Fail Statistics

[jackb 10]

Has anybody ever ran across any definitive studies about speculative trader fail rates (i.e., the net of the trader's career resulting in lost money)? All I've ran across are antecdotal reports. It won't surprise me that the oft mentioned figures of 90-99% are fairly accurate, but I'd love something more concrete to reference.

 

Whatever that number is, what's interesting is how little attention is given to the non-fail (remainder) stat. I get the sense that most newbie traders fixate on that remainder percent figure as the rarefied stratum (a supposed "success" level) they must shoot for. But that's not quite right, is it?

 

That remainder stat is just the beginning of non-fails and, as such, it has its own spectrum of non-failing: beginning with breakeven and topping out at some CAGR that some spec trader has been able to achieve over a significantly long period (minimum of at least 20 years).

 

So take whatever the definitive fail rate is, add to it the percentage points comprised by all the breakeven traders as well as all the other traders that are achieving returns that would not support "making a living" for you given your capital base and lifestyle and isn't that the stat one needs to focus on?

 

If you arbitrarily group those non-fail traders into something like: Breakeven - 5%; Over 5% up to 10%; Over 10% up to 15%; etc., I suspect a disproportionate weighting will be found in the groups below 10% and that a insignificant number will be found in the groups above 20% CAGR.

 

Exactly how small does that stat fall to given that one needs/wants/desires at least 20%?

[maxr 10]

How is this statistic useful? If you're one of the 'fails' it may reassure you that you're not alone, but it still doesn't show you where you went wrong. If you're one of the others, you don't need to concern yourself with it. I you're not a trader, surely there are better things to do in life :-)

 

Max

Edited January 3, 2011 by maxr

[SIUYA 11]

I dont know about the lies lies and damn stats,

but from experience I have seen many traders over the years, make more money for them selves, in bonuses etc; than they did for their clients. Usually as their trading records are something like....

+120%, +30%, +72%,+100%,-10%,+20%, -300%

Its that last one that does the damage.

 

Whilst working for yourself is completely different. There is no one to bail you out.

The successful traders - I do know a few - probably about 1% of all those traders I have known, usually have trading records along the line of

+30%,+10%,+40%,+15%,2%,-5%,+25%.....

given this effort for consistency, after costs, after taxes and after living expenses, growing an account requires a larger base equity amount to start with, otherwise eventually inflation will still get you over the life of the person (20 + yrs).

So the fail rate can still be high even for those who make money.

 

Now you also have to distinguish between those that trade and those that make markets, those that follow indexes, those that operate peoples orders, those that do merger arbs, those that trade order flow for a bank etc.

Not that there is anything wrong with these, but very few traders actually end up taking on risk as such and make a living from "pure" speculative trading.

[MightyMouse 12]

Success Rates of Traders

 

There are a few studies that were done. Most seem to focus on success over a 12 month period which doesn't really tell you much.

[MadMarketScientist 11]

Good thread and thoughts.

 

I'm with Siuya on the track records he shows. In another life when I did manage some funds it amazed me how often we'd talk in single digit monthly returns and we'd get laughed right on out of there. As if it was an insult if you weren't talking 10%+ monthly returns, 100%+ a year. Of course that tends to be your 98%. With crazy expectations. They want 100%+ a year, with 5% max drawdowns. It just doesn't happen.

 

So I would definitely agree that more than likely the bigger group of successful traders are not the ones making 500% a year -- those are the outliers and exceptions and more than likely to implode anyway the following year. That 10% - 30% range though with modest drawdown I'd say is the bulk of those who are successful.

 

Granted the far reaching majority will never cross the break-even threshold and I'd say one major reason is greed, another is the desire to always be right. Which you're going to get spanked by trading on a daily basis. No matter how hard you work.

 

If I was to guess? I think if you are willing to really work hard and be committed with some good guidance 10% - 20% can definitely succeed. Maybe more. However, most will not work hard so if you look at the macro I'd bet it is 1% - 2%.

 

MMS

[Ingot54 13]

A few years ago I saved a link on my "Favorites" menu that dealt with this very issue:

 

Success Rates of Traders

 

The author gives some good advice and has uncovered a couple of probably now well-out-of-date studies. But it is a useful read, and I found more to awaken me in his conclusion: reasons to avoid trading!

 

But even if the true failure rate of traders was known BEFORE they commenced this pathway ... would it have deterred them?

 

I think not.

 

In my own case, I was looking at having to retire in about 10 years, and had nothing on earth to show for it. To keep it short, I was not prepared financially for retirement. I had no option but to "have a go" ... and once on the path, I did not turn back.

 

I am grateful for the persistence and commitment that somehow developed from my early years. Because it is this, and passion for financial instruments, rather than any other other factor, that led me to believe I have passed the test.

 

Those with true passion have a chance.

 

Those with obsession may likely have a very tough time of it.

 

Google brought up other interesting links which you can find yourself, but in the couple I read, there seems to be no research-based study that defines exactly what the true rate is.

 

 

Finally - I think the figure is always going to be elusive because as trading becomes more sophisticated, and as struggling traders seek out education and mentors as useful tools, the figures might swing like a pendulum. But there are ever increasing numbers joining us every day, seeking their fortunes.

 

How many of them know what they are getting themselves in for?

 

I have to agree with Siuya too - even if a trader can make money, the taxes, and living costs will still consume a chunk of it.

 

But it is obviously still an attractive pastime. The numbers do not seem to be dwindling.

[jackb 10]

Thank you everyone for your replies and thanks for the link MightMouse.

 

MMS, your comments about getting laughed at by others when talking about single digit monthly returns is timely as I recently read through the "The Truth of Trading" thread. I saw that exact thing, where certain members were infuriated that low rates of return were being discussed as realistic. I suspect it's a bit of cognitive dissonance.

[MightyMouse 12]

Thank you everyone for your replies and thanks for the link MightMouse.

 

MMS, your comments about getting laughed at by others when talking about single digit monthly returns is timely as I recently read through the "The Truth of Trading" thread. I saw that exact thing, where certain members were infuriated that low rates of return were being discussed as realistic. I suspect it's a bit of cognitive dissonance.

 

The irony is that the low rates of return are not low rates of return at all. Traders who are skilled can make money to the extent that other traders trade irrationally. If everyone were rational, no one would trade. So, technically, traders need for there to be traders who have irrational beliefs about trading.

[MadMarketScientist 11]

MightyMouse - totally agree -- we shouldn't completely lament the failure of others. It's the single reason why there will always be some who can profit. We absolutely have to have the continual failure of other traders, and a steady stream of new lambs for the slaughter. Just make sure you're not one of them!

 

MMS