95% of traders lose

[coda]

Is the 95% figure purely anecdotal? I've seen 80% mentioned elsewhere - either way, an intimidating number for aspiring newbies like myself...

I'm working my way through the old threads, trying to come up to speed and to get a feel for the real possibilities as opposed to the hype. I've been looking for references to published studies on exactly this "failure rate". So far, zilch, except for the anecdotal references like this thread.

Has anyone got links/references to actual studies on this?

I like alex's post for clarifying where he thinks the 95% figure applies - to the learning phase.

Is this be the consensus out there? That failure occurs during the ramp up process, and that once that hurdle is overcome, that the failure rate drops?

If so, what would that failure rate for the seasoned trader be?

Quote from alex.samant:

Honestly i believe there are steps in trading. I have been through 4 out of 5 of them.

The 95% ratio applies to the first 2 phases that most of the ones that make an attempt at trading go through.

Phase 1: You don't know anything and you are generally losing

Phase 2: You start learning and continue to learn and switch through systems and continue to lose. However, you have been through so many systems and managed to understand that most of them win as well as lose.

... snip ...

Now, i believe the 95% is valid in Phase 1 and 2, but then as you "survive" and get past the Eureka moment in phase 3 and go on to Phase 4, the percentage drops dramatically.

// first post

 

[alex.samant]

It's quite logical if you think about it. Seasoned traders and market wizards don't have a 95% chance of losing.

That's because they have been through the learning curve.

But this is the difference between traders. Some go through the learning curve, some dodge it, some never make it.

It's in our mind. If you have the right stuff to fully embrace the true nature of the markets, you eventually succeed. Wthout secrets, holy grails and so on.

If you don't have it, you have to face the facts.

Having it or not having it is not all about your inner attributes. It can depend on your environment, not allowing you to be what you want to be.

And the good news is that you have a lifetime to get there. So if you need to take it slow, take it slow......

 

[alex.samant]

Oh... and you don't even need a mentor. The market is the true mentor. Just open your eyes and let go of preconceptions.

Be ready to be a contrarian to yourself. Be patient and always correct if there is a mistake. ALWAYS work with a plan and for a pre-established period of time. Draw conclusions, adjust, move on.....

This is a business, treat it likewise.

 

[QuantPlus]

Quote from CaptainObvious:

I don't believe that 95% actually lose money. Fail to become successful...yes, and even that depends on how you define success. Failing by my definition is that you cannot live on your trading income alone. By that measure I am a failure, yet I am profitable, just not profitable enough.
I believe most people that really make a serious attempt end up failing, but not losing money. It's just that their profits are too small to justify all the time and effort that goes into trading, so they simply give it up. Do some lose their shirts? Certainly! But I really do believe most just lose interest and move on to the next "bright idea".

Trading and poker and sports betting are Zero Sum Games...
(If one ignores transaction costs)...
While long-term investing like Warren Buffet is NOT.

** All Zero Sum Games are similar **.

They attract every math genius on the planet...
Like moths to a flame.

And since only 1-2% of people are actually on the genius level for any given SKILL...
All Zero Sum Games...
Have roughly 5% long-term winners and 95% long-term losers.

In fact...
When analyzing a prospective trader...
The first question I ask is "Tell me about your Zero Sum Game history".

If a person is not f*cking OBSESSED with Zero Sum Games...
Forget it...
They have NO CHANCE as a trader.

 

[BlowFish]

If Pareto's principle is to be believed it is likely to be closer to 80%.

Still 83.7% of statistics are made up on the spot so not to worry.

Trading is about cultivating a set of beliefs that are based (at least reasonably closely ) on 'reality'. Many traders don't even get that far. The second step is to act on those beliefs rather than to gratify deep (and often un realised) primoridal urges.

 

[PitchBlack]

Quote from QuantPlus:



If a person is not f*cking OBSESSED with Zero Sum Games...
Forget it...
They have NO CHANCE as a trader.

I don't agree. The only thing that counts is to be better than all the rest. If you are the best you will always be a winner, zero sum game or not.

