Why Do More Than 90% of Traders Lose?

[Kiwi 16]

Answering the first question: because it's hard to be a consistently profitable trader.

 

 

The conversations above seem to illustrate part of the reason why: because people seem confused about what is required. For example: discipline is not an edge, it is simply a requirement for most people if they are to repeatedly execute the steps required to deliver their edge(s).

 

At the risk of one of those lists:

 

- You need a combination of setup, entry, trade management and exit that has a positive expectancy (the edge). A purely discretionary trader who wins more than he/she loses has an edge: even if they don't know what exactly they do - they do something right.

 

- A process that you follow to execute your edge reliably and consistently so that the money it can potentially generate is actually generated

 

- Discipline - doing the process over and over with as much consistency and accuracy as your self and your process allow.

 

- Bet sizing (money management) so that you don't blow your account in a bad run whether by a predictable system failure or error and that you earn adequately from the bets that you make.

 

- Physical environment such as quiet, computing power, software, and reliable communciations

 

- Emotional regulation so that when you get a run of losers or winners or exposed to whatever your current hot buttons are you can bring yourself under control and execute your process.

 

- Probably a good record keeping and planning process to adapt when errors occur or the market changes in ways that reduce the efficacy of your current edge.

 

- etc

 

 

But you have to have them all. Any gaps reduce your ability to deliver the result you want.

[wrbtrader 10]

...The conversations above seem to illustrate part of the reason why: because people seem confused about what is required. For example: discipline is not an edge, it is simply a requirement for most people if they are to repeatedly execute the steps required to deliver their edge(s)...

 

Hi Kiwi,

 

Although you understand that having discipline is important to some traders...I disagree with your view that discipline is not an edge. No matter how you change the word...edge, advantage, requirement or whatever...it will be the same. Thus, if someone can show via their own trading a statistical advantage (profits) in the results via having the discipline in executing their trade method as designed versus not having discipline resulting in not following their trade method...

 

It is an edge, advantage, requirement or whatever you want to call regardless to the play of words. Just a case of semantics.

 

Just the same, one can say having a good trading method is one requirement to deliver profits. Simply, of course discipline and having a good trade method is requirement. Once again, if you can statistically show having such as an advantage in your trading versus not using such...it is an edge, advantage, requirement or whatever you want to call it...it is a critical piece of the puzzle for "some" traders although others say discipline is not important to executing a trade method efficiently and consistently. Therefore, to those others, discipline is not an edge nor requirement.

Edited December 29, 2011 by wrbtrader

[Kiwi 16]

I want to say "yes discipline is an edge" but it isn't. At least by any definition of edge that would be applied to gambling or trading in the statistical sense. One of the problems here is "what does edge mean?" Damned hard to find even in the dictionary. The nearest I got at dictionary.com was its use as a verb: edge out, to defeat (rivals or opponents) by a small margin: The home team edged out the visitors in an exciting finish.

 

What discipline is though is necessary. But even discipline needs to be defined because its not about flagellation, self or otherwise, but about executing one's edge over and over, despite any inclination to do otherwise.

 

The thing is, if you're hypothetical discretionary trader had great discipline, perfect money management, but no statistically valid edge then he would slowly go broke as the slippage and commission eroded his perfectly executed zero expectancy trades.

 

To make money he must not only execute with his perfect discipline he must be doing something better than 50/50. Maybe he's got a feel for trend, or for support, or exhaustion but just doing a dumb thing with great discipline is still doing a dumb thing.

[TheDude 10]

Heres my take for anyone who's interested:

 

An edge is simply an observable scenario that repeats over time, and if exploited will yield a positive return over a large sample of outcomes. (Those are my words).

