A lot of people say that day trading is a "zero sum game."
I've been thinking about this recently and wondering if it's really true. On any given day, there are day traders (short term), swing traders (intermediate term), and investors (long term). It is true that between all market participants, so all 3 of those groups, the net alpha has to be zero, such that the average return for one particular day is the market return for that particular day (say the S&P goes up .4%, then the average return of all parties is .4% and the average alpha is 0). However, both swing traders and long term investors are not really interested in day to day fluctuations, they have the power of time on their side and, with exceptions of course (e.g. some institutions try to time large buy ins) they generally buy or sell at given prices because their time range is much longer. For instance a swing trader might not care that he is buying at the day high because he has identified that the day itself is a multiweek low. If this is the case, one could make a reasonable argument that day traders could exploit this, and isn't the whole point of day trading to extract a "fee" in the form of alpha for providing liquidity to primary investors?
in other words, because there are market participants that don't care about intraday variation, shouldn't there be alpha to be exploited by daytraders? Would the net alpha for a particular day of swing traders and investors be negative then?
Submitted November 16, 2017 at 08:58AM by mikhael4440 http://ift.tt/2mvOmla
