How is it possible that most traders burn their money so fast when buying stocks is a coinflip?

[trade5656]

i mean if you randomly choose a stock and then randomly buy or sell it there is exactly 50% chance the trade will go your way and 50% it will go against you, so if you apply strict trading rules (like leave the trade at 10% (or any other %) profit and not to risk more than 2-3% per trade - how do people burn their money so fast? because with that strategy you will be pretty much breakeven (before broker fees ofc) so you money won't burn straight away for sure

how does it happen? i read the stories of losing deposits in days or hours everywhere

 

[Overnight]

...so if you apply strict trading rules (like leave the trade at 10% (or any other %) profit and not to risk more than 2-3% per trade - how do people burn their money so fast?...

Well, there you have it. RR ratio. If the stock fluctuates up and down 8% before reaching 10% profit target, you're stopped out when it goes down 4% before bouncing back to 10%

 

[java]

That 50/50 didn't include the fixed stop. Once you introduce a stop and target I think you will find in certain time frames it is no longer 50/50, but even if it was you gotta pay the Man.

That's why I don't use stops or targets, I like being as close to 50/50 as I can be (unless you call legging into a spread a stop or a target because it certainly can be if you look at it a certain way.

 

[dealmaker]

i mean if you randomly choose a stock and then randomly buy or sell it there is exactly 50% chance the trade will go your way and 50% it will go against you, so if you apply strict trading rules (like leave the trade at 10% (or any other %) profit and not to risk more than 2-3% per trade - how do people burn their money so fast? because with that strategy you will be pretty much breakeven (before broker fees ofc) so you money won't burn straight away for sure

how does it happen? i read the stories of losing deposits in days or hours everywhere

when you add commissions, slippage, overhead then you drop below 50/50...

 

[Spectre2007]

The easiest way is to destabilize a system that has high entropy. Balanced on a razor blade. If loosing money is 50/50, than inherent tendencies speed it up. Taking small gains and large losses. Traders from greed create a entropy system forced to take excessive risks, high leverage. So if you do the opposite of human nature, you will be part of smaller subset of the population. A large subset can't take from a small subset. Like a single predator managing a flock of potential food sources. If 10 predators go after 1 than there won't be any prey left. So cultivating tendencies of the few will naturally evolve to promote longevity in the system of the few versus the many in the flock.

 

[lawrence-lugar]

How is it possible that most traders burn their money so fast when buying stocks is a coinflip?"

This is a rather complex answer...to answer.
Alot of people have tried to solve this complexity by selling their so-called trading wisdom in books and services to prospective would-be traders ...and yet, more than 90% of them essentially still fail, or get nowhere.

Trading is a risky venture -- and requires certain...balls, and gusto and brains, or common sense.
Sounds easy or fair enough, but alot of people are lacking in those; They should just be longer term investors in the S&P 500, SPY.

I kind of equate being a great trader...to being Christopher Columbus -- Most traders are just Disneyland boat riders.

 

[southall]

i mean if you randomly choose a stock and then randomly buy or sell it there is exactly 50% chance the trade will go your way and 50% it will go against you

Traders naturally like to buy weakness and sell strength. This behaviour is probably worse than random entry.
Coupled with riding losers and cutting winners this is all deadly.
Also traders naturally like to add to losers instead of adding to winners. So winners are small and losers are big.

Do not under estimate commissions for active day traders, 20 trades a day = 5000 trades a year, that alone could be 50% of the account gone to your broker within six months.

Also cannot under estimate bid/ask spread for some types of day traders
Even a 1tick spread is large if you are aiming for say 20 tick stop with a 20 tick target.
Trade is no longer 50:50 bet when a spread is involved.

Then you also have skid/slippage on fills in fast markets.

And i forget to mention leverage, a day trader can use margin 4:1 in stocks and 40:1 in futures and fx, to destroy the account pretty quick.

 

[systematictrader]

i mean if you randomly choose a stock and then randomly buy or sell it there is exactly 50% chance the trade will go your way and 50% it will go against you, so if you apply strict trading rules (like leave the trade at 10% (or any other %) profit and not to risk more than 2-3% per trade - how do people burn their money so fast? because with that strategy you will be pretty much breakeven (before broker fees ofc) so you money won't burn straight away for sure

how does it happen? i read the stories of losing deposits in days or hours everywhere

plus people usually use margin which is another quick way to burn faster, options are also another form of leverage

 

[systematictrader]

How is it possible that most traders burn their money so fast when buying stocks is a coinflip?"

This is a rather complex answer...to answer.
Alot of people have tried to solve this complexity by selling their so-called trading wisdom in books and services to prospective would-be traders ...and yet, more than 90% of them essentially still fail, or get nowhere.

Trading is a risky venture -- and requires certain...balls, and gusto and brains, or common sense.
Sounds easy or fair enough, but alot of people are lacking in those; They should just be longer term investors.

I kind of equate being a great trader...to being Christopher Columbus -- Most traders are just Disneyland boat riders.

i like ur comparison but i think i got a better one, being a great trader is like being Arnold in his fitness prime, Why that comparison, because all the tools and resources are out there you just got to apply YOUSELF, eh?

 

[Overnight]

...
Even a 1tick spread is large if you are aiming for say 20 tick stop with a 20 tick target.
Trade is no longer 50:50 bet when a spread is involved...

How can there be anything less than a 1-tic spread between bid and ask without an actual transaction? If bid and ask were the same at all points in time and no transactions occurred, a black-hole would open somewhere on earth, and we'd all die at the speed of light.