Survival in the trading world. What's your lifespan going to be?

[Liberty Market Investment]

We all (hopefully) look at Trading as a kind of business, as we invest our money and time in the hope of earning income. At first glance, this "business" has many advantages. The earning potential here is theoretically unlimited, you are not tied to the place of work and you are your own boss. Besides, this business can be started with a small initial investment and carried out in parallel with the main job. Your success here does not depend so much on the level of education or IQ. Even 15 and 90-year-olds do trading, and the business is scaling.

However, the "mortality" statistics among traders is much more depressing than in traditional businesses. According to data collected from various sources, no more than 10% of traders "live" to their 10th anniversary. In 15 years, only 1% will find trading economically viable. For the remaining 99%, trading will remain unprofitable, and most will get out of business.

The main reason for the high "mortality" is a low probability of successful trading in the long run. A trader has to put together 3 things to be successful:

• the ability to find a strategy for generating buy / sell signals with a positive mathematical expectation;
• ability to establish money / risk management;
• the ability to control your emotions and avoid behavioral distortions.

These are three supports - like the legs of a tripod stool. If you are sitting on the stool and one of the legs is taken away, you are eventually going to fall.

Let me finish with the positive news though. Here is a quote from Margaret Thatcher:
“The only way to get to the top of a ladder is to climb step by step, one at a time. And in the process of this ascent, you will suddenly discover in yourself all the necessary qualities, skills and abilities necessary to achieve success, which you, it would seem, have never possessed. "

 

[cesfx]

Maggie Maggie... When I think of Maggie I think of war as way to achievement, and monster puppets out of a Pink Floyd nightmare...

 

[newwurldmn]

Compared to an operating business (pretend it’s a subway franchise as most of the people on here can scrape enough money to own one)

subway franchise:
Will cost 100k + 300k financing. The SBA will give you favorable loans for this. You get good financial leverage.
Every sandwich you sell will net you like $4.
From that you have to pay wages, rent, and kickbacks to corporate.
you earn on every sandwich but the question is can you sell enough sandwiches to cover your costs. The more sandwiches you sell above the break even, the more money you will make on the same 400k initial capital base. You get operating leverage.
finally as your platform is built, you can hire people to do many of the jobs - providing you will managerial leverage.
The world can change and hurt your earnings (like the office building near you can close) but these are slow and often predictable. Often your costs will drop with those changes as well.

trading:
Start with 100k and get 400k buying power. Broker can pull your buying power anytime they want. Poor financial leverage.
Unlike sandwiches every trade doesn’t go in your favor. So not only do you have to worry about throughput, you have to worry about earning on every trade. Poor operating leverage.
Second, the world can change overnight. Your strategy can blow up on any day without a moments notice. As a result you can’t really build a machine like in the sandwich shop. Poor managerial leverage.
If you want to add a strategy, you have to do so within your current equity base. You can’t go borrow more money. You don’t get this additional operating leverage. Poor operating leverage.
It’s challenging to hire someone to do some of your tasks: you don’t get managerial leverage.
finally IQ matters a lot. You are competing in the smartest industry on the planet. And your competitors are better capitalized and have better systems and information than you. Industry moves at very fast pace.

the advantage to a trading business is liquidity, the lack of significant fixed investment, and very short feedback loop.

I run an operating business and a trading book: a shitty year in the operating business still makes some money. A shitty year in the trading book is a permanent impairment of capital that I spend the next year recovering from.

 

[themickey]

If one starts out on their own trading, they will very highly likely be on Struggle Street for many years.
But if you're a young guy mentored by perhaps Dad (thinking of Dest here) who is clued up, there should not be too much pain.
Mentoring is the key but unfortunately mostly it's out of reach for the majority.
Mentoring is out if reach due to unavailability, cost, inconvenience for the know-it-alls etc.
But as OP mentioned:

“The only way to get to the top of a ladder is to climb step by step, one at a time. And in the process of this ascent, you will suddenly discover in yourself all the necessary qualities, skills and abilities necessary to achieve success, which you, it would seem, have never possessed. "

But this route requires much perseverance, dedication and if you're a sociable extrovert type person your chances are about zero imo, if going it alone.