 

A discretionary trader can still have an edge despite his/her entry decision not being strictly defined. e.g. waiting to hit bids and lift offers in an order book when most of the liquidity at that price has been removed could be defined as an edge as the trader assumes that if his/her timing is right the order book will tick up/down in their favour pretty soon afterwards (assuming the liquidity isnt refreshed), giving the trader the ability to scratch the trade at no risk if needed. Another trader may decide entering on a stop is the best idea as he assumes the market momentum is going his way and thus the next tick will also be in his favour, giving again, a risk free trade immediately (good luck on that - these are just examples)

 

These edge examples are therefore in the trade execution point rather than the entry decision raeson.

 

You can have lots of edges - in execution, in risk management, in money management etc.

 

I personally wouldnt say things like discipline (yawn) are an edge because our personalities/emotions/behaviour dont tend to be consistent over the sample of trades.

[TheDude 10]

...but enough of edges.

 

Lets get back to the point of the thread.....

 

 

WHY DO 90% LOSE?

 

Who thinks 90% of traders trade off chart patterns and/or indicators?

 

Didnt Einstein say something like 'the definition of insanity is making the same mistake time and time again and expecting to see different results'?

 

Maybe theres no edge after all in TA?

[onesmith 10]

Discipline is indeed an edge. Successful trading requires many edges. Me having the discipline not to post, my definition of an edge, is an edge.

[johnw 10]

 

.............................I personally wouldnt say things like discipline (yawn) are an edge because our personalities/emotions/behaviour dont tend to be consistent over the sample of trades.................................

 

Well, you seem to have got to the heart of the matter Dude.

 

an inconsistent emotional approach = inconsistent results

 

Perhaps this is the reason that People spend so much time chasing the 'holy grail'

It is not to make a fortune, but to escape the reality of facing themselves... even when consciously they fail to appreciate this situation.

 

'I have met the enemy and the enemy is me' .... this is a very good starting point

Edited December 30, 2011 by johnw

[wrbtrader 10]

...

 

WHY DO 90% LOSE?

 

Who thinks 90% of traders trade off chart patterns and/or indicators?

 

...Maybe theres no edge after all in TA?

 

There's no single reason why the few are consistently profitable and why so many are consistently losing. Thus, there are many reasons for each individual trader.

 

Also, most traders can't handle the fact that it takes an entire (complete) trading plan (e.g. money management, proper capitalization, proper trading environment, discipline, good trade method and so on) to determine is he/she will be profitable or a loser because on any given trading day one of those things will be more important than the other components in the trading plan.

 

Therefore, most prefer to concentrate on one thing like their trade method instead of ensuring everything else in the trading plan is working smoothly together especially when things go wrong (losses). That's why there are many traders running around saying there's one reason only because they treat their own trading that way...to only get confused when they determine they were wrong and then they start looking again for another primary (number #1) reason.

 

Thus, you need to take with a grain of salt what the thread starter (emg) has been saying at various different trading forums on the internet amongst many different message posts in saying the following...

 

#1 reason why traders lose is because they are under-capitalized

 

Week later he will then say the following...

 

#1 reason why traders lose is because of their broker

 

Week later he saids the following...

 

#1 reason why traders lose is because they're using unregulated vendors

 

Week later he saids the following...

 

#1 reason why traders lose is because they're gambling

 

Week later he saids the following...

 

#1 reason why traders lose is because they use TA

 

There's other #1 reasons but you get my point. :doh:

Edited December 30, 2011 by wrbtrader

[neutral 10]

At the risk of one of those lists:

 

Thanks Kiwi,

 

To structure my thoughts, i have used your list and made it mine by reordering, refining it and adding a point 5.

 

I call the first 4 processsteps back-office and the last 4 front-office.

Point 5 is the strategical roadmap for the statistical edge.

Point 6,7,8 are crucial drivingskills.

 

Peace

 

A overall process as reliable, streamlined, accurate and profitable as I, the process and the environment will support and allow:

 

1. physical environment: quiet, computing power, software, and reliable and swift communications.
   
2. emotional regulation: when sensitive buttons are hit, bring myself under emotional control to the point where i know I can execute the overall process regardless of runs of losers or winners.
   
