Why the Majority of Traders Lose?

[khamore1 10]

Does it make sense?

 

I was always told by my trading instructor: “do something different than everybody else”. Because 95% of traders lose money

 

Maybe someone here will help me solve the puzzle.

 

If I’m part of this 95% of traders it also means that we are the majority of traders who decided to enter a trade in a certain direction, so how come we lose? Isn’t the market move to the direction where the majority of contract entered? So why we lose?

 

Here are a couple of answers I received which caused me more confusion

 

1. Goldman Sucks equals 10,000 traders , with the same breath they say “the market can’t be manipulated”

 

Here is my confusion, if the Goldman can go against 95% of traders and succeed than in my opinion they can own the world. Which they don’t. So why we lose?

 

Based on this information I come to the conclusion that 95% of traders are making money and only 5% are losing, Since I’m part of this 5% of losers I decided to switch the buttons on my computer. Now the “SELL” button is the “BUY” and vice versa.

 

What do you think?

[SIUYA 11]

you will probably still loose by switching the buy and sell buttons..... as it is also argued that its more about trade management than anything else.

 

who knows.

The one thing that I think a lot of people miss is this. The vast, vast majority of trades in a market today are not actually done by traders - it is done by benchmarking institutions, arbitragers, market makers, portfolio adjustments......their measures of win loose might be different to yours/mine/ours as pure speculators to them. (dont you love it when you mutual fund says we outperformed and only lost 15% when the market was down 15.5%)

 

Often when someone says they are a trader and they work at a bank/institution they are actually an operator of orders or a market maker of some sort. Maybe this site and others should be called Speculators laboratory.

 

Anyway for how/why this might change the numbers slightly and put a different perspective on it.

[henryduncan12 10]

95% of traders still losing their money while only 5% are making money. I think this puzzle can be solved by your trading instructor. SIUYA's reply also make sense.

[wrbtrader 10]

The 95% traders losing statement is false, inaccurate and misleading that was perpetrated by internet chatter in the late 1990s.

 

In contrast, there were research by the SEC (Securities Exchange Commission), NASAA (North American Securities Administrators Association) and other market government agencies did their own research between 1998 - 2002 of stock traders that show 60% losing, 30% profitable and 10% marginal profitable arise after a research analysis of brokerage accounts of "retail" (those individuals doing their own trading and investing).

 

There's also research by the NASAA of one particular stock brokerage firm that 70% of public traders (retail traders) lost "everything" in their accounts.

 

In contrast, a pssst off employee of a futures broker released confidential data at a discussion forum of retail trading clients of all the clients of that one particular broker he/she had worked for back in 2008 for the prior year of 2007. The data showed 89% losing, 7% profitable and 4% marginal profitable. If I remember correctly, there weren't more than 500 names (clients) in that data.

 

Although the above info is just a "small sample size"...I do not believe (I could be wrong) there has actually been an extensive research of most brokers on this planet that would represent most retail traders on this planet. Also, as to comparing the profitability of retail traders (you and I) versus the profitability of traders on the floor, banks, institutions and others...it's comparing apples to oranges.

 

The other point I'm making...the 95% is a myth perpetrated by those that have a strong bias against day trading back in the late 1990s. Further, in today's markets, depending upon what you trade / country / broker...profitability of day traders can dramatically change. In addition, those that were not day trader such as those that didn't open and close positions in the same day...their profitability level was very similar. Thus, it's also a myth that swing traders outperforms day traders.

 

It doesn't really matter if its 55%, 60%, 70%, 80%, 90% or whatever number someone post on the internet that represents losing traders. The fact remains that most retail traders will lose regardless if you're scalping, day trading, swing trading, position trading or longer term trading.

Edited February 3, 2012 by wrbtrader

[bobcollett 10]

Does it make sense?

 

I was always told by my trading instructor: “do something different than everybody else”. Because 95% of traders lose money

 

Maybe someone here will help me solve the puzzle.

 

If I’m part of this 95% of traders it also means that we are the majority of traders who decided to enter a trade in a certain direction, so how come we lose? Isn’t the market move to the direction where the majority of contract entered? So why we lose?

 

Here are a couple of answers I received which caused me more confusion

 

1. Goldman Sucks equals 10,000 traders , with the same breath they say “the market can’t be manipulated”

 

Here is my confusion, if the Goldman can go against 95% of traders and succeed than in my opinion they can own the world. Which they don’t. So why we lose?

 

Based on this information I come to the conclusion that 95% of traders are making money and only 5% are losing, Since I’m part of this 5% of losers I decided to switch the buttons on my computer. Now the “SELL” button is the “BUY” and vice versa.

 

What do you think?

 

Hi khamore1

Your idea has some merit. You just need to place the BUY and SELL buttons in right place

Heres an idea

Select a chart with about 5 days data.

Draw a horizantal line at the LOW and at the HIGH

Thats the 5 day range.

Now divide that range into 4 horizontal sectors.

You use the BUY button in the bottom sector

You use the Sell button in the top sector

When the price in in the middle sectors you water the potplants.

If the price stays in the middle you cant trade, and this could last awhile.

And maybe thats why 95% of traders loose. Trading in the middle

But you are not part of the 95% losers AND your potplant flourish.

regards

bobc

[Tams 20]

Why do the majority of the patients died?

 

they were incurable to begin with.

[bobcollett 10]

Hi khamore1

Heres some more.

You need more than one market to buy low and sell high

Go to "How much weight should one put on market direction."