 

[Fonz]

View attachment 252122

.... However, the "mortality" statistics among traders is much more depressing than in traditional businesses. According to data collected from various sources, no more than 10% of traders "live" to their 10th anniversary. In 15 years, only 1% will find trading economically viable. For the remaining 99%, trading will remain unprofitable, and most will get out of business.
...

This is refreshingly honest (don't take that the wrong way please) even if I think it doesn't take 15 years to bring the number to 1% of survival. You are optimistic perhaps by 10 years, but hey, you fund traders after all, you have to be optimistic
Thank you.

 

[hilmy83]

View attachment 252122

We all (hopefully) look at Trading as a kind of business, as we invest our money and time in the hope of earning income. At first glance, this "business" has many advantages. The earning potential here is theoretically unlimited, you are not tied to the place of work and you are your own boss. Besides, this business can be started with a small initial investment and carried out in parallel with the main job. Your success here does not depend so much on the level of education or IQ. Even 15 and 90-year-olds do trading, and the business is scaling.

However, the "mortality" statistics among traders is much more depressing than in traditional businesses. According to data collected from various sources, no more than 10% of traders "live" to their 10th anniversary. In 15 years, only 1% will find trading economically viable. For the remaining 99%, trading will remain unprofitable, and most will get out of business.

The main reason for the high "mortality" is a low probability. A trader has to put together 3 things to be successful:

• the ability to find a strategy for generating buy / sell signals with a positive mathematical expectation;
• ability to establish money / risk management;
• the ability to control your emotions and avoid behavioral distortions.

These are three supports - like the legs of a tripod stool. If you are sitting on the stool and one of the legs is taken away, you are eventually going to fall.

Let me finish with the positive news though. Here is a quote from Margaret Thatcher:
“The only way to get to the top of a ladder is to climb step by step, one at a time. And in the process of this ascent, you will suddenly discover in yourself all the necessary qualities, skills and abilities necessary to achieve success, which you, it would seem, have never possessed. "

I think the curve should start at slightly less than 50% success rate considering a new trader with zero experience placing their first trade has to overcome a binary outcome on top of commission and possibly slippage

 

[smallfil]

The reason so many traders fail is they feed into the hype and mania and pile on and jump in with their eyes closed, hopefully, they do not killed in the stockmarket. What they do not mention is the numerous small traders lost the little monies they had by following Reddit posters of all people? It is all glorified by extreme liberal media that somehow, legions of small traders took on the hedge funds and made them pay. There were only 2 hedge funds who made the colossal mistake of borrowing shares to short GME and AMC. Those 2 hedge funds lost $13 billion. Does any fool think small retail traders got that $13 billion in profits? A few got lucky and got out when they going was good. Most paid high prices only to see the stock drop 50% the next day? An article, just one was written on how other hedge funds made a killing pocketing huge sums on GME and AMC. There was one honest article on small traders losing their monies, be it $1,000, $2,000 or whatever they had. No risk management and position sizing and you might as well go to Las Vegas, so as to lose your monies just as fast. Atleast, you will have some fun doing so.

 

[fan27]

I run an operating business and a trading book: a shitty year in the operating business still makes some money. A shitty year in the trading book is a permanent impairment of capital that I spend the next year recovering from.

Great post! For me, having "stable" income combined with trading income is key.

 

[rb7]

You are competing in the smartest industry on the planet. And your competitors are better capitalized and have better systems and information than you.

I never understood that statement. I guess it's a way to see the trading business. It's not mine.
I don't feel I'm competing against anyone. I do my trades and the big boys that are better capitalized and have better systems and information than me are doing their own. When I'm losing money it's not because someone else beat me. It's because I beat myself.
I don't think trading is a competition again other. It's a competition against me. I'm not aiming to be the more profitable trader on earth. I just want to make enough to satisfy my goals and be happy with that.

Maybe some traders use that excuse (big boys have advantage) to explain their losses.

I cannot do anything for things that I cannot control.
I control when I open a position, and I control when I close it.

My 2 cents.

 

[Scataphagos]

I'm sure this will come as a great shock (and greeted with equal disbelief)... but proper trading doesn't necessarily need to take 10 years screen-time... could be learned in about 1 week... if you could find a good teacher. Unfortunately such individuals are about as rare as honest politicians.