(Why) do most traders lose?
- Thread starter kiwi_trader
- Start date
I think managing your risk is the most important thing. I've seen guys who would risk 1k dollars to try to make 200. Why? I haven't been around long so I might not have a clue to what I am talking about, but if a trader can learn to cut there losses and move on IMHO they will be around for a long time and have the opportunity to make their millions.
I think the 95% statistic came from a study done in Boston? that compared the online accounts opened and how they had done in a given period. This was in late 90's.
Press and major BD played it up big time.
To me it would be like comparing number of golf sets sold last year versus the number of golf professionals in the PGA.
Most failures come from undercapitalizing. That is the absolute root of all the problems. Next is lack of any basic business sense whatsoever.
Compare a new career of trading with buying an established franchise like a McDonalds.
Any franchise is going to require you to have sufficient capital. You then go through extensive training before you are allowed to open the doors. Then there is follow on assistance and guidance.
A lot of traders seems to take pride in "fading" the market. Some sort of macho ego thing?? Old rules regarding Wall Street are there for a reason.
"the trend is your friend", "cut your losses" etc etc.
Next are the engineers and others from the more disciplined side of life. They assume the market is just a giant mathematical problem and they can find the answer. They buy "systems", sophisticated charting programs galore, and come out with convoluted formulas for trading.
A large part of trading is an "art" form.
Just my opinion
SteveD
Press and major BD played it up big time.
To me it would be like comparing number of golf sets sold last year versus the number of golf professionals in the PGA.
Most failures come from undercapitalizing. That is the absolute root of all the problems. Next is lack of any basic business sense whatsoever.
Compare a new career of trading with buying an established franchise like a McDonalds.
Any franchise is going to require you to have sufficient capital. You then go through extensive training before you are allowed to open the doors. Then there is follow on assistance and guidance.
A lot of traders seems to take pride in "fading" the market. Some sort of macho ego thing?? Old rules regarding Wall Street are there for a reason.
"the trend is your friend", "cut your losses" etc etc.
Next are the engineers and others from the more disciplined side of life. They assume the market is just a giant mathematical problem and they can find the answer. They buy "systems", sophisticated charting programs galore, and come out with convoluted formulas for trading.
A large part of trading is an "art" form.
Just my opinion
SteveD
My point really is that compared to most business ventures, we (traders) have a much higher earnings potential than, say, a Subway sandwich franchise holder who has to pay $500K or the franchise and then still become profitable (where $250K would be a super yearly income). And, a smaller initial amount of risk capital.
$15-$25K downside, with a 6 or 7 figure upside for many (not all, just like all other business ventures).
Yeah, we certainly agree about who you surround yourself with. If a new trader was surrounded by many here on ET, they would be so depressed that they would be afraid to enter a trade, LOL.
Don
Back in '97 I traded at a prop firm. One day the manager told me that based on ALL accounts (firm wide, not just our branch), 90% blew out in 6 mos with an average loss of $60,000.
I think you have to have enough cash to last through your learning curve, which will entail learning a strategy you are comfortable with and learning the discipline. If you have enough money to live on and refund your accnt for the inevitable drawdown, I think you have a good shot. I'm still learning
I think you have to have enough cash to last through your learning curve, which will entail learning a strategy you are comfortable with and learning the discipline. If you have enough money to live on and refund your accnt for the inevitable drawdown, I think you have a good shot. I'm still learning
Quote from Don Bright:
Yeah, we certainly agree about who you surround yourself with. If a new trader was surrounded by many here on ET, they would be so depressed that they would be afraid to enter a trade, LOL.
Don
Don,if a new trader surrounded himself with many here on ET,he would quickly find that
" those who can,trade,and those who cant post on ET"
None the less,the advice is top notch..and free!!!!!!!!!!!!!!!!
I started paper trading for months and became profitable. Then small amounts of cash 2K - 3K and did OK. Then went up to 20K - 30K per trade and made money. 75% win rate. Start small and work up, follow your rules, use some of they better methods given here on ET. I daytrade & swing trade.
Simple but not easy.
Simple but not easy.
Thanks for pointing out by your example the fact that a trader must have a trading system with positive expectation if they hope to succeed in this game.
All of the categories listed are derivative:
Why do traders lose?
Undercapitalized - Good capitalization will help in terms of staying in the game for a long time, but if your system does not have a positive expectation, or if you have not system, you will lose it all any.
Trading Strategy: Entry - A good entry helps (a lot), but it just doesn't matter if you don't have the other pieces of the puzzle, it's like saying my car that looks great on the outside but is missing its engine ... won't get too far with this one.
Trading Strategy: Exit - This one relies on a good entry strategy, so it's a derivative of a derivative.
Psychology/Discipline - You can have balls-o-steel (or the female equivalent), and it still won't matter if your system sucks, or you haven't proven to yourself that it is good when it is.
Money Management - Yeah, this matters, if you have a winning system, otherwise, you're just prolonging the agony.
All of these items are key components of a good trading system that has positive expectation. If you have a good system, every single item listed can be acquired, if you don't a good system, none of these items (or all of them together) will help you.
Later,
Jimmy
IN ADDITION TO TRADING, MY BUSINESS PURPOSE IS TO HELