daily chart instead? Which makes more money?

Here is the Performance Report for the GBPCHF Slingshot on the 15M chart: https://www.screencast.com/t/Z6I88VAt6oL

Using a small trade size of 0.1 lots, it produced $4,883 of hypothetical profit with a -$704 max drawdown from 2012-2018. It traded 129 times in that stretch.

Then I switched to a Daily chart and did the tiniest bit of optimizing.

Here is the Performance Report for the GBPCHF Slingshot on the Daily chart: https://www.screencast.com/t/4bhmOiyNn

Using the same trade size, it produces only $1,099 of hypothetical profit with a smaller -$469 max drawdown.

That’s a lot less profit. Even if we doubled the trade size on the Daily chart to make the max drawdowns even, the daytrading version still beat it handily.

In this case, our dreams were right.

If we don’t mind the work every day and if we don’t get frustrated by losing and if we take the trades the same way every time, daytrading is more profitable than long-term trading (just as we expected).

But those are some pretty big “ifs.”

A little money (long-term trading) is more profitable than no money (quitting daytrading).

The key to everything is knowing yourself and choosing the style you truly like.