95% Failure Fact Origin?

[aaron 10]

Anyone know where the statistic of 95% losing and 5% winners ratio for traders came from?

 

I keep seeing this put up as a "FACT" but there doesn't seem to be anything other than anecdotal evidence to support this statistic. Anybody have any idea?

[zupcon 10]

Anyone know where the statistic of 95% losing and 5% winners ratio for traders came from?

 

I keep seeing this put up as a "FACT" but there doesn't seem to be anything other than anecdotal evidence to support this statistic. Anybody have any idea?

 

Quarterly NFA statistics from US brokerages tend to supports the 95% fail theory. Even if there where absolutely NO consistantly profitable traders, the percentage profitable over a 3 month period just by random chance would be greater than the figures quoted by the NFA. Put it another way, if we replaced retail traders by monkeys throwing darts, the NFA figures would probably be at least 15% better.... and no I am not joking

 

The real figure failing will be much higher than 95% without a doubt

 

A couple of people in the industry who have access to data from actual broker accounts report that the 95% losing stat is an under-estimation.

 

Check out this guys article, he analysed a buch of trading accounts as part of his PhD research

 

Starting to detail forex profitability data | The Essentials of Trading

 

PS. I never know if links are permitted, probably not as its not in a forum owners interest for their members to actually learn anything useful, apologies if any rules transgressed (although you know my apology isnt in the least bit sincere :haha:)

 

PPS.... dont by anything from the above site, he's a vendor, not a trader

[shuvo7748 10]

Yes I too wonder if this is right because as a new trader this is not a good figure to look forward to. Maybe it is just a myth to scare people.

 

But I was reading this persons post...

 

Do 95% of traders really lose money

 

He says studies show that mostly day traders get washed out.

[sergso 10]

Yes I too wonder if this is right because as a new trader this is not a good figure to look forward to. Maybe it is just a myth to scare people.

 

But I was reading this persons post...

 

Do 95% of traders really lose money

 

He says studies show that mostly day traders get washed out.

 

Day traders with small accounts mostly that cannot cover the spread long term. This is another good article with analysis:

 

Frequent Retail Forex Trading is a Losing Negative-Sum Game | Price Action Lab Blog

[Tradeciety 10]

Hello,

 

I had the same question after everyone kept mentioning the number 95% all across the web so we started our own research and evaluated numerous scientific papers and we found that the statement that 95% of all traders lose is a myth. But the actual numbers is much higher.

 

We went through a number of different research papers and found that the statistics economic scientists found are very depressing and show that less than 1% of traders can actually make money. Here are a few more statistics that we extracted from some scientific papers of researchers who analysed individual broker data.

 

1. 80% of all day traders quit within the first two years.

 

2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.

 

3. The average individual investor under performs a market index by 1.5% per year. Active traders under perform by 6.5% annually.

 

4. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.

 

5. Day traders even continue to trade when they receive a negative signal regarding their ability.

 

6. Profitable day traders make up a small proportion of all traders – 1.6% in the average year.However, these day traders are very active – accounting for 12% of all day trading activity.

 

7. Among all traders, profitable traders increase their trading more than unprofitable day traders.

 

8. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income.

 

9. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios.

 

10. Men trade more than women. And unmarried men trade more than married men.

 

11. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features.

 

12. Within each income category, gamblers under perform non-gamblers.

 

13. Investors tend to sell winning investments while holding on to their losing investments.

 

14. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.

 

15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002.

 

16. During periods with unusually large lottery jackpots, individual investor trading declines.

 

17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss.

 

18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks.

 

19. Individual investors trade more actively when their most recent trades were successful.

 

20. Traders don't learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.

 

21. The average day trader loses money by a considerable margin after adjusting for transaction costs.

 

22. [in Taiwan] the losses of individual investors are about 2% of GDP.

 

23. Investors overweight stocks in the industry in which they are employed.

 

24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.

[zdo 20]

In looking at this old question, we need to be careful not to conflate

that universe of those who have ever hopened an account

with

those who actually embody trader

… only a ‘sample of one’ can know the differences

… the ‘voice of trading’ can never tell us…

[shuvo7748 10]

Day traders with small accounts mostly that cannot cover the spread long term. This is another good article with analysis:

 

Frequent Retail Forex Trading is a Losing Negative-Sum Game | Price Action Lab Blog

 

Hello sergso,

 

I just read that article. Thanks for this article :thumbs up:

[shuvo7748 10]

Top Ten Tips which i follow to be Successful

 

*Choose Your Trading Style Carefully

 

*Match Your Trading Style To Your Lifestyle

 

*Select A Broker That Matches Your Trading Style

 

*Use A Low-Risk High-Reward Trading Method

 

*Make Sure Your Trading Method Works in All Markets

 

*Trade The Best Stocks

 

*Know When To Sell Your Stocks

 

*Check Your Winning Edge

 

*Invest in a good online stock trading education

 

* Associate With Successful Online Stock Traders

[MightyMouse 12]

I think the 95% failure rate origin comes from 100% of the traders who lose money trying to find comfort in why they lost money; it is too hard.

 

I agree that It makes no sense to study the accounts of losing traders to determine what the odds of becoming a losing trader are.

[zupcon 10]

I think the 95% failure rate origin comes from 100% of the traders who lose money trying to find comfort in why they lost money; it is too hard.

 

I agree that It makes no sense to study the accounts of losing traders to determine what the odds of becoming a losing trader are.

 

The 95% failure rate is just one of those off the top of the head estimates from industry insiders who get exposed to the data that gives an impression thatt most lose. Analysis of account data indicates its much higher.

 

Personally I think that studying losing traders does provide some useful insight, there's certainly common factors that they tend to share, I dont see a problem with people making themselves aware of these factors

 

The NFA statistics are quite revealing to, but they tell us nothing thats not already known

 

I was genuinely surprised to read in an earlier post which I presume was based on data from Taiwan, that gamblers performed worse than traders. My personal experience is that those with a gambling background are far more likely to do well, most of the guys I work with have those kinds of backgrounds, I think it gives them a massive advantage.

 

Im not sure that studying winning traders is any more useful than studying losing traders (there's less of them, and the smaller sample is going to mean that results are going to be less significant, particularly as they're all going to be taking significantly different approaches.

 

I was recently sent a link to a youtube video of an interview with Tony Robbins (the self help / motivational guy) and an internet marketing guy Frank Kern who sells various information products. I wont provide the link for obvious reasons.

 

Long story short, Robbins has just written a new book about trading and investing, and as part of his research process he interviewed 50 or so successful traders some of these guys he talked to really are doing the business, Im talking about the likes of Paul Tudor Jones etc.

 

Robbins concluded that they all shared common traits (I think he identifies 7) its all really basic stuff like dont take big losses, identify favourable risk:reward opportunities, compound for maximum growth, pay particular attention to transaction costs particularly minimising tax liabilities, diversify risk, understand that losing trades are part of the game etc.

 

Ironically he also identifies and discusses the real reason that these guys are successful, but he fails to explicitly point this out presumably because its not really his area of expertese, but it was cool to see that he at least noticed it.

 

Ive not read the book, and Im not reccommending anyone takes trading or investing advice from a guy who sells recyled NLP tools, but it shows that practically anyone can very quickly spot the obvious commonalities shared by successful traders.

 

The guy who wrote the market wizards books does a more comprehensive job, but comes up with similar conclusions, but strangely enough, doesnt actually spot the real reason why some of these guys are successful, but thats possibly down to his choice of the people he interviews.

 

The point I'm making is that studying profitable traders isnt particularly useful either. Jack Schwager presumably still makes his living writing books and speaking at conferences and events, his study of successful traders didnt transform him into a big swinging dick.

 

Last I saw Tony Robbins still makes his living from books, audio tapes, DVD's and speaking tours. Hanging out with, and even offering professional coaching advice to Paul Tudor Jones for 20 years or so didnt transform him into a BSD either.

 

People might actually get a bit more benefit out of studying THEMSELVES and their OWN trades rather than trying to copy others. Thankfully for the 1% its probably not going happen, because that takes a few minutes work each day for a couple of years, and who wants to do that when you can buy a book for $19.99 ?

[MightyMouse 12]

The point I'm making is that studying profitable traders isnt particularly useful either. Jack Schwager presumably still makes his living writing books and speaking at conferences and events, his study of successful traders didnt transform him into a big swinging dick.

 

Jack interviewed some of the luckiest traders over the decades, many of whom subsequently went bust. Trading is awesome when you wind up on the right side of the trade no matter how aggressively you trade.

[zupcon 10]

Jack interviewed some of the luckiest traders over the decades, many of whom subsequently went bust....

 

True,

 

Jack never really got it.

[sergso 10]

The 95% failure rate comes from the 5% confidence level that is necessary to guarantee profits in the longer-term.

[ScottColeFTA 10]

A futures broker I've worked with, who has been in the business over 30 years, told me directly that he has never had a client that was profitable over the long term.

[sergso 10]

A futures broker I've worked with, who has been in the business over 30 years, told me directly that he has never had a client that was profitable over the long term.

 

Honest and true answer.

[Ammeo 10]

Anyone know where the statistic of 95% losing and 5% winners ratio for traders came from?

 

I keep seeing this put up as a "FACT" but there doesn't seem to be anything other than anecdotal evidence to support this statistic. Anybody have any idea?

 

I personally think its made up. My personal belief is that winners r easily more than 5%, Most probably in 20-40% area.

[DbPhoenix 42]

Forex aside, I suggest that rather than study losing traders and/or winning traders that beginners and struggling traders study the market.

[divyanshisharma 2]

A commonly known fact is that most forex traders fail. In fact, it is estimated that 96 percent of forex traders lose money and end up quitting. The forex website DailyFX found that many forex traders do better than that, but new traders still have a tough timing gaining ground in this market

[CrazyCzarina 17]

First of all, professional traders know that market often goes against them. Since they are experienced, it is not unusual for them to see losses.