Why Do More Than 90% of Traders Lose?

[peterjerome 10]

The jury is still out on this, so time will tell.

 

Jason,...the jury is still out???

from your daily chart... in 2 yr., 2009 through 2010, you turned $20K into $160K...that's what, 700%? 350% annual ROI?

what am i missing?

WT? is the jury doing?

 

peter.

[peterjerome 10]

There is no easy way to make Money...

 

small point. making the money is easy.....keeping it...now that's a whole different thing.

 

peter.

[MightyMouse 12]

Jason,...the jury is still out???

from your daily chart... in 2 yr., 2009 through 2010, you turned $20K into $160K...that's what, 700%? 350% annual ROI?

what am i missing?

WT? is the jury doing?

 

peter.

 

Peter,

 

He stated that he added more and more money as he proved to himself that it worked. He said he has an EV of .10 but i don't know what period he is calculating that over.

 

MM

[peterjerome 10]

Peter,

 

He stated that he added more and more money as he proved to himself that it worked. He said he has an EV of .10 but i don't know what period he is calculating that over.

 

MM

 

OOPs...my bad:crap:

peter

[sdoma 10]

MightyMouse said the following: "I also think that it isn't as lucrative as people think". I think I'm starting to slowly agree with that statement as I've been doing this successfully now for more than 3 years.

 

What do you think qualifies as lucrative in terms of return on your capital? Retailers generally have a 2-3% profit margin. As a trader, that would mean a return of $2,000 - $3,000 per year per $100,000 of starting capital (after expenses).

 

Consider that generating 15% returns on your capital year-on-year without excessive risk would make you a big player if you bother to attract the capital. If you generate 30% you would be up there with the Stevie Cohens of the world.

[MightyMouse 12]

What do you think qualifies as lucrative in terms of return on your capital? Retailers generally have a 2-3% profit margin. As a trader, that would mean a return of $2,000 - $3,000 per year per $100,000 of starting capital (after expenses).

 

Consider that generating 15% returns on your capital year-on-year without excessive risk would make you a big player if you bother to attract the capital. If you generate 30% you would be up there with the Stevie Cohens of the world.

 

Sure, if you are pragmatic, trading is a waste of time for most. And I think this hits on the very nerve of why people quit. They don't have the capital to make it make sense. Earning 20% a year is awesome. On a $5k account at 6 hours a day that works out to about 65 cents an hour. Real successful.

 

Those who do have the capital are left to soak up the accounts $5k at a time from the dreamers and gamblers.

 

 

MM

[sdoma 10]

Sure, if you are pragmatic, trading is a waste of time for most. And I think this hits on the very nerve of why people quit. They don't have the capital to make it make sense. Earning 20% a year is awesome. On a $5k account at 6 hours a day that works out to about 65 cents an hour. Real successful.

 

Those who do have the capital are left to soak up the accounts $5k at a time from the dreamers and gamblers.

 

 

MM

 

Trading is like any business, you need capital to make it work. Try to open a Subway with $5k and see where that gets you.

 

The only reason to open a small account is to generate the results and stats that will enable you to attract real capital backing. I.e. you take your results into a firm and argue that it scales enough to make it worth their while.

 

Also, you must must MUST be pragmatic to succeed at trading. I would argue that pragmatism is, in fact, the greatest virtue for a trader.

[peterjerome 10]

Consider that generating 15% returns on your capital year-on-year without excessive risk would make you a big player if you bother to attract the capital. If you generate 30% you would be up there with the Stevie Cohens of the world.

 

sdoma,

on jan 6, i posted a 10 stock breakout folio using the Will Rogers strategy. using a simple stop buy with no management (not recommended).... 6 stocks triggered buy (currently long). 5 winners, 1 loser. current gain (3.5 months) is $4,358 or 17.5%.. 60% annual. reasonable money mgmt most likely would improve the performance.

 

personal current foloi (using similar strategy) is up 8 straight months $130K or 39.4%. 59% annual.that's NET income after all expenses. what category would you use here, warren buffett?

 

fwiw, i make my living soley through trading.

peter

.

[sdoma 10]

sdoma,

on jan 6, i posted a 10 stock breakout folio using the Will Rogers strategy. using a simple stop buy with no management (not recommended).... 6 stocks triggered buy (currently long). 5 winners, 1 loser. current gain (3.5 months) is $4,358 or 17.5%.. 60% annual. reasonable money mgmt most likely would improve the performance.

