Even if we stipulate that “bad” trading is limited to directional bets on the price movement of a security, and as such is definitionally a 50/50 proposition (at least in the very short term - in the long run, every issuer is going to zero), I still think that bad trading has to be negative EV. In the olden days (of five years ago), those bad traders paid transaction expenses. Now they’re just getting adversely selected against.

And there are all kinds of objectively worse trades than 50/50 price bets - leveraged ETFs, short-dated options, buying stock issuances as a company free falls into bankruptcy - these are definitely not positive EV trades.

> If you enter a trade in the “wrong direction”, you’re much more likely to get a fill than if you are in the right direction.

Takers (ie. most retail investors) always fill. Makers create an order book, defining a buy (say $101) and a sell price (say $99), along with a spread in-between ($101-$99 = $2). If you buy a stock at a price the maker offered, you will be guaranteed to get it; the maker has no say in that transaction (they can't reject it anymore after the taker accepted).

If you do the math carefully, you'll see that both strategies "letting losers run" and "cutting winners short" fascinatingly have a neutral EV (ignoring fees and spread). You just take a lot of unnecessary risk/variance, but it all averages to zero. (Even the strategy "I just go all-in until I am bankrupt" has a zero EV after any finite number of iterations, because the exponentially unlikely chance of you winning every single time comes with exponential payoff.)

The fundamental principle behind this is that takers buy at market prices (ignoring fees and spread), and that those market prices are in an equilibrium. If it were possible to easily lose money by buying at market prices, then billion-dollar hedge funds would've already shifted the market prices by simply doing the reverse, before the retail trader would have any chance to trade on it.

I'm a retail investor. I think I've entered fewer than 2% of my orders as market orders. I rarely want to take a price and give up the full spread. I doubt I'm alone.

If you're a maker (which is not necessarily the case with limit orders), then there is a slight potential for adverse selection, but that's exactly what the spread compensates you for. If you don't want that, I'd recommend sticking to being a taker and paying the spread, for example using market or IOC limit orders.