If the odds are 50/50 why do most people lose ?

N

neveral0ne

1.Lets face it, you are either right or wrong, things can go in your favor or against, only 2 directions where the market can go, but why is it that most people lose far more than 50% of the time? More like 85% positions are losers 15% are winners....



2. I checked back on my performance for the past 1 month (ninja trader account thing) and for 1 month I have 57% winners, 43% winners yet I am still negative overall in performance (inc. commissions)
 
1. commissions.

Solution: try to get the commissions that suit your trading style while not compromising level of service.

2. bigger losers than winners.

Solution: when you are winning you have to increase your size in order to make up for future losers.
 
Most traders are risk adverse with their profits and risk-taking with their losses. I read this in Market Wizards.

Basically that means, when you have a profit, you are more apt to cut the trade short, whereas if you have a loser, you are more apt to risk your current losses in "hopes" that it will recover.

Thus, your losses will always be bigger than your profits.
 
Quote from neveral0ne:

1.Lets face it, you are either right or wrong, things can go in your favor or against, only 2 directions where the market can go, but why is it that most people lose far more than 50% of the time? More like 85% positions are losers 15% are winners....

2. I checked back on my performance for the past 1 month (ninja trader account thing) and for 1 month I have 57% winners, 43% winners yet I am still negative overall in performance (inc. commissions)
More...

2 reasons:

Trading costs; slippage and commission

Money management. Few traders will bet a set amount. If you enter your trades then set stops for your exits that are an equal distance from your entry you have a 50 / 50 situation. It is a good exercise to see if your strategy has an edge big enough to beat the trading costs.
 
Quote from neveral0ne:

1.Lets face it, you are either right or wrong, things can go in your favor or against, only 2 directions where the market can go, but why is it that most people lose far more than 50% of the time? More like 85% positions are losers 15% are winners....



2. I checked back on my performance for the past 1 month (ninja trader account thing) and for 1 month I have 57% winners, 43% winners yet I am still negative overall in performance (inc. commissions)
More...

the others are correct. winning % does not really mean anything...

money management - expectancy - edge - etc.
 
The market can go sideways, especially relative to your cost. If the change in price is less than the spread + commish, you lose, even if the change in price went in your favor. Changes in price against you are magnified by the spread + commish - in 100% of the cases.
Slippage has to be calculated as well, and the only way to do this is to actually trade for real with real money and see what it costs you.
Unless you calculate what all of this does to the alleged equity curve of that perfect system you came up with, and do this correctly and rigorously, you will lose even if your system was a "winner".
All that counts is the net. If you can't net it, it ain't real.
 
Bottom line is the odds are not 50-50. You're not flipping a coin. And yes, most people sell their winners too quickly, and hold onto their losers too long.
 
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