 

personal current foloi (using similar strategy) is up 8 straight months $130K or 39.4%. 59% annual.that's NET income after all expenses. what category would you use here, warren buffett?

 

fwiw, i make my living soley through trading.

peter

.

 

There is no category here. You are talking about one call where you went long momo stocks. The tricky part is to be profitable month-on-month, year-on-year for a long stretch of time.

 

Also, I highly doubt your strategy is scalable to the level of a large hedge fund. Do you even understand what an inconsequential amount of money $130k is?

 

Anyway, my point remains. If your strategy is sound enough, it should be easy to attract capital and scale it up.

[SIUYA 11]

I also think there is a fundamental disconnect between what people think they are risking and what they are actually exposing themselves to when looking at returns on capital.

 

eg; take $5,000, start trading an equity market contract or FX contract say.....often the real exposure you have is around $100,000.

So ...is the return at the end of the year based on $100,000 of exposure or $5,000????

 

I would always argue that the true return calculations should be on the $100,000 but most often people think its based on the $5000.

If you are a hedge fund manager....how much will you charge your customer the 1.5 to 2% - is it based on their deposited amount leveraged 20 times, or the leveraged exposure????

 

Each to their own of course, but if you are looking to scalability, sustainability and not just making the most out of the leverage offered by a future then you need to be comparing apples to apples etc;

 

To also put it in laymans terms - buy a house with a deposit of 5% - whats the exposure, and when you sell the house, do you count the return based on the deposit or the cost of the house????

 

(the above are all rhetorical questions...I look at the amount of exposure, or I will at least look at and understand the amount of leverage employed.....why is it day traders think 30+ times of leverage is great when recent events have shown 30+ times of leverage helped cause a lot of the expert institutions ("banks") much grief)

[peterjerome 10]

...highly doubt your strategy is scalable to the level of a large hedge fund. Do you even understand what an inconsequential amount of money $130k is?

 

sdoma,

what you say makes sense. i can't argue with your logic. compared to your hedge fund money, the $130K i make annually from trading really is pretty inconsequential. i get that.

 

but it's all relative. compare the $130K to the income of 95% of traders who lose everything, $130K takes on a different perspective.

 

i guess that puts me in the top 5%, no?

 

peter.

[Ingot54 13]

I consider myself a successful trader, but I am not full-time. I am a software engineer, but have an automated trading system that I busted my ass on for about 2 years. Been running since 2008 (started with $30K) and slowly added more and more money as I proved to myself (to the best of my ability--via backtests and forward tests) that what I'm doing actually works

 

.............

 

I still had a long way to go, but I finally had the underpinnings of something that seemed to work. I worked another solid 1 to 2 years honing and tweaking my strategy to what it's become today. Even with all of this blood, sweat and tears, I only have a winning strategy that has an EV of .10 and this is all I've got!!!!!! One automated strategy that supplements my income.

 

My desire (of course) is that this will eventually replace my income and I finally think I'll truly get there, but I'm not counting my chickens until my trading consistently brings in north of $200K per year (for at least two years).

 

Jason

 

Thank you for sharing that Jason - quite inspiring, your story of belief and persistence. Well done.

 

You might already have been down this path, but ... have you considered allowing a trading coach to run their brain over your figures?

 

The reason I say that is because a few years ago, I went to one and he was able to turn my trading around. Not by 180 degrees as I hoped (and paid for), but by more than 90 degrees ... and that was a start.

 

A good coach will not promote the psychological BS that goes with financial engineering these days. What he will do, is show you where you could cut a loss or two consistently and allow an outlying winner to run a bit further ... that kind of coaching.

 

Real Coaching!

 

You already show you have the discipline and the strategy - and you are willing to "tweak and hone" to nail this thing. Sometimes another set of eyes can see things that you may have overlooked.

 

The coach I went to looked at a run of 100 results, about equal winners and losers, with about 5% outlying big winners and 5% big losers. He first showed me how to cut the losers down to 10%, and how to scale into the outlying winners to maximise the opportunity.

 

The next thing we worked on was reducing the losses down to 5% and finally 2%. I thought this would also affect the number of winners, but the way he did it was really enlightening - an "aha!" moment, and something I never forgot.

