Is It True That 90% of Traders Never Make a Dime!

[jackb 10]

Thank you Steve46 for your relevant comments. Though you don't say how many are in your small class, it is very encouraging to note that all but one are experiencing profitability. That's a good percentage and it does bring some balance into this discussion.

 

I concur with Tradewinds; it's a good thing you do. Sharing what you know with others and teaching them too how to profit as traders will ultimately help to erode the idea that trading is primarily for losers.

 

I don't think the data set of Steve's students adds anything in reality. Not from the standpoint of size, nor duration. But maybe it does work for someone who is just looking to confirm a preconceived bias. Don't let that kind of conduct flow over to your trading...it's a recipe for disaster.

 

At the beginning of the year, I started a thread on this exact topic.

 

After reviewing the links contained in that thread as well as reviewing articles from multiple other sources, I became satisfied with an answer. Suffice it to say, you are definitely in need of performing further research in order to get at the truth.

Edited August 7, 2011 by jackb
wording

[blindfingers 10]

Thanks for your post Jackb. Hopefully, I can provide some insight into the purpose of this discussion. Please remember that it is qualitative, not quantitative.

 

To say the data of Steve's group does not add "anything" is a bit too exclusive but I think I know what you are trying to say. I would agree that the sample size is too small to draw a conclusion but regardless, it still provides additional information. Unless Steve is lying, and that's quite doubtful, then his contribution adds significance to the discussion.

 

I think you perceive that I have a preconceived bias. Not exactly. I initially posed the question because I have observed a marked incongruity when the statement that "90% of traders never make a dime' is compared to the number of people who claim they are successful traders. And therein lies the contradiction.

 

In statistical analysis,the null hypothesis can never be disproven, only rejected. That means it can NEVER be PROVEN that 90% of traders do or do not profit! However, with good quantitative analysis, statistical significance can be shown and in so doing, we get insight into what MAY be true. Further research is NEVER conclusive.

 

This is a discussion; not a study. At best, we can only get a hunch of what may or may not be. What we are doing here is only an armchair consideration of the question, however, one need not be a statistician to notice that, in general, more than 5 - 10% of traders claim they are winning the game. In effect, Steve has done exactly what he said he was going to do - provide some balance.

 

So what then should one think?

 

Well, perhaps there are many traders who are not actually making money but who claim they are OR perhaps there are more than 5 - 10% who are winners in this game. (I realize some people will lie about their results but I hope they are few in number.)

 

Though I have raised the question, I am well aware that there cannot be a conclusive answer.

 

Thanks for your input and trade well!

[jackb 10]

Thanks for your post Jackb. Hopefully, I can provide some insight into the purpose of this discussion. Please remember that it is qualitative, not quantitative.

 

To say the data of Steve's group does not add "anything" is a bit too exclusive but I think I know what you are trying to say. I would agree that the sample size is too small to draw a conclusion but regardless, it still provides additional information. Unless Steve is lying, and that's quite doubtful, then his contribution adds significance to the discussion.

 

I think you perceive that I have a preconceived bias. Not exactly. I initially posed the question because I have observed a marked incongruity when the statement that "90% of traders never make a dime' is compared to the number of people who claim they are successful traders. And therein lies the contradiction.

 

In statistical analysis,the null hypothesis can never be disproven, only rejected. That means it can NEVER be PROVEN that 90% of traders do or do not profit! However, with good quantitative analysis, statistical significance can be shown and in so doing, we get insight into what MAY be true. Further research is NEVER conclusive.

 

This is a discussion; not a study. At best, we can only get a hunch of what may or may not be. What we are doing here is only an armchair consideration of the question, however, one need not be a statistician to notice that, in general, more than 5 - 10% of traders claim they are winning the game. In effect, Steve has done exactly what he said he was going to do - provide some balance.

 

So what then should one think?

 

Well, perhaps there are many traders who are not actually making money but who claim they are OR perhaps there are more than 5 - 10% who are winners in this game. (I realize some people will lie about their results but I hope they are few in number.)

 

Though I have raised the question, I am well aware that there cannot be a conclusive answer.

 

Thanks for your input and trade well!

 

The point is, there actually is an answer to the question. But leaning on anecdotes and self-reporting isn't a good way to orient one's self. People lie all the time. Sometime they do it deliberately...sometimes unintentionally. When you hear people telling you that they make money trading, the likelihood is that they are communicating that they have made money on a recent trade. With just a few follow-up questions, it becomes clear that they are just cherry picking their own trading history (which is often very limited) in an effort to impress. There isn't a disconnect at hand (as you seem to want to believe) as much as there is human nature taking place. People will willingly talk about winning trades but not their losers. As such, the reporting is horribly skewed toward one side.

[blindfingers 10]

Jack, you seem a little stuck on yourself. Unfortunately, you just don't get it.

