Where did the "90% are losers myth come from?
- Thread starter human151
- Start date
if most people didn't lose, there would be no market. tm
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I agree. I usually dont get into it either, its just a reoccuring theme you see here again and again. And I agree that most lose.
Personally I think most of the losses are:
1) not being able to support themselves due to profits not occuring as fast as possible, therefore they quit earlier than anticipated.
2) Not having enough capital to live out the unanticipated learning curve (years?)
The whole "opposite side of the trade" stuff is nonsense. A swing traders sell for a profit, is a scalpers buy for a profit, etc...
IMO it's easy to believe that 90% are failures if that 90% includes everybody who has ever engaged in active trading (as opposed to buy n' hold). I would think that most failures take place in the first few months to a year, when somebody might blow out their account without ever knowing where they went wrong, or just decide that trading isn't for them, etc.
I'd also think the success rate is much higher (maybe 50%) if you limit the sample to aspiring traders who have devoted at least 2 years of full-time work to the profession.
I'd also think the success rate is much higher (maybe 50%) if you limit the sample to aspiring traders who have devoted at least 2 years of full-time work to the profession.
human151, while I have not seen any statistical study to show any real hard numbers, I think we can assume that the majority do lose money.
It's just not retail traders that lose, but sadly many of the naive passive investors that have their money in pensions, 401ks, etc. I don't think many were capable of handling a 50 percent decline and took their money out... Wall Street has sold the idea of "passive" and long term "investing" for a long time. As I learned more about investing and trading in the markets, I switched from an "investing" mentality to a hard work "trading" mentality. I was glad to lose only 10% after coming to the realization that "passive investing" is bunk.
Unlike others, I think you have a valid question. Some people read books like Market Wizards and get the wrong impression about their place in the markets. I think learning about the losers will help you become a better investor/trader as well. Unfortunately, this is an often overlooked topic. If you haven't read already, I still recommend the Market Wizards. It shows that even some of the successful traders started out as part of the losing statistics. I recommend finding something consistent and conservative so you can last long enough to learn. Don't go for the major profit strategies as a beginner. Go with the lowest profit strategy with low risk. Even if you only make a consistent 5 percent, that is a major achievement when starting out.
It's just not retail traders that lose, but sadly many of the naive passive investors that have their money in pensions, 401ks, etc. I don't think many were capable of handling a 50 percent decline and took their money out... Wall Street has sold the idea of "passive" and long term "investing" for a long time. As I learned more about investing and trading in the markets, I switched from an "investing" mentality to a hard work "trading" mentality. I was glad to lose only 10% after coming to the realization that "passive investing" is bunk.
Unlike others, I think you have a valid question. Some people read books like Market Wizards and get the wrong impression about their place in the markets. I think learning about the losers will help you become a better investor/trader as well. Unfortunately, this is an often overlooked topic. If you haven't read already, I still recommend the Market Wizards. It shows that even some of the successful traders started out as part of the losing statistics. I recommend finding something consistent and conservative so you can last long enough to learn. Don't go for the major profit strategies as a beginner. Go with the lowest profit strategy with low risk. Even if you only make a consistent 5 percent, that is a major achievement when starting out.
excellent points.. I think alot of this game is learned over time. People (who manage to stick around) learn that it isnt how can I make money, its how do I not LOSE money.. And gradually, you learn what NOT to do, and slowly develop a system that works for you.
Papertrade, do a simulator (I know many say these are useless, but if you cant become profitable on one of these, then its an obvious sign you arent ready to jump in.)
First, you lose the commision - money goes to your broker.
Second, you lose the spread - money goes to maker maker.
Third, you lose to insiders - money goes to a nephew of the typist that prepared the earnings report.
Fourth, you lose by paying for software, books, courses etc.
Fifth, you lose the % rates - if you trade on margin or if you borrow money to trade.
Six, you watch MadMoney and you buy the merchandise they advertise that you don't really need.
Etc
All of the above people - brokers, exchanges, market makers, insiders, gurus, software makers, bloggers, JimCramer, .... - make a good living.
That money comes straight from your purse, by way of trading losses! And of course they will do everything to conceal the true figures, but 80% losers over 6 months looks reasonable. BTW that means 96% losers over 12 months
Second, you lose the spread - money goes to maker maker.
Third, you lose to insiders - money goes to a nephew of the typist that prepared the earnings report.
Fourth, you lose by paying for software, books, courses etc.
Fifth, you lose the % rates - if you trade on margin or if you borrow money to trade.
Six, you watch MadMoney and you buy the merchandise they advertise that you don't really need.
Etc
All of the above people - brokers, exchanges, market makers, insiders, gurus, software makers, bloggers, JimCramer, .... - make a good living.
That money comes straight from your purse, by way of trading losses! And of course they will do everything to conceal the true figures, but 80% losers over 6 months looks reasonable. BTW that means 96% losers over 12 months
A very quick answer to the first post that started the thread. If you don't have a winning method, then you have 50% chance of getting it right, correct? That means once you win, and once you lose. That would make your gain equal to zero. But then you have to subtract commissions and bid-ask spread (you buy at the ask price, and sell at the bid price, which is at least one tick lower). That means that anyone who doesn't have a winning method is now part of that 90% of losers that everyone talks about.
Yet, of course, if every trader just made 1 quick trade in his life, then the amount of winners would be 50%. If every trader made, on the stock indexes, just 1 LONG trade that lasted a year, then almost everyone would be a winner, because in the long run these markets rise.
By telling you this last example, I also told you how to avoid being in the 90% of losers - few trades and only long (I am talking about stocks, and not forex). That's already a winning method, because you have more than 50% of being right.