Most people are familiar with the fact that more than 90% of day traders are unprofitable both in the short and long term. This makes day trading a fool's game.
It matters very little how much knowledge you have and the experience earned through the application of said knowledge, if you stay on the habit long enough, you eventually become unprofitable. Generally, this is because day trading requires active restructuring of strategies because over an extended period of time, fool-proof strategies that brought massive gains can become the most risky and loss-intensive play.
There are research that cover 15 years of trades in Taiwan which finds that even the most experienced traders lose money and other reports, such as Brazilian futures traders study shows that 97% of individuals who traded in the market for more than 300 days lost money on their trades.
Only 1.1% earned more than the Brazilian minimum wage and only 0.5% earned more than the initial salary of a bank teller — all with great risk.
So clearly, a fool's game to be taking that much risk to barely earn a minimum wage.
When we look closely at some of the popular reasons behind this reality, we see things like poor risk management, emotional decision making, overtrading, lack of proper education and training, unrealistic expectations and lack of a trading plan.
Over the years, some attempts have been made by companies to help traders tackle some of these weaknesses. This mostly is the introduction of trading bots. In the cryptocurrency ecosystem, we find a couple of these promoted here and there and sometimes, they are available as added tools on exchange and trading applications, although, usually less sophisticated as standalone solutions.
Yet, traders still really lose a lot of money, and this is because even though trading bots can help with things like “stop loss and take profits,” they still rely on human interpretation of risks, their knowledge of the financial markets at any given time and are ultimately still actively controlled at wish.
This all can change, but how much can it improve the profitability of day trading?
AI Agents + Smart contracts in trading
First off, AI agents are bots, only that they are more advanced compared to traditional trading bots.
Through embedded artificial intelligence, these agents can better analyze market trends, determine multi-directional risks and carry out more time-sensitive and informed trades.
Will it be fool-proof?
Here's a couple of things to understand. The fusion of AI agents and smart contracts is necessary to improve a lot of things when it comes to trading, and as with anything developed and released to the market, their solutions are often targeted at pre-existing problems and in the case of day trading, these are those problems and how this convergence can solve them:
—Poor risk management:
AI agents can analyze risks and better manage exposure, effectively making more profitable trades.
—Emotional decision making and overtrading:
When trading is automated with an AI agent, there's no room for emotional decisions such as closing traders too early, too late or recklessly taking new positions — essentially overtrading — to capitalize on a perceived new trend.
AI agents trade decisions will be based on data, not emotions.
—Lack of proper education and training, unrealistic expectations and lack of a trading plan:
An AI agent will have far more exposure and access to knowledge than any human at any given point and unrealistic expectations would not really exist when these AI-powered bots already understand risks and how unrealistic expectations (essentially profit targets) can greatly increase the risk profile of a trading account.
The lack of a trading plan, well, this is where I'd say that smart contracts come in. Not because they'd be reasonable for setting up the trading plan, but because they'd be reasonable for enforcing it, essentially having the largest influence on how AI agents operates.
Smart contracts would be useful for locking and autonomously moving trading funds or assets to agents, essentially controlling how much capital these bots can work with at any given time. Of course, not even the owner of said funds will be able to unlock or move these funds at wish until the predefined time set in the contract is reached.
This greatly reduces the human influence in day trading automated by bots.
At the end of every trading session, if the balance on the smart contract grows, this would indicate profitability of the agents, enabling it to access more capital or less if the reverse is the case. How much the agents receive can also trigger adjustment of strategies for these bots are the sum would be indicative of the flexibility they have and that is vital for moderating risks and setting profits targets.
The big question, however, remains if this would make day trading more profitable, generally?
I don't know if I'd still call it day trading at this point, but I'd say that it all would still greatly rely on how much similarities they are with every trading agents.
This is because they are always at least two people involved in a trade, so a person's win would be another's loss, and in this case, more traders becoming profitable would mean that big solo traders and trading firms would be losing a lot of money and that, my friend, is unlikely.
What's to be expected is that the markets may become stable as the moderation of risks by agents may create less incentives for these trading firms to distabilize markets for profits.
What's to be expected is that less traders would lose money, but actually making money will require several layers of training AI agents to recognize trends, analyze risks and make profitable trade decisions, something that's unlikely to be vastly accessible to most day traders.
At the end of the day, investing for the long term is the better bet as day trading will always have more risk than reward irrespective of how much capital is allocated for stability or what goes into risk analysis.
Someone has to lose for another to win.