3. risk planning and control: to mitigate downside within planned appetite in bad and in good runs and/or in case of process or system failure.
   
4. good record keeping and planning process: to adapt/capitalize anticipated market (enviroment) changes and to mitigate systematic errors, fill process-gaps and minimize brian fry.
   
5. segment, value and prioritize forward scenario's.
   
6. in the context of the prioritized forward scenario's, timely recognize predefined setups.
   
7. set entry levels/launch and manage entry orders.
   
8. tactical protection of realized advances.
   

Edited December 31, 2011 by neutral

[pipsaholic 10]

I don't believe the 90% lose money because there is no reliable source or independent research or study that has been done that confirms this so I feel it’s a marketing gimmick to put most people off at trading. I remember when I first heard about trading what put me off was I could lose more than my initial deposit then later on I found out something called a stop loss which changed everything for me.

 

I think the main reasons why people fail is they don’t take it as serious as if they opened a new store or starting a new job. Most retail traders are at home and they feel like they’re not working but playing which comes to the mind as a hobby and having fun. Many traders I have read and heard have said I started to be profitable after I took trading away as a hobby and got serious and made a plan.

 

Another big reason is the low quality of education out there. I do think online learning is the way forward but some most of the programs out there work for the vendors who have hundreds of thousands to risk and are using members fees money to trade with and feel more comfortable.

 

There is no way better to learn than someone sitting next to you and telling you how it’s done imo. It takes far too much time to learn on your own reading books, articles, videos and forums.

 

I would advise new traders not to spend too much time in books, forums or chat rooms but look at the charts and look to see how it moves.

 

Good luck and happy 2012.

[TheDude 10]

Read The Futures Game by Teweles. There are several studies in there of brokerage accounts that confirmed 80% fail. Most of these studies were done in the 1960's-80's. ie before day trading.

 

Given the huge rise in day trading, false education and FX bucket shops, I can well believe the number has increased from 80% to 90%.

 

 

BTW, the 80% failure rate was usually within the first 6 months.

[emg 12]

There's no single reason why the few are consistently profitable and why so many are consistently losing. Thus, there are many reasons for each individual trader.

 

Also, most traders can't handle the fact that it takes an entire (complete) trading plan (e.g. money management, proper capitalization, proper trading environment, discipline, good trade method and so on) to determine is he/she will be profitable or a loser because on any given trading day one of those things will be more important than the other components in the trading plan.

 

Therefore, most prefer to concentrate on one thing like their trade method instead of ensuring everything else in the trading plan is working smoothly together especially when things go wrong (losses). That's why there are many traders running around saying there's one reason only because they treat their own trading that way...to only get confused when they determine they were wrong and then they start looking again for another primary (number #1) reason.

 

Thus, you need to take with a grain of salt what the thread starter (emg) has been saying at various different trading forums on the internet amongst many different message posts in saying the following...

 

#1 reason why traders lose is because they are under-capitalized

 

Week later he will then say the following...

 

#1 reason why traders lose is because of their broker

 

Week later he saids the following...

 

#1 reason why traders lose is because they're using unregulated vendors

 

Week later he saids the following...

 

#1 reason why traders lose is because they're gambling

 

Week later he saids the following...

 

#1 reason why traders lose is because they use TA

 

There's other #1 reasons but you get my point. :doh:

 

.................u in here???????

[wrbtrader 10]

I don't believe the 90% lose money because there is no reliable source or independent research or study that has been done that confirms this so I feel it’s a marketing gimmick to put most people off at trading...

 

Depending upon which statistical research you're willing to side with...most say the average failure rate of a business is around 80% along with failing within 3 years.

 

Therefore, the failure rate must be higher for traders because most traders are trading with a trade method but without a trading plan let alone a business plan to manage their trading in comparison to most business that do fail while having a business plan.