 

To put it in simple terms for this forum, it would be like cutting trades that didn't work, quickly. Then move on to the next setup. The idea was to take EVERY setup the strategy produced - mechanically and without question. Markets are illogical beasts, and so we do not attempt to apply logic to them.

 

Given the set of figures we had to work with, it was great to see the loser's influence over my account shrink. It did not reduce the number of losers - just the draw-down for that strategy. It would work the same for most strategies I imagine.

 

Then, concerning winners - the idea was to recognise when the trade was working, and scale up progressively, greatly boosting their influence over the account.

 

Suddenly I was looking through the window into a whole new trading world. It is not possible to illustrate the kinds of things involved with this, in this thread. I posted it to show you that there are more ways to improve your strategy than you might have the resources at present, to recognise.

 

You have been nursing this baby for a few years, and it is time it got weaned from you and learned to walk. You have to allow it to be influenced by "outside" forces, in the form of those who can make the tweaks you seem to be looking for.

 

I am not a coach, so relax.

 

But I do know the value of talking to a good one. Ask around - the good ones are available, but you won't find them on a forum, where all they are doing is displaying their academic learning, and touting for business amongst the frustrated.

 

Look for one who trades his own account, and has down-and-dirty hands-on trading experience - someone who truly knows what he is talking about - with insight.

[Ingot54 13]

Traders lose primarily because the primitive part of the brain is wired to avoid loss and the primitive brain

makes all the decisions. Once we incur a loss trading, we try to recoup the loss. This usually means

riding the loss down to greater losses until the pain gets too great.

 

Jaaks - a brilliant post, and well worth taking on board the principles you have outlined - thank you.

 

I am unsure about this first bit though (quoted above).

 

Once again I am hearing about the "primitive brain" and it grates.

Why complicate simple things?

 

Surely the psychological world can do much better than this, in this day and age? Everything science and academia

come up with seems to be dragging the human being down to the level of the cave-man or the ape.

 

Can't we come up with something that actually encourages and elevates the human being, with an explanation that

more accurately deals with the truth? And at the same time deals instantly with the problem.

 

My "truth" is that the kind of behaviour blamed on the "primitive brain" is actually PRIDE and GREED - nothing to do

with swinging through the trees in self-preservation behaviour, while a sabre-toothed feline stalks you from the jungle floor!

 

That kind of analogy is wrong, imv, and actually misleads traders, because they can NOT deal with their problems

at this level, despite the expensive psychological counselors' claims that it CAN "help" ... while at the same time

perpetuating the myth in a cyclical and chronic way.

 

Psychology at best, can only make you less uncomfortable with your condition - it can NOT ... and I emphatically state again

it can NOT ... deal with concepts and conditions that (to steal one of their favorite catch-word-cliches) "are hard-wired"

into the belief system.

 

The very best that modern psychiatry can do, is medicate the problem.

The very best that modern psychology can do, is jaw-bone the grief-and-loss.

 

It is when traders are suffering this "grief-and-loss" that they turn around looking for help and support - and they readily find

it in the form of psychology. The real crime is, that this papers-over the true problem, and the trader is subjected to all sorts

of immolation and flagellation, but never the truth. It is the truth that sets traders free ... or the application of it.

 

Psychology can NOT help. And that is because the problem is a spiritual one.

 

I know straight away many are thinking: "Oooh ... religious nutter." But if you put aside your personal views on spirituality

for just a few minutes, you might just discover there is truth in what I am saying.

 

PRIDE actually goes deeply into the spirit of man. It is pride that won't allow him to admit he is wrong. I would say learn to

be humble - deal with your pride. Learn to be gracious about your mistakes, and move on to the next trade.

 

GREED is another spiritual quality entrenched in the human spirit. We saw this here in Australia during the recent

Queensland (and other states) floods. Within 3 hours of the announcement that the major highways to the north and

south were cut, the supermarket shelves were beginning to empty. By closing time, you couldn't even purchase

canned fruit - only dried spaghetti. Even flour and sugar and dried peas were snapped up! I have never before seen this.

 

Yet the bakers had enough flour to bake bread every day, and the choppers continued to bring in essentials.

No one went without. But many were inconvenienced because of the greed of a few.

 

We all have the potential for this.

 

Deal with pride and greed, and you deal with the problem. You can do this in 30 minutes, then put it into practice.

Once you remove pride, you remove the fear of taking a loss, and you remove the stigma of leaving money on the table.

