Which strategy yields better long-term success: day trading or long-term investing?

Which strategy yields better long-term success: day trading or long-term investing?

That's a thought-provoking question—but the answer relies to a great extent on what you mean by "more successful." Are we speaking solely of earnings? If that's the case, perhaps. But there are just so many variables, and to truly do it justice, I'd need to respond with a few questions of my own: How much capital are they both beginning with? Are both equally as adept at trading or investing? How long is the "long term" we're discussing? How much risk are each of them exposing themselves to? As you might guess, the response depends on a lot of context. One thing is pretty clear, however: statistically speaking, the odds are against day traders in the long term. The majority of day traders give up after the initial few weeks. Oftentimes, they're "day traders" only by virtue of the fact that they traded for a short time before giving up—hardly having committed to that type of trading. Capital plays a significant role.
Capital plays a significant role. When you're trading your own capital, you're exposing yourself to greater risk than you would be with a funded account. But long-term investors, particularly those who have a lot of capital, can just buy an index like the S&P 500, then just sit back and receive passive income. They don't worry about current news or short-term price action. And if I'm honest: investing in something like the S&P 500 is more consistently profitable in the long run—if you didn't purchase it at a high. But, as always, capital is capital. If you have $1,000 to invest and get a 12% annual return, that's just $120. Not exactly life-altering. Even $20,000 gets you about $100/month. To earn $1,000 a year, you'd have to have $100,000 invested—and most people don't just have that lying around. So if you haven't inherited six figures and can't tuck it away in a passive investment, your alternative is to trade—perhaps not so much "day trading," but trading at all. And if we take the S&P 500 as an example again, CFD trading could be attractive to many, since it gives high leverage and bypasses the hassle of ownership. At 100:1 leverage, even $500 puts you in control of $50,000 worth of purchasing power. But don't be mistaken. To go all margin is very dangerous.
But don't be mistaken. To go all margin is very dangerous. One bad move against you and you'll blow your whole account. The rule of thumb is to risk no more than 2% of your capital per trade—in this instance, $10—and shoot for a 1:2 risk/reward ratio. You'll have to have good risk management just to remain in the game. So, what makes a good long-term trader?
First, let's dispel one popular myth: not every successful trader is a day trader. Some swing, some scalp, some hybridize different approaches. The time frame isn't what succeeds for them—the following characteristics are: 1. Skill
They know how to trade. They have a system, strategy, and playbook of setups. They don't play test on live accounts. They wait for the proper signals and trade only when all their conditions are fulfilled. You don't have to be an expert at every form of analysis—you just have to recognize what you are searching for and remain consistent. 2. Risk Management (RM)
Good traders regard risk management as a religion. They risk the same amount on every trade, no matter how "perfect" a setup appears. They follow their trading plan, and sometimes set daily goals—such as 100 pips—and when those goals are reached, they quit. Some even have mental stop losses, but I would not do that. One distraction—such as a car wreck or emergency—and you might return to a 30% loss you didn't mean to take. 3. Emotional Control
This may be the most crucial one. Good traders take emotions out of it. Even good emotions can ruin your mentality. Trading must be approached as a business—gain or loss is merely information, not something to rejoice or bemoan. On my part, most of my blown accounts were the result of revenge trading, attempting to "get it back." If I had just cut my losses and gotten out, things would have been much simpler. 4. Professional Mentality 4. Professional Mentality
They approach trading as a profession, not a dream or a lifestyle. Sure, the freedom and potential for income is wonderful—but the successful ones keep their head down and do the work. They're not emotionally invested in the result and they don't approach trading as some get-rich-quick opportunity. That mentality is a big reason they're still playing the game.