98% of Traders Fail? Says Who...?

Quote from wareco:



"Similarly, Mr. Bright, of Bright Trading, stated in a press account that fewer than 10% of day traders will turn a profit if the trader universe includes those who trade out of their homes."

http://www.senate.gov/~gov_affairs/022400_report.htm
More...

Fewer than 10 % , close to 2 % , Don ?




" 5. Though There Is No Definitive Study Regarding the Profitability of

Day Trading, the Best Evidence Suggests That Only a Small Fraction

of Novice Day Traders Are Ever Profitable and That, Even among

Well Capitalized and Experienced Day Traders, a Majority Will Lose Money



In 1999, the Washington Securities Division examined every day trading firm in the State of Washington and, in the process, conducted the most comprehensive profitability analysis that PSI staff have seen to date.[232] The Washington examiners analyzed the day trading account records at the seven day trading firms doing business in the State of Washington.[233] The examiners reviewed day trading account records at each firm for the life of every account, commencing at the opening of each account and ending on the day of the exam.[234] At five of the firms, the examiners reviewed the records for every account.[235] For All-Tech and Richmark Capital Corporation (ARichmark@), however, the examiners reviewed a sampling of accounts because the firms are so large.[236]



Based on this comprehensive analysis, the Washington examiners concluded that, net of commissions, 77 percent of the traders were unprofitable.[237] Moreover, even for the remaining 23 percent that incurred net gains, the profits were small in comparison to the individual losses suffered by the vast majority of day traders.[238] PSI staff find the Washington State study to be the most accurate picture of profitability in the day trading industry because it is based on the most representative sample of day trading accounts. The examiners did not limit their analysis to one firm as was the case with the NASAA Report and the profitability data submitted by Momentum, Tradescape and Broadway. In addition, the examiners determined account profitability based on the life of the account rather than a limited snapshot of a day trader=s success over several months. Lastly, the examiners reviewed all accounts at five of the seven firms, which accurately measures the high turnover that frequently attends day trading and that is often disguised by profitability data that averages the success rates of a changing universe of traders over time. "


http://www.senate.gov/~gov_affairs/022400_report.htm
 
I agree with the statistic of 95% to 98%...

Only a few people can consistently implement a strategy which embodies several factors at each phase of the trade (entry, exit, risk management) which intrinsically make a normal human being feel uncomfortable -- particularly during phases of negative feedback from the market (losses) for doing what comes uncomfortably...

Invariably, the majority of aspiring traders will deviate from what may well have been a winning approach over the long run to something which feels more comfortable but is actually a losing approach...
 
I work for a broker and 99% or the day traders get hit and lose sooner or later. It takes a very special kind of character to stay sane day trading and not let it get to him. human are weak when it comes to emotional control. the ones that are have the emotional streangth lose before they get the change to learn the basic principles of discipline risk reward entry and exit plans etc...that been said day trading can be done but only a very few ppl figure it out before they go broke....
 
The percentage varies according to countries. For example more people lose money in France because domestic stock brokers are very expensive. The American and British have a large advantage thanks to the brokers known by any reader of this forum.
 
Quote from morka:

Most of studies posted here do not have a viable dataset, in my opinion.

This is a better study of the Taiwanese market, that used entire exchange data on *every* market participant, and *all* their transactions from 1995 to 1999 (or so they told us, hehe). Sound like a solid dataset, in my opinion.

http://faculty.haas.berkeley.edu/odean/papers/Day Traders/Day Trade 040330.pdf

And some more, from a different angle:

http://faculty.haas.berkeley.edu/odean/papers/Taiwan Performance/
More...

Thanks for posting these links morka!

Quoting from 'Do Individual Day Traders Make Money?
Evidence from Taiwan':

"There is considerable cross-sectional variation in the performance of day traders.
Over the typical six month horizon, using lower range assumptions regarding transaction
costs, less than 20 percent of day traders earn profits net of transaction costs.
These results paint a rather dim portrait of day traders. However, we do document
a select few are able to consistently earn profits sufficient to cover transaction costs. We
identify day traders who earn substantial profits over a six-month period and analyze the
performance of their subsequent trades. These profitable day traders continue to earn
stellar returns. The average day trader in this group earns a semi-annual income of over
$NT 1 million from his day trading activity, though the group’s median income is a more
modest $NT 126,000. The stocks they buy outperform those that they sell by 62 basis
points per day. These profits survive transaction costs. In other words, there is strong
evidence of persistence in the ability of day traders.
Our analysis makes clear the need for comprehensive risk disclosure. Prospective
day traders should be apprised of their likelihood of success: only two out of ten make
money; fewer do so consistently."

Happy trading!
BullsEye
 
If it is true that 98% of new traders make trading decisions using emotion as part of their criteria (their gut), I agree with the posted percentage of failures.
 
Quote from BullsEye:

The average day trader in this group earns a semi-annual income of over
$NT 1 million from his day trading activity, though the group’s median income is a more
modest $NT 126,000.
More...

To put this into prospective, 1 $NT = 0.03 U.S. dollars.

That is, only 0.5% earned more than $7500 /year.

And that was in "raging nineties".
 
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