Say you have a friend Bob that is bad at trading and loses money consistently. Can you take position opposite of Bob for example if he buys a stock you secretly short it and when he sells you cover your short. Would you turn that 90% losing money into 90% gains?
Also if this actually works then oops I guess I just gave away a free strategy.
No -- to quote a related answer:
The opposite of a bad strategy is not necessarily a good strategy!
The heart of the problem is that the weighting of a portfolio affects returns arithmetically, while the success or failure of a strategy depends on geometric compounding.
Here is a simple example. Suppose Bob's strategy returns either +60% or -40% each month with equal probability. Bob is almost certain to ultimately lose his money, because on average, for every month when his wealth is multiplied by 1.6, there is a month when it's multiplied by 0.6, and 1.6x0.6 < 1.
The opposite of Bob's strategy is even worse, returning either -60% or +40%, leading to 0.4x1.4 < 1.
Now, here is a mind-blower:
Suppose Alice has a strategy that is exactly as bad as Bob's, but is uncorrelated. That is, Alice's strategy returns either +60% or -40% with equal probability, independent of Bob's return. Alice will lose all her money too. But suppose you invest half your money in Alice's strategy and half in Bob's, rebalancing monthly.
Then 25% of the time your return will be +60%, while 50% of the time it will be +10% and 25% of the time it will be -40%. So your wealth growth is determined by 1.6x1.1x1.1x0.6 > 1. The combination of Alice's strategy and Bob's strategy is profitable!
An implication is that buying only a subset of stocks in an index can be unwise, yet excluding those stocks from the index can also be unwise! This is the miracle of diversification: The whole is truly greater than the sum of its parts.
There are a lot of reasons why day traders fail. One that can't be overcome by taking the opposite side of the trade is transaction costs (bid/ask slippage) and commission costs if you're still paying them. The more you trade and/or the more leverage you use, the greater the effect.