Zero sum only indicates that it is more difficult to be a winner, because others have to loose what the winners win, and on top of that commissions and slippage reduce the potential profits even more.

If zero sum game is important, how can you incorporate that in your system to make it better? I don't think you can, because zero sum games has nothing to do with generating the ideal entries and exits. It only gives an indication of the maximum potential profit. The potential is smaller in zero sum games.

 

[QuantPlus]

Quote from spike500:

I don't agree. The only thing that counts is to be better than all the rest.

Your post is OK...
But let me make my point differently...
Point out what makes you "better than the rest".

Remember in Grade 6 when you were 11...
There was always the "math genius" that could do high school level math...
And, in reality, was so far ahead that he might as well be Einstein?

Well... fast forward 30 years.

That "math genius" went on to earn a Masters/PhD in math/stats/engineeering...
That "math genius" now has a well-capitalized, successful trading firm...
That "math genius" is an obsessed workaholic...
That "math genius" is a very strong poker player...
That "math genius" is YOUR COMPETITION...
And he is ** much further ** ahead of you than when you were 11.

People think that the financial markets are some kind of esoteric figment...

NO...

When you trade...
You are competing directly against roughly 10,000 people like the "math genius" I just described...
And let's not even talk about the 50 different ways you can be cheated by sleazebags on every level.

That's why only 5% win...
And anything else is a Big Lie... or Hopelessly Naive... or Willfully Delusional.

 

[fearless9]

Quote from spike500:

I don't agree. The only thing that counts is to be better than all the rest. If you are the best you will always be a winner, zero sum game or not.

Quite correct spike500, but is even easier than that.

All you have to be is better than 95% of the rest.

Remember the two guys running from a grizzly bear and one says to the other....
"we can never outrun this bear"
the other guy replies................
"I don't have to. All I have to do is out run you"

 

[nidarian]

Quote from spike500:


If zero sum game is important, how can you incorporate that in your system to make it better? I don't think you can, because zero sum games has nothing to do with generating the ideal entries and exits. It only gives an indication of the maximum potential profit. The potential is smaller in zero sum games.

Why do you think the potential is smaller in zero sum games? What is your logic behined this statement? Please explain.

 

[PitchBlack]

Quote from QuantPlus:

Your post is OK...
But let me make my point differently...
Point out what makes you "better than the rest".

Remember in Grade 6 when you were 11...
There was always the "math genius" that could do high school level math...
And, in reality, was so far ahead that he might as well be Einstein?

Well... fast forward 30 years.

That "math genius" went on to earn a Masters/PhD in math/stats/engineeering...
That "math genius" now has a well-capitalized, successful trading firm...
That "math genius" is an obsessed workaholic...
That "math genius" is a very strong poker player...
That "math genius" is YOUR COMPETITION...
And he is ** much further ** ahead of you than when you were 11.

People think that the financial markets are some kind of esoteric figment...

NO...

When you trade...
You are competing directly against roughly 10,000 people like the "math genius" I just described...
And let's not even talk about the 50 different ways you can be cheated by sleazebags on every level.

That's why only 5% win...
And anything else is a Big Lie... or Hopelessly Naive... or Willfully Delusional.

There is to me no direct link between math geniuses and successful trading. Math is a tool.,if you can use it it's OK, but if you cannot use it all your knowledge is worthless.
You only need an average intelligence to make money, i'm the living proof.
Instead of believing what others said i experimented myself to see what the outcome would be. As i'm not that smart it took me 10 years to be consistent and profitable. Since 2000 i never had a down year, neither a down month, neither a down week. I must admit i had some loosing days.

I have been in contact with several geniuses in math, working in the computer industries ( Microsoft, Intel, Philips, prof at a university). People that have maybe 1000 times more mathematical knowledge and intelligence than i have. But they are not able to make the returns i make. You know what they miss? The creativity and the original thoughts about how to build a good system. These things you cannot learn at the university, you are born with it.
But it is clear that, the more tools you have, the higher the probability that you can beat the others.