 

Your aspersions actually cast doubt on the validity of your own claims. Given what you've said, you give reason for the reader to think you may be lying too. You certainly know quite a bit about it. Nevertheless, if what you tell us about your trading success is true, it offers hope to most anyone because if you can make money despite your failure to grasp what is being said, the rest of us stand a better-than-average chance!

Edited August 8, 2011 by blindfingers

[MightyMouse 12]

The 90% number is just an industry guess. It would be very hard to compile the data unless you tracked social security numbers and measured the gains and losses over time on tax returns. Those numbers you can also assume can be fudged, but if anything they would be fudged downward.

 

Personally, I prefer there to be a high loss rate. If it were lower, trading would be far more difficult than it is.

 

I think the larger misconception is the amount of money or the percentage gain that one can make. I believe this misconception leads to the high loss rate of the average trader.

[jackb 10]

Jack, you seem a little stuck on yourself. Unfortunately, you just don't get it.

 

Your aspersions actually cast doubt on the validity of your own claims. Given what you've said, you give reason for the reader to think you may be lying too. You certainly know quite a bit about it. Nevertheless, if what you tell us about your trading success is true, it offers hope to most anyone because if you can make money despite your failure to grasp what is being said, the rest of us stand a better-than-average chance!

 

Sorry, you're the one who hasn't presented any capacity to clearly define your point. And it's been clear from the beginning that you don't seem have one. So instead of having the capacity to have a decent round of communication, it is you who chose to cast aspersions. Utterly childish and pathetic. If you don't like what I have to say, use the Ignore feature.

[blindfingers 10]

Apologies to you Jack. Perhaps I've overreacted. I guess it's just a bit annoying to be told by someone what it is I think when they actually don't know why I say what I do. Far be it from me to use this board as a platform for bantering. Take care. Trade well.

[jackb 10]

Apologies to you Jack. Perhaps I've overreacted. I guess it's just a bit annoying to be told by someone what it is I think when they actually don't know why I say what I do. Far be it from me to use this board as a platform for bantering. Take care. Trade well.

 

Apology accepted and I'll extend one to you as well. You may have perceived my initial comments as being an attack on your personal integrity. What I was really wanting/meaning to do is highlight the common problem we all struggle with at times: confirmation bias. That's where I intended my intensity to be directed and I apologize for failing to make that evident. As you saw, I too, have long been fascinated with how accurate the claim may be. After my original post on the topic, and due in great part to my apparent OCD, I literally invested dozens of hours researching this topic. That has led me to a conclusion. But that's all it is and it certainly could be inaccurate.

 

So we now have 2 things in common--the topic itself and being willing to extend an apology. That's pretty cool!!

[cash123 10]

Well done guys...this board rocks!!!

[stpips89 10]

90% OF TRADERS NEVER MAKE A DIME!

 

I have read this "90%" comment for a long time now and frankly, I am not sure I believe it. I'm suspicious that it isn't statistically sound.

 

I have been trading for four years now and until lately, have beaten the S & P consistently each year with a per annum gain of just under 9%. This year has not been so profitable; I've made several mistakes in my options trades BUT I'm still ahead of the game. And, I am CERTAINLY not the smartest guy in town.

 

Frankly, I'm suspicious this comment is steeped by trading educators trying to sell their wares and think if they can convince you that you don't stand a snowball's chance in hell without them, you'll spend your dollars on their system.

 

Don't misunderstand. I believe in education. I even think there is value in certain educational programs offered though I'm quite sure that much of what one needs to know is very available for less than you might think. I just question the statistical significance of the "90% are losers" comments that are so frequently read in the sales letters I receive in my emails from the pitch monkeys.

 

So, my questions to you, the reader, is this:

 

1) Are you making money or losing money?

 

2)How long have you been trading?

 

Hi, here is a very pertinent article to what you are asking: Chances of trading success

[MightyMouse 12]

You are making the ultimate sacrifice to help others. You truly have a good and caring heart. You are phenomenal. The world needs more people like you. Imagine a world full of people like you. It would be the perfect world.

 

I agree too tradewinds. We need more traders to make the ultimate sacrifice for the benefit of others.

[pricetrader99 10]

Hi, here is a very pertinent article to what you are asking: Chances of trading success

 

 

Thanks for that article stpips, very interesting...

[blindfingers 10]

Thanks Jackb for your apologetic response. It shows a lot of class.

 

I appreciate that you too are interested in this topic and have spent considerable time researching the issue. Undoubtedly, you certainly have some insight into this question. I, on the other hand, have never researched it or even raised it prior to this posting. I have, however, heard it said again and again and I tend to be a bit suspicious.

 

Mind you, if someone told me that only 5% of casino players make money, I'd doubt that it could actually be that high!

