95% of traders fail???

easyguru · Dec 19, 2003

Focus on the 5% who succeed.
What makes them successful, Even though lot of people talk about techniques, tools, and attitude. there are other factors at work besides that.
In my previous career I worked in a service industry where people turnover was a big issue. So we had done lot of research on identifying criteria for success where we use to take the top 10% performers and look for statistically factors that can explain their success and build a profile of the successful people and similarly of those who did not succeed. Over years we found that across different occupation requiring different knowledge set, skills, or tools the factors determining success were pretty common and lot to do with psychology.
There is a vast area of research on this field and can help you a lot if you decide to be in the winning 5%.

JORGE · Dec 19, 2003

This info was taken off the SEC's website, and was part of the basis for enacting the PDT rules. The study claimed 70% of traders will lose everything, but those with proper training will not lose money. I think the 95% number came from some studies done after the bubble popped in 2000, and involved some small sample groups. I think traders of today are a different breed than during the bubble and failure rates should be much lower.

The North American Securities Administrators Association, Inc. ("NASAA") Project Group Report on Day Trading states that, based on a sample of 26 accounts, "70% of public traders will not only lose, but will almost certainly lose everything they invest." See North American Securities Administrators Association, Inc., Day Trading Project Group Report: Findings and Recommendations (Aug. 9, 1999) nasaa.org/nasaa/scripts/fu_display_list.asp?ptid=16 The Electronic Traders Association ("ETA") states, "after an initial period of three to five months of losses, 60-65% netted in the range of $28,000 per month, with the balance of customers losing $6,000-$8,000 per month." The ETA concluded that "the majority of those who day-trade after training do not lose money." Statement of Electronic Traders Association, Hearing Before the Permanent Subcommittee on Investigations (Sept. 16, 1999) http://electronic-traders.org/state030.html

oddiduro · Dec 19, 2003

Quote from JORGE:

This info was taken off the SEC's website, and was part of the basis for enacting the PDT rules. The study claimed 70% of traders will lose everything, but those with proper training will not lose money. I think the 95% number came from some studies done after the bubble popped in 2000, and involved some small sample groups. I think traders of today are a different breed than during the bubble and failure rates should be much lower.

The North American Securities Administrators Association, Inc. ("NASAA") Project Group Report on Day Trading states that, based on a sample of 26 accounts, "70% of public traders will not only lose, but will almost certainly lose everything they invest." See North American Securities Administrators Association, Inc., Day Trading Project Group Report: Findings and Recommendations (Aug. 9, 1999) nasaa.org/nasaa/scripts/fu_display_list.asp?ptid=16 The Electronic Traders Association ("ETA") states, "after an initial period of three to five months of losses, 60-65% netted in the range of $28,000 per month, with the balance of customers losing $6,000-$8,000 per month." The ETA concluded that "the majority of those who day-trade after training do not lose money." Statement of Electronic Traders Association, Hearing Before the Permanent Subcommittee on Investigations (Sept. 16, 1999) http://electronic-traders.org/state030.html

Thanks Jorge,

I knew that if one is properly trained, the odds are in your favor, rather than against, and that six figures is the norm, rather than the exception, if you are trained.

That should squash all this negativity about a good profession.

I appreciate the confirmation.

Regards
Oddi

DHOHHI · Dec 19, 2003

Quote from oddiduro:

Well, who says it's 80%?

Where is this data?

If a trader is as well trained as the undergrad going into a field of study, the odd are in their favor, I would think.

I believe the percentage is fairly high, more than 75% IMO. Those that have traded in offices know who's doing well, who's treading water and those who fail. During the years I traded at an office I'd watch guys get into trades, often be stubborn and not sell their losers and 1/4 point losses turned into 1 point, 2 points, etc. Soon they'd be underwater so much on trades they refused to close out that they'd start showing up at the office less and less since they'd tied up a good percentage of their capital. Eventually they were gone. I'd ask the office manager what happened to so and so. I'd be told "oh, they closed their account". And I saw a lot more of those kind of people (who ultimately disappeared) than I did traders who were still there making money on a regular basis.

And one also needs to consider that trading is an entrepreneurial endeavor, much like starting a small business, where I believe the failure rate is 80% or so in the first few years.

Also, all the training in the world won't help one to succeed if an (aspiring) trader refuses to accept losses. Psychologically it can be hard to accept that you lost money on a trade in a few seconds/minutes. To sit at a computer and realize you just lost $100, $200, $500 in a few minutes is not any fun. And human emotions often get the best of us ... the best trading strategy is weakened significantly if the trader loses their discipline.

Last, I think most traders have to be flexible and adaptable in that the market varies over time and what worked 3 years ago may not work as well today. So finding an approach that works in different markets is helpful. Many (failed) traders likely didn't want to work that hard.

indahook · Dec 19, 2003

Quote from oddiduro:

I agree with this post, number 2 is number 1.

Ditto.

DHOHHI · Dec 19, 2003

Quote from JORGE:

The study claimed 70% of traders will lose everything, but those with proper training will not lose money. I think the 95% number came from some studies done after the bubble popped in 2000, and involved some small sample groups. I think traders of today are a different breed than during the bubble and failure rates should be much lower.