 

In addition, look at all the trade journals you see online...most don't last beyond a few months and only about 10% of them are profitable during those few months in reference to those that have verification about the daily results. Further, the forum members that say they are full-time trading...most of them are gone within a few years.

 

Simply, only a small percentage of traders are profitable in reference to those that are part-time or full-time and not those that are hobbyist nor those that are drive-by shooters.

[MightyMouse 12]

There are no decent stats to determine who wins and who loses. The poll at the top of the page indicates that more people make a living trading than those who don't. The 80 or 90% figures include the one and done traders, the ill advised, etc.

 

The more interesting stat to me would involve only traders who have traded for at least 5 years or perhaps longer. I would like to know what their stats are.What they earned as a percentage of capital, how many were profitable, etc.

[pipsaholic 10]

Depending upon which statistical research you're willing to side with...most say the average failure rate of a business is around 80% along with failing within 3 years.

 

Therefore, the failure rate must be higher for traders because most traders are trading with a trade method but without a trading plan let alone a business plan to manage their trading in comparison to most business that do fail while having a business plan.

 

In addition, look at all the trade journals you see online...most don't last beyond a few months and only about 10% of them are profitable during those few months in reference to those that have verification about the daily results. Further, the forum members that say they are full-time trading...most of them are gone within a few years.

 

Simply, only a small percentage of traders are profitable in reference to those that are part-time or full-time and not those that are hobbyist nor those that are drive-by shooters.

 

I agree that most businesses fail within 3 years, but to attribute that to traders this 90-99% figure is wrong as many people including myself would not enter this industry if that were the case. Also, do you understand that a lot of traders stay away from forums and only for the advanced who know how to trade? I have seen many traders on live chat rooms banking in the pips most of them with the odd loser and to say 95% of them are losers is outright wrong. Also, what does it mean by failure rate blowing an account or losing a few dollars here and there?? I am fed up hearing this and will not accept it surely with these forums and help on the net there are more communication and discussions to become successful than unsuccessful.

[wrbtrader 10]

I agree that most businesses fail within 3 years, but to attribute that to traders this 90-99% figure is wrong as many people including myself would not enter this industry if that were the case. Also, do you understand that a lot of traders stay away from forums and only for the advanced who know how to trade? I have seen many traders on live chat rooms banking in the pips most of them with the odd loser and to say 95% of them are losers is outright wrong. Also, what does it mean by failure rate blowing an account or losing a few dollars here and there?? I am fed up hearing this and will not accept it surely with these forums and help on the net there are more communication and discussions to become successful than unsuccessful.

 

I doubt most "potential traders" would run the other way prior to taking the big leap into trading if they read messages by anonymous strangers at forums saying "most traders will fail".

 

I don't know what chat rooms you've been visiting but the chat rooms and forums I've visited have most traders "losing" in regards to the part-time and full-time traders. In contrast, most of the hobbyist traders and drive-by-shooters (traders)...they seem to be profitable but that may be due to the fact its very difficult to keep track of the latter types of traders.

 

I've been visiting free chat rooms consistently since 1999.

 

In addition, there have been brokers that have stated most of their clients are not making money. Further, there have trading competitions where the results of most in trading competitions did not make a profit. Also, as a reminder, most to the trade journals I've read that have verification of the trades...most were not profitable.

 

Regardless to our difference in perspective...it doesn't matter if its 20% or 90% that don't make it beyond the first critical 3 years. Your goal is to not become one of them.

Edited January 5, 2012 by wrbtrader

[SIUYA 11]

I agree that most businesses fail within 3 years, but to attribute that to traders this 90-99% figure is wrong as many people including myself would not enter this industry if that were the case. .......... I am fed up hearing this and will not accept it surely with these forums and help on the net there are more communication and discussions to become successful than unsuccessful.

 

fine......as wrb says. The percentages are irrelevant your job is to avoid being a loser. period.

 

But as a suggestion.....an attitude/viewpoint like this - "I will not accept it" means come on in. the industry needs people who wont accept things for others that do to suceeed.