The Real Reason Traders Fail

Actuarial_Fun said:
Everyday? No, I think that would be absolutely impossible. I think every year is extraordinarily hard (over say 10+ years), let alone every month, week, or day.
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If you a profitable scalper, you should absolutely be profitable every month given the high volume of trades. If you take 500 60/40 trades in a month, it is mathematically improbable for you to have a losing month.

The logic is less so for a daytrader who averages only 50 trades per month, but still unlikely to have a losing month.

For swing traders and buy-and-hold investors obviously you can have a losing month due to variance from small number of trades.
 
wxytrader said:
That's 25 trades per day!! I'm assuming you would have that automated and no fees? Otherwise that would be excruciating...plus that would be $350 per day in fees!
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Hence no free lunch. A good scalper is essentially guaranteed a smooth equity curve on a monthly basis, but tough to overcome commissions, and also bid/ask spread.

Also scalpers have to compete with algos on micro time frame. Tough.

Note that prop firm SMB Capital advertises scalping equities as the "easiest" way to make money in the markets. There is some truth to this. Because you find out right away whether you were correct in the scalp, so you learn very quickly the setups that work and those that don't.

The polar opposite is swing trading, which is tough for discretionary traders to master because it takes days for you to know whether your trade setup was ultimately profitable. Slower learning curve.
 
Jdesey said:
Why is it that 90% or more of traders fail? I mean have we really asked this question. It is a baffling statistic.

I just finished Tom Hougaard's excellent book “best loser wins” and he talks extensively about this. He was able to get data on 25,000 traders, conducting over 1 million trades. He has said in his book and many other books I’ve read, that good trading goes against our human nature. Much of the mistakes that we make as traders can be traced back to our caveman days. It is hardwired in our DNA to avoid pain, to run away when we are in stressful situations, to avoid being harmed. So much of what we have to do demand that we go opposite of our 200,000 year old brain. So, we can really blame our ancestors, or our brain wiring if you will.

This is also help me to understand how I can know the right thing to do but don’t do it in my trading. I have come to handle that 100 times better than in the past but it’s definitely still a challenge. Why? Because I still have a 200,000-year-old brain. It is not easy to do the thing which feels uncomfortable, feels not right.

Like for example I can be profitable on a trade I can even be up 40 or 50% and don’t hit the exit button. Or be negative 30% and not exit, and see it go to -80% or -100%. That is my hardwiring kicking in, Greed and Fear. To exit means I may miss out of more profit. To take loss is to feel pain and admit I was wrong. Both go against my hard wiring and do not feel right to do.

So the real question is how do we overcome our hardwiring? Unfortunately it takes a lot of time and experience. Unfortunately it takes a whole lot of pain along the way. It sucks to go through hard times but I think that’s part of what has made me finally somewhat successful as a trader. And now we can use the computer to do that un-human activity for us. I set limit orders (bracket orders) to get me out and do the thing that is hard to do.

Anyway I would love to hear your thoughts on this? If you are baffled by your struggles as a trader, give yourself a break. You are human and that seems to be the issue.
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It's simpler, people don't understand the value they're trading, a hedge fund at 20%pa on $1mil unit with 1&10 creates $10kpa fees excluding performance.

Most people trading equities can generate 5%/10%/20%pa even with 1% training budget and $10k capital, but they try to generate 50%/100%/200%pa, which can be done but is rarely trained because of the notional value.

This creates $25k/$50k/$100k notional value, with futures at 50x leverage and $20k capital would create $1mil notional value at 20%pa, training or fund management at that level would cost $10kpa maintenance which most people can't do.

Most don't have $5k let alone ever seen 20%pa on $50k or 20%pa on $500k, it's actually 99.5% fail to make a living wage trading, which isn't $100,000s/yr, mainly because they create a real or synthetic notional value without the experience.
 
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alistera said:
It's simpler, people don't understand the value they're trading, a hedge fund at 20%pa on $1mil unit with 1&10 creates $10kpa fees excluding performance.

Most people trading equities can generate 5%/10%/20%pa even with 1% training budget and $10k capital, but they try to generate 50%/100%/200%pa, which can be done but is rarely trained because of the notional value.

This creates $25k/$50k/$100k notional value, with futures at 50x leverage and $20k capital would create $1mil notional value at 20%pa, training or fund management at that level would cost $10kpa maintenance which most people can't do.

Most don't have $5k let alone ever seen 20%pa on $50k or 20%pa on $500k, it's actually 99.5% fail to make a living wage trading, which isn't $100,000s/yr, mainly because they create a real or synthetic notional value without the experience.
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im shocked at the numbers you throw around for someone who has it figured out.

5k? That should be below rounding error for a market wizard as yourself.
 
Actuarial_Fun said:
The real reason traders fail? Because they have no edge. It's that simple. You have to beat commissions, bid/ask spread,and the cost of borrowing to just break even, let alone beat the S&P on a risk adjusted basis (good luck). If you are a futures trader, add up the commission, the spread, the cost of borrowing (yes, futures arn't free), and see what you are up against to breakeven. You need an edge and it has been increasingly difficult to get an edge with HFT, ML, algos, etc.
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Totally agree with this. Most of us traders have no real edge, me included.

Looking back a few years examining my butterfly trading records, most profits were eaten up by 4 x commissions, bid/ask... net/net, wasn't able to beat holding SPY or QQQ, either risk adjusted, or on an absolute basis. :banghead:

Recent day trading experiment is a little better but it is a lot of work for a slight beat of QQQ. It is really not worth the effort IMHO.

Psychology is a clutch, for if a system has real edge, simply automate it and throw psychology out the window will solve the problem.
 
Coin Flip said:
If you a profitable scalper, you should absolutely be profitable every month given the high volume of trades. If you take 500 60/40 trades in a month, it is mathematically improbable for you to have a losing month.

The logic is less so for a daytrader who averages only 50 trades per month, but still unlikely to have a losing month.

For swing traders and buy-and-hold investors obviously you can have a losing month due to variance from small number of trades.
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My paper trade experiment on day trading supports your comments.

Does that mean I have a real edge in my system, or is paper trade my edge? :vomit:
 
I left IB for the very reason you mentioned..They wouldn't cut commish,and on a 4 legged,possibly 5 leg monster,in and out,it was just brutal

ironchef said:
Totally agree with this. Most of us traders have no real edge, me included.

Looking back a few years examining my butterfly trading records, most profits were eaten up by 4 x commissions, bid/ask... net/net, wasn't able to beat holding SPY or QQQ, either risk adjusted, or on an absolute basis. :banghead:

Recent day trading experiment is a little better but it is a lot of work for a slight beat of QQQ. It is really not worth the effort IMHO.

Psychology is a clutch, for if a system has real edge, simply automate it and throw psychology out the window will solve the problem.
More...
 
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