 

Since I don't think that I fall into the ranks of those who are within the 90th percentile or above, maybe I should throw in the towel while I'm still ahead.

 

Thanks pricetrader99 for the article Chances of Trading Success. At this moment, I'm at a computer that won't open the page for me so I'll have to wait to read it but look forward to doing so.

[stpips89 10]

Thanks Jackb for your apologetic response. It shows a lot of class.

 

I appreciate that you too are interested in this topic and have spent considerable time researching the issue. Undoubtedly, you certainly have some insight into this question. I, on the other hand, have never researched it or even raised it prior to this posting. I have, however, heard it said again and again and I tend to be a bit suspicious.

 

Mind you, if someone told me that only 5% of casino players make money, I'd doubt that it could actually be that high!

 

Since I don't think that I fall into the ranks of those who are within the 90th percentile or above, maybe I should throw in the towel while I'm still ahead.

 

Thanks pricetrader99 for the article Chances of Trading Success. At this moment, I'm at a computer that won't open the page for me so I'll have to wait to read it but look forward to doing so.

 

No problem man! I hope you enjoy it...I thought it was good.

[wanr 10]

The funny thing with that stat is that new traders should then be considered as providers of high probability winning strategies.

 

If 90% of new traders are consistently losing money, placing reversed orders of a new trader would be have 90% of chances to be a consistent winning system!

[stpips89 10]

The funny thing with that stat is that new traders should then be considered as providers of high probability winning strategies.

 

If 90% of new traders are consistently losing money, placing reversed orders of a new trader would be have 90% of chances to be a consistent winning system!

 

That is funny, but I think less than 90% lose money..you should check out the article I linked to above. Basically, that 90% stat is usually saying 90% don't become "pro traders", but as the article points out, you can still make consistent money in the markets and be a full-time or pro trader.

[zdo 20]

If 90% of new traders are consistently losing money, placing reversed orders of a new trader would be have 90% of chances to be a consistent winning system!

 

You'd probably have a better chance at getting those 'opposite' results by placing same orders as the new trader but taking the 'reverse' exits that they take...

 

ie that "90%" / unspecified high percentage (hereinafter hi%) of losers comes more from not knowing how to lose instead of not knowing how to win.

ie "It's a pareto of a pareto. Knowing how to lose will get you up out of the lower pareto. Then knowing how to win will get you into the upper pareto of the pareto..." zdo

 

stpips89, re "90% stat is usually saying 90% don't become "pro traders""

No. It really is that a hi% do not continue trading - period, usually from unacceptable drawdowns or unrewarding experiences in market participation and positions (and, lest we forget, just plain bad beginners luck) Of course many beginners do start with categorically "bad" edges, but also many beginners do not . Can't site the sources now, but along about the time these 'legendary' (unspecified) hi%'s became 'statistical myths' (late 80's), there were also studies showing that more positions by beginners went immediately into the green than went immediately into the red. Now, I personally would explain / account for much of that by attesting that 'breakouts' did have a higher rate of continuation in those days than since 2000, etc etc ... but the point is - fading noob entries has less of a chance of working than does fading noob exits. Crazy ain't it?

[wanr 10]

Does anybody ever tried to build a consistent losing system using the top ten typical trading mistakes, then to reverse it to see if it can be consistently profitable?

 

All operators on the markets are trying to take money from each other right? Then it is not surprising that the resulting behaviour of a market is an optimized trap for the typical human trading psychology.

 

If we agree with that, it may be cognitively easier to create consistently losing systems than consistently winning ones. The "reverse engineering" of a system might better adapted to human mind and reasonning.

 

Or not...

[MightyMouse 12]

Does anybody ever tried to build a consistent losing system using the top ten typical trading mistakes, then to reverse it to see if it can be consistently profitable?

 

All operators on the markets are trying to take money from each other right? Then it is not surprising that the resulting behaviour of a market is an optimized trap for the typical human trading psychology.

 

If we agree with that, it may be cognitively easier to create consistently losing systems than consistently winning ones. The "reverse engineering" of a system might better adapted to human mind and reasonning.

 

Or not...

 

Traders do not avoid making typical trading mistakes. Traders who make money make mistakes all the time. A new trader harps on his mistakes, a seasoned trader takes the next trade. A trader who claims to make no mistakes, doesn't really trade.

[zdo 20]

wanr, re

Does anybody ever tried to build a consistent losing system using the top ten typical trading mistakes, then to reverse it to see if it can be consistently profitable?

Interesting question. What top ten typical trading mistakes do you have in mind?

 

… it may be cognitively easier to create consistently losing systems than consistently winning ones. The "reverse engineering" of a system might better adapted to human mind and reasonning.

 

Or not...