Post 18 by Blowfish

Voted best post of 2011 (One voter)

regards

bobc

[khamore1 10]

Hi khamore1

Your idea has some merit. You just need to place the BUY and SELL buttons in right place

Heres an idea

Select a chart with about 5 days data.

Draw a horizantal line at the LOW and at the HIGH

Thats the 5 day range.

Now divide that range into 4 horizontal sectors.

You use the BUY button in the bottom sector

You use the Sell button in the top sector

When the price in in the middle sectors you water the potplants.

If the price stays in the middle you cant trade, and this could last awhile.

And maybe thats why 95% of traders loose. Trading in the middle

But you are not part of the 95% losers AND your potplant flourish.

regards

bobc

 

 

 

 

 

 

 

 

Bob, I want to thank you for your advice and I need further assistance from you,

 

your strategy works only in a ranging market but not in a trending market, since 80% of the time the market is ranging your strategy will work within that percentage, but how you handle the trending market, the other 20%?

 

I used your strategy for a while and I was making a $1000 a day before even taking a lunch, the problem is I was losing $10,000-$15,000 a day when the market was trending

 

Here I need your advice, how you know it’s going to be a trending day to switch this strategy?

[wrbtrader 10]

Bob, I want to thank you for your advice and I need further assistance from you,

 

your strategy works only in a ranging market but not in a trending market, since 80% of the time the market is ranging your strategy will work within that percentage, but how you handle the trending market, the other 20%?

 

I used your strategy for a while and I was making a $1000 a day before even taking a lunch, the problem is I was losing $10,000-$15,000 a day when the market was trending

 

Here I need your advice, how you know it’s going to be a trending day to switch this strategy?

 

There are many threads or messages here at Traderslaboratory and other forums that traders explains how to recognize range price actions and how to recognize trend price actions.

 

Thus, if you know your trade signals performs poorly in trend price actions...you have several options:

 

• #1) Identify its a trend in its early stages and then ignore any trade signals to trade "against" that trend.
   
   
  
• #2) Identify its a trend and then lower your position size, tighten your stop loss and lower your profit expectation if you don't have the discipline to ignore trading trend price actions.
   
   
  
• #3) Identify its a trend and use a different trade method that's suitable for trend trading. Thus, you have a trade method for range price actions and a trade method for trend price actions...overall two different trade methods for different types of market conditions.
  

 

With that said, most trends or strong directional price actions are the result of key market events (e.g. FED, IMF, ECB, Economic Reports, Global Economic Events and anything else along that path). Therefore, if you want to know when a trend has a chance of developing...you need to pay attention to those schedule key market events and the unexpected breaking news key market events.

 

Just think, you're losing 10k - 15k per trending day...you have great incentive to pay attention to how the price action reacts to these key market events. Also, it doesn't matter what the specific details (numbers) of the key market event...what matters is that you know there will be a price action reaction and that there could be a trend developed from the event. Simply, if price reacts and breaks outside of your identified range price action...you will then know which of the above options to use (#1, #2 or #3).

 

Also, if I was in your shoes and I knew I only make 1k on range days and lose 10k - 15k on trend days...I would start my own thread here at Traderslaboratory, post a lot of charts of what I consider to be range versus trend, discuss my trade strategy (from entry to exit) and ask for help in comparison to starting these types of discussions within a thread that has a completely different topic.

 

You must be rich and can afford losses like that because there's a lot of trend days in any given year, 20 - 30% per month or 1 - 2 per week depending upon the trade instruments you're trading or the numbers you mentioned are via simulator results.

[Obsidian 10]

Probability of having a successful trade is not that low if you increase the time frame (and reduce the leverage)

[bobcollett 10]

Probability of having a successful trade is not that low if you increase the time frame (and reduce the leverage)

 

Hi Obsidian

And what are you going to do after lunch?

regards

bobc

[bobcollett 10]

Bob, I want to thank you for your advice and I need further assistance from you,

 

your strategy works only in a ranging market but not in a trending market, since 80% of the time the market is ranging your strategy will work within that percentage, but how you handle the trending market, the other 20%?

 

I used your strategy for a while and I was making a $1000 a day before even taking a lunch, the problem is I was losing $10,000-$15,000 a day when the market was trending

 

Here I need your advice, how you know it’s going to be a trending day to switch this strategy?

 

Hi khamore

I am going to ignore your question and try go a bit deeper into why the majority of traders loose.. We all look for certainty in life in everything we do.We are trained from a young age to be sure of the facts. "Did you lock the door ?"Did you turn off the stove?" But because of the randomness in the market , there is no certainty in trading.

.Its a probability outcome.

Traders keep tweeking/ changing their trading systems to get it right. That certainty.And because its impossible they continue to loose.

What changed my thinking (and profitability) was accepting that I can only win 50% of the time. I am simply not good enough or experienced enough to achieve more. This reasoning hurts my ego no end. My certainty is 50%

And as long as I set my risk:reward ratio at more than 1:1, I win.

Even 1: 1,0001 is a win .Ignore commission

Now there is no more searching for the holy grail.

There are two more points to the above which I will explain next time

Kind regards

bobc

 

"I'll be back"

[bobcollett 10]

Hi khamore1

My second point is you must have an Edge.

And if you are using Technical analysis , candle sticks or similar, the same as a million other traders,then you've got no edge.

Now lets take a new trader who trades Demo very nicely.

The new trader goes live and his first 5 trades are losers.He did everything correctly but got hit by randomness.

Whats he going to do now?

Tweek.

So my third point is, you need a bit of luck.

regards

bobc