These qualities can be practiced until they are "owned" by the trader.

 

Removing greed also reinforces to benefits of leaving money on the table - you close the door to retracement and

loss automatically, through the generosity of spirit demonstrated by leaving money on the table for others.

 

The way to over come both pride and greed in your/my trading, is to simply take a pragmatic approach.

By taking every trade setup that presents, and by being willing to accept the small losses that come along

quickly, and move to the next setup, we remove the need to be "right" and the fear of being seen to be "wrong."

We remove all introspective guilt and blame, and no longer have to show that we are wonderful traders ... no

need for this kind of pride any more.

 

Instead, we become followers-of-process, and the process is:

 

* Enter at strategy signal

* Did it work?

* .....................Yes ... load up a little

* ......................No ... cull the trade quickly

* Close at strategy signal

 

See ... no primitive brain required - just facing the truth of the human condition.

 

And it recognises the human being as a spiritual entity - helped by recognising the ailments that interfere with internal

thinking, internal processes, and ultimately peace and satisfaction.

 

Beats the heck out of struggling with the "primitive brain" concept, n'est ce pas?

And did anyone see anything "religious" in examining something spiritual here?

 

No. So much goodness is tossed out because "it is religious" that the truth of the spiritual concept is lost. I am in

NO WAY religious, so please don't post back on this. This issue goes far more deeply that mere religion.

 

Maybe this has something to do with "Why more than 90% of traders lose" ... no knowledge of the basis of the problem

in the first place, and no "professional" assistance available with the wisdom and insight to understand it.

 

I commend the rest of your post - great insights, and I hope you continue to share.

[TheDude 10]

There have been many studies as to why most people in the retail space lose. Essentially, the reasons are:

1/ Attempting to, and being very bad at forecasting markets (mostly due to lack of emotional control)

2/ Paying higher commissions

 

 

How these manifest is best served with an example:

 

Say a retail trader has a 65% probability of winning over a series of trades from his back testing.He probably feels pretty confident. When it comes to real trading, some trades may not be taken, some trades may be taken which dont quite match the plan under the heat of the moment. Lets say the junior trader over 20 trades reviews his results. The 2 errors above mean he no longer has a 65% win rate.May be 50% at best. He no longer has an edge.

 

As for the stops, well, they seem to get more slippage than he calculated giving him even worse results than his paper trading and months of back testing indicated.

 

The Futures Game, Who Wins, Who Loses And Why is a book that explains all of this in great detail for those interested in doing the work.

[TheDude 10]

...oh, another reason.....

 

newbies spend far to long reading and posting BS on forums like this - the only place they can pretend to be a success and get away with it, rather than spending the required time in the markets, paper trading, or in sim at the weekends/evenings.

 

The blind leading the blind - especially on ET and worst of all T2W (this place aint so bad IMO)

[Ingot54 13]

...oh, another reason.....

 

newbies spend far to long reading and posting BS on forums like this - the only place they can pretend to be a success

and get away with it, rather than spending the required time in the markets, paper trading, or in sim at the weekends/evenings.

 

The blind leading the blind - especially on ET and worst of all T2W (this place aint so bad IMO)

 

Hi The Dude

 

You are spot on with your comments.

 

However, many newbies - I was one once - do exactly what you said -

reading and posting BS on forums like this

for a reason.

 

That reason is: writing and posting and reading about the topic tends to FOCUS the person on what they are learning.

Putting things into print exposes traders to the critique of others, and although it seemingly (to others) is BS,

the "fake-it-till-you-make-it" thingy works.

 

I have done this for many years. I know it was largely the regurgitation of what others posted, and stuff from my own readings

of about 100 books, 35 of which I owned, and the rest borrowed from the libraries. At the time it was hollow, because I was

not a successful trader.

 

My income statement says I am something else - it does NOT say "Ingot54 ... Forex Trader" ... so I have still not arrived.

But I no longer make nett losses. I have built up about 3 years salary in claimable losses, so I can effectively trade for a

living without having to pay taxes, if I get to making larger chunks than currently is the case.

 

I would be interested in your own journey.

 

Did you post on forums as a learner-trader?

Did you ask questions?

Did you post encouragement to others?

Did you post your findings when trying out new strategies and methods?

 

These are not smart-arsed questions by any means - I have no time for such rubbish - I left T2W because of that, and have

no desire to see it surface on this great forum.

