Where did the "90% are losers myth come from?

Quote from human151:

okay from reading this, I need to wonder why the hell would anyone put thier hard earned capital in the market, theyre just going to lose anyways, right

But yet, here you people are. Talking about the market. and since your talking about the market ill assume you are invested in the market. Why? Why would you invest in the market, if 9 out of ten lose everything? Does not sound too smart to me. You people are smart, right?
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For the same reasons I stated above, I think you shouldn't overestimate the amount of money that "90%" (or whatever it is) of traders is losing, and not confuse "losing" with "losing everything".

One thing is to say 90% of traders lose, and another is to say 90% of traders lose everything. I don't think the latter would be the case even for just 50% of traders.

As I said earlier, if a trader without a winning method makes 2 trades he will get 1 right and 1 wrong. If you subtract commissions and spread costs, he will then be in the 90% of losers. Maybe he lost 10 dollars, but he is in the 90% of losers.

Maybe he will quit, or he will go on like this for a few years, losing on average 100 dollars a month... in total 3000 dollars before he quits. Then someone new will come along. Nobody ever stated that 90% of traders lose their houses because of trading or anything close to it. Just like the majority of people losing at the casinos are not people who will lose over a few thousands dollars because of it.

Another interesting statistical question to ask would be: how much trading experience have those traders who are not profitable?

Someone could even post a simplified poll on the most popular ET forum section ("Trading"), provided that we could trust people to tell the truth. The poll would be:

For how long have you been trading and are you profitable?

The options, should be something like:

1) less than 2 years, and I am profitable
2) 2 years to 5 years, and I am profitable
3) more than 5 years, and I am profitable
4) less than 2 years, and I am NOT profitable
5) 2 years to 5 years, and I am NOT profitable
6) more than 5 years, and I am NOT profitable

My estimate would be that as your trading experience grows it's more likely that you will be profitable. So the ultimate outcome would be a higher percentage of profitable traders among those who traded for more than 5 years. That % would probably be a majority (of profitable traders) if we had added the option "more than 20 years, and I am profitable".

Obviously you'd also have many traders with very few years of experience, and very few traders with many years of experience.

That ultimately means that the majority of those who start trading do not become profitable and quit within a few years. Only a small minority (maybe 5%) of all those who start trading keep on trying, become profitable, and then, of course, keep trading their whole life. What do you think?

But this would not mean that at any time 5% of all traders are profitable. It means that, on an initial sample of 100 people who started trading at any given day, after let's say 10 years 90 of them will have quit (virtually all of them before becoming profitable). And 5 will still be trading, most of them making money in my opinion.

This is just my estimate, but it seems reasonable (to me).
 
Quote from human151:

...SO if I were to believe all these negative people, there is a 10% chance of winning and a 90% chance of losing. I must ask, why do people trade? Lets take roullette as an analogy. if you bet on red then you have about 45% chance of winning. Are all you naysayers telling me that I have a better chance making money playing roullette then making educated choices when trading?
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Once again, I will quote my above example (two posts earlier). You have a 50% of being right on each trade, so if you make two trades your gain should be zero. But you then have the costs I spoke about. That means that, without a winning method, (in the long run) you have a 100% probability of not being profitable.

But then, if we get into details, we find out that stock indexes on average, over the years, tend to go up. And there's your winning method - only going LONG on them and making a few trades. That increases your winning probability to much more than 50%. If you hold your LONG position for a few years, then you almost have a winning probability of 100%.

On the other hand, the same doesn't apply to the roulette. The probability would still always be less than 50%, because, even though you don't have commissions and spread, when zero comes up all players lose, and you can't count on red coming up more often than black - so you'll always lose 19 out of 37 times.

Now, if stock markets prices were random, and trading were exactly like the roulette, Sushi would be right in saying "Over time the figure is likely closer to 100% of all active traders. Not total blow ups but will end up being losers overall over the long term". This applies to the roulette, but not to trading unless you agree with the random walk hypothesis:
http://en.wikipedia.org/wiki/Random_Walk_Hypothesis

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By the way, I just read what NeoRio1 and slapshot said and I agree with everything they wrote.
 
Totally false about each trade being 50/50. You are forgeting the time factor.almost Every entry is a winner and every entry is a loser depending on time frame.
 
Quote from Sushi:

Admit it or not every trader is acting randomly when compared to others so how can market not be random
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Traders are tied by price.

regards
f9
 
Traders have emotions and are influenced by one another, unlike numbers at the roulette. That is why I don't believe in the Random Walk Hypothesis.

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By the way, I just read Specterx and I also totally agree with what he says (and also mdl060374 and HiFreekTrader say similar things). I think there's at least 5 people here who all agree on the fact that the 90% non-profitable traders rate sharply decreases as you increase the number of years one has been trading. (Which wouldn't be the case if the Random Walk Hypothesis were true).

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Another way to sum it all up would be to say something like this - 100% of traders who do not have a winning method lose money over time. In the sense that if you do not have a winning method, and your trades were not better than random trades, your commissions and other costs (spread) would automatically make you non-profitable. And since, over time, those who do not have a winning method will run out of luck, the % of non-profitability among them will tend to decrease over time. Whereas all the others will be making money.

To explain it with an example, we could say that out of 100 traders starting to trade on a given day, at the beginning just one will have a winning method. But at the start close to 50% of them will be making money, just out of luck. As time goes by and they keep on trading, that 50% rate will progressively decrease all the way to 0% being profitable out of luck. The "lucky" profitability of that 100 people sample will go down over time, while the "methodical" profitability will go up because some will learn a profitable method.

At the end, almost all those who didn't learn a profitable method, will have run out of luck and most of them will quit. The remaining 5 people or so will be making money consistently.
 
in my opinion emotions and behaviorial finance is total bs. One simple example. Take 1000 traders each with 1000 in ameritrade. They all get influenced by each other and buy a stock. BUT. One solitary fund manager with 20 million shares put to work decides to sell his shares randomly due to a feeling. Therefore one trader will move market regardless of the mass or herd. Random walk is not disproved by traders following traders or emotions
 
Quote from Sushi:

in my opinion emotions and behaviorial finance is total bs. One simple example. Take 1000 traders each with 1000 in ameritrade. They all get influenced by each other and buy a stock. BUT. One solitary fund manager with 20 million shares put to work decides to sell his shares randomly due to a feeling. Therefore one trader will move market regardless of the mass or herd. Random walk is not disproved by traders following traders or emotions
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if you think emotions and emotional control (just another name for discipline imo) and trading are not strongly connected, then please, please, please, start trading.....it's always good to have people like you in the market for people like me (a daytrader supporting his family).

no offense to you, personally. it's truly a jungle out there and only the strongest survive.
 
Quote from human151:

I am by no means and proficient trader. Im still learning. That said, when I see people say that 90% lose when trading, I want to run for the hills.

If that were true, then how would all the brokerage firms, online or otherwise, who cater to the individual trader be able to stay alive.
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By the same logic, how could all those Vegas casinos build their mega-buck palaces if all the gamblers were losers ? Very easily - - its because most DO lose.
 
Quote from xxxskier:

if you think emotions and emotional control (just another name for discipline imo) and trading are not strongly connected, then please, please, please, start trading.....it's always good to have people like you in the market for people like me (a daytrader supporting his family).

no offense to you, personally. it's truly a jungle out there and only the strongest survive.
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Pray to the trading goddesses that your with a prop shop. I hope the noobs keep coming foryour success. Very difficult road. Wish you all rhebest
 
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