The North American Securities Administrators Association, Inc. ("NASAA") Project Group Report on Day Trading states that, based on a sample of 26 accounts, "70% of public traders will not only lose, but will almost certainly lose everything they invest." See North American Securities Administrators Association, Inc., Day Trading Project Group Report: Findings and Recommendations (Aug. 9, 1999) nasaa.org/nasaa/scripts/fu_display_list.asp?ptid=16 The Electronic Traders Association ("ETA") states, "after an initial period of three to five months of losses, 60-65% netted in the range of $28,000 per month, with the balance of customers losing $6,000-$8,000 per month." The ETA concluded that "the majority of those who day-trade after training do not lose money." Statement of Electronic Traders Association, Hearing Before the Permanent Subcommittee on Investigations (Sept. 16, 1999) http://electronic-traders.org/state030.html

I think what defines "proper training" is debatable. We all trade differently (i.e. scalping, position trading, etc.) but in any case discipline is mandatory.

The study (above) was from 1999 which was the year the COMPX was up 87% or so. And that year it was easy to make (or lose) a couple points on YHOO, AMZN, DELL in a minute or so. I couldn't find the length of the study, whether it was a few months, more than a year or whatever. But with the market ripping up so much that year I think the study might have been more relevant to that trading environment than the markets today. We don't see the wild intra-day ranges as often anymore which can create a more challenging environment today. Also, it would have been interesting to see what the results were if they'd done a study in 2000, 2001 and 2002. Many new traders (that I've seen) seem to want to be biased to the long side and some avoid playing the short side. At the same time, I doubt there were as many new traders trying to break in the past couple years.

NUTSNEAL · Dec 19, 2003

Quote from easyguru:

Focus on the 5% who succeed.
What makes them successful, Even though lot of people talk about techniques, tools, and attitude. there are other factors at work besides that.

The 80/20 rule probably applies to trading profits. I suspect 20 percent of traders are making 80 percent or greater of the profits.

There are trading firms out there with success rates of 100% profitable traders starting with individuals with little or no trading experience. One firm I know of personally, which has been in business for several years, receives over 1000 resumes a month. I know a person they recently hired. He was one of only four hired over a four month period. They are extremely selective based on THEIR PROFILE for success. Traders are trained in classes, given a reading list for study, and watch and ask questions of existing traders as part of the learning process. Then as learning progresses traders start looking for swing trades to present as suggestions based on setup, risk reward ratio, etc. If one of their trade suggestions is taken, they will share in the profits of that trade. Traders with little prior experience will not make one single trade on their own for at least 12 months. This firm has not had one single trader fail and they have some very very successful traders. This trader made no capital contribution and will be on salary plus bonus.

axeman · Dec 19, 2003

Without #2, you can still blow out even if you have an edge.

That said.... YOU STILL NEED AN EDGE.

People here who say that #2 is really #1 are wrong in my opinion.

If this were indeed true, I would be able to randomly enter
trades and still make money as long as I have #2.

In fact... I should be able to flip a coin, pay a small commission
for each flip, and make money as long as I have money/risk management.

This is clearly NOT the case.
An EDGE is absolutely required.

Therefore, I can only conclude that #1 *IS*
a requirement as well as #2. While were at it, #3 is
also a requirement.

If your missing any one of these, you will blow out sooner
or later.

peace

axeman

Quote from tanp21:

I love the people who make it sound so easy.
1. Get an edge.
2. Money/Risk Management.
3. Discipline.

Well I for one am not sure that number 1 is true unless number 2 is your number 1. Money/Risk Management is the only definable constant.

There are different schools of thought on getting an edge: This is not poker where most hands have a set percentage of winning.
I wish it was.

Price patterns are great untill they don't work anymore. Support and Resistance works sometimes.

I think the most important thing is keeping a favorable risk to reward ratio with a solid risk managment plan. I am not sure there is anything more than that.

I guess you can do one more thing to get a 51/49% advantage: buy on any bar that is rising and sell anybar that is falling. However if your stop is to close then the ratio gets scewed, it will not be a 50/50 chance anymore.

I would love to know how anyone can prove to have an edge other then number 2 as stated.

I Missed Boat · Dec 19, 2003

Quote from JORGE:

This info was taken off the SEC's website, and was part of the basis for enacting the PDT rules. The study claimed 70% of traders will lose everything, but those with proper training will not lose money. I think the 95% number came from some studies done after the bubble popped in 2000, and involved some small sample groups. I think traders of today are a different breed than during the bubble and failure rates should be much lower.

The North American Securities Administrators Association, Inc. ("NASAA") Project Group Report on Day Trading states that, based on a sample of 26 accounts, "70% of public traders will not only lose, but will almost certainly lose everything they invest." See North American Securities Administrators Association, Inc., Day Trading Project Group Report: Findings and Recommendations (Aug. 9, 1999) nasaa.org/nasaa/scripts/fu_display_list.asp?ptid=16 The Electronic Traders Association ("ETA") states, "after an initial period of three to five months of losses, 60-65% netted in the range of $28,000 per month, with the balance of customers losing $6,000-$8,000 per month." The ETA concluded that "the majority of those who day-trade after training do not lose money." Statement of Electronic Traders Association, Hearing Before the Permanent Subcommittee on Investigations (Sept. 16, 1999) http://electronic-traders.org/state030.html

look at the date of this study.

I Missed Boat · Dec 19, 2003

Quote from oddiduro:

Thanks Jorge,

I knew that if one is properly trained, the odds are in your favor, rather than against, and that six figures is the norm, rather than the exception, if you are trained.

That should squash all this negativity about a good profession.

I appreciate the confirmation.

Regards
Oddi

As someone who has traded at and knows many people at many prop firms, I can say that this is absurd. Six figures now is very far from the norm! As people have noted as well, common sense would tell you this can't be the norm. This is worse than a zero-sum game (due to commission and MMs/specialists). If the average person were netting six figures, then who is losing gross this six figures?