 

I have not read any of your 180 posts, but I will - it sounds like you understand what it takes to get a handle on trading.

If people would only post the truth about what they are finding with their trading, then I am certain threads like this

would read: "Why Do More Than 68% of Traders Lose?" or something better than "90%."

 

I suppose better questions would be:

 

Did you use the services of a mentor?

Did you take a structured trading course?

Did you work with a trader who already had the knack of nailing his trades?

What made the difference in your own trading experience?

 

Thanks for your input - appreciated ... in the interests of scrubbing out the BS.

 

Best wishes

 

Ivan

[TheDude 10]

Hi Ivan,

1/ I started my trading career as an options trader on the floor, about 15 years ago. I worked for a small team of locals.Thus I never had to go through a learning curve like most do here i guess. I take my hat off to those who make it off their own back. You could say these guys were my mentors.

2/ Therefore, no. When the floor closed, I started trading futures, and did so from an office working with another small team of x-locals. Most went bust pretty quick as they couldnt adapt. Some were nailing down big numbers every day. It took me a few years I admit.

3/ Therefore, yes.

4/ Some basic rules. We've all heard them before, but most still ignore them: a/ Dont lose money. b/ Try and build positions for the longer term than scalp - the maths just wont add up and scalping is really a HFT game now. c/ Your own ideas are the best ideas. You dont have that other guys make up in terms of outlook, pockets, goals, so why are his ideas better than your own? d/ Patience and discipline. e/ dont get greedy. f/ you'll probably never make it unless you are deeply involved in the markets and find them fascinating. If you're in it for just the money, you may as well give it to me now and save your self a whole load of time!

 

Finally, I'd say it isnt so much about set-ups, but more about understanding the context of the market

 

Hope that helps. I'm still learning too BTW. We always should be!

Edited April 25, 2011 by TheDude

[GlassOnion 12]

More useless information

bobc

"another enemy"

 

 

Yes, and your post is even more useless.

[emg 12]

I found another interesting article:

 

Chicago Board of Trade workers hold weekly bible study classes - Chicago Sun-Times

 

More than 90% of small traders lose in a "Spectacular Fashion." They just lose!!

[SIUYA 11]

from the article "“There are hundreds and hundreds of systems that you can trade,” said the 56-year-old Chicagoan. “Ultimately, if God wants those to work, they work. If He doesn’t, they don’t."

 

the holy grail ?

 

usually when you see people praying about their positions there is blood in the water already - another biblical story maybe.

[TimRacette 11]

TheDude, do you trade out of Chicago then? I agree with a lot of your points.

[StevenSJC 10]

I personally think many people dramatically underestimate the costs of mistakes and slippage. So much effort goes into shopping commissions and saving a buck or two here and there but the real profit killer is slippage many times. I realize not in all markets but there are some markets, especially in heightened volatility that slip considerably. Case in point, Crude Oil - used to be (and not long ago we're talking a couple of months) that a buy stop would slip zero or 1 tick - now it is commonplace for my orders to slip 5 to 10 ticks. So imagine if you are going for 0.18 and you are slipping a third to a half of your target.

 

Even if you win 70%+ of the time, not easily done even in a perfect world you'll get wiped out in slippage alone.

 

Then of course there are errors -- from speed of entry -- meaning you miss your entry or you read it wrong or a host of other bumbling issues that happens when you really are trading in real-time.

 

That's why I find that on paper a system/strategy might be yielding you something but you better be prepared for slip and errors to do its best to wipe out that advantage and then some.

 

The good news is you can improve your ability, use better tools, etc... and reduce errors and slippage can be handled to some degree with smarter order entry types once you identify the need.

[TimRacette 11]

Steven, imo it's much more difficult to trade nowadays as apposed to 20 years ago, and I think it will continue to become more difficult as the markets become more efficient. The meat of the move is in the larger time frame. It's hard to compete as a few tick scalper with so many HFT systems hitting the tape all day long.

[johnw 10]

The meat of the move is in the larger time frame. It's hard to compete as a few tick scalper with so many HFT systems hitting the tape all day long.

 

 

Exactly ..... I completely agree with you Tim

[wheernCow 10]

Hiya Every body, Just became a member of Traders Laboratory - Active Trading Community. I hope this is the correct place to discuss our ideas as well as views. Btw is "Full Discussion" is the proper place to post introduction topic?