Or not. In general (imho based not on my own testing but on past discussions with the two best automation testing traders I know) , 'reverse it’ systems designed to do the ‘opposite’ of losing systems don’t test that well. My guess is that what is essentially converting an unprofitable 'reversion' system to an 'excursion' system will not likely make a quality 'excursion' system, (and vice versa) (and etc for various other types of systems)

 

All the best,

 

zdo

 

 

PS

 

(.... please don’t let the following deter you from answering my question above. It is a serious question ) - but as MightyMouse says

“Traders do not avoid making typical trading mistakes. Traders who make money make mistakes all the time. A new trader harps on his mistakes, a seasoned trader takes the next trade. A trader who claims to make no mistakes, doesn't really trade.”

 

My ‘trading mistakes’ are

1 Entering too early

2 Entering too late

3 Exiting too early

4 Exiting too late

By coincidence, I’ve already made every one of these mistakes, (and both the “too early” , 1 and 3, ones multiple times) this morning. I’ve also made three ‘execution mistakes’ - stupid errors in placing orders. Corrected two of them before fills, and on the other one, luckily came back to that window just after the fill and immediately scalped out with a few ticks profit. But, even with all those even (little bit worse than usual) mistakes, as far as absolute money levels of profit go, I could feel quite comfortable shutting down and walking out the door for the day.

 

ie noobs, make your mistakes as fast as possible. Learn from and correct them as fast as possible. This is one of the main reasons I go so harshly against the consensus grain and advise you to go real out the gate instead of beginning on sim...

[TickTok 10]

You must be some kind of a trader! Like to have some of your advice would you please...

[steve46 12]

Ladies/Gentlemen

 

Statements to the effect that "real" professionals make mistakes "all the time" are simply fantasy......Think for a moment...in what business that you know of, would a person keep his job if he/she made mistakes all the time...? NONE....

 

I have been visiting this website now for a while and one thing that stands out is the enduring self deception that goes on....look everyone makes mistakes...professionals less so that others, and that is why we are still here, when the amateurs have blown their accounts and are commenting loudly on websites about "how it really is"...

 

Another issue that bears comment is the core issue that no one seems to get....WHY so many fail.....in my opinion the problem is that professionals, people that aspire to do this for a living, learn that the most important aspect of trading is learning to manage risk, and that means not only learning how and where to place a stop, but how to evaluate each trades risk potential, how to decide WHERE to place stops, what size stop to use, how to decide on position sizing, whether to scale in and out of position, etc. These are just some of the elements of trading that I seldom see people posting about, probably because they don't have a clue as to how to approach the subject.....

 

Another issue that newbies never seem to deal with is volatility...and how to handle the dynamics of volatility in particular.....Just one example...you see folks talk about indicators and provide examples of how they are used, but NEVER does someone talk about how to use an indicator to manage swings in volatility (again probably because they simply don't know how its done)

 

To manage high volatility one might want to use Bollinger Bands tuned to a specific size and using a specific ema.....your choices (and the effectiveness of the technique) would depend your ability to diagnose and respond to variations in vol and the way you would do that is to learn to read the VIX.....ask yourself "when I see a chart of the VIX, how do I interprete it...what is a high or low reading and what can I do with that information"?

 

These are just some of the important issues that separate the pros from the retail crowd and when you read about it, I think you can start to see that it is not simply a matter of trying to find good setups to trade....

 

I hope that some of you take this to heart and try to find good quality education before you put your accounts at risk...

 

Best of luck to you

Steve

Edited August 18, 2011 by steve46

[MightyMouse 12]

Trading is a very inexact profession. Only an amateur who has yet developed as a trader believes that a trader can trade without mistakes.

 

Steve46 if you would like some help in this area, P.M. me. You seem to struggle with it and I would be glad to help you.

[steve46 12]

If you have something to say about the subject of the thread please go ahead otherwise, move on to a website where children are allowed to post...

Edited August 18, 2011 by steve46

[Wyckoff Trader 10]

Over the years I have seen many mistakes in "professional" trading, including...

 

- A professional trader not realise approx 800mio spot DEM'S booked the wrong way around - meaning an adjustment on the value date by 1.6yards

 

- A professional trader hitting the bid on EBS in cable, thinking he was selling Eur/Usd..

 

- A professional trader trading/calculating 5 yards of JPY as it was 5 yards of ITL

 

- A professional trader getting the premium/discounts the wrong way around when trading forwards and/or decimal places incorrect. .

 

- A professional trader having a "book" miraculously do a trade by falling on his keypad.

 

- A professional trader buying instead of selling & vice versa

 

- A professional trader misquoting prices

 

plus all the common faults like hesitation on entering/exiting, missing trades etc

 

 

Whilst Pro's may do it less, take action quicker after making a mistake etc than a non-pro would the reality is:

 

"Professionals" are just human.....humans err.....Period

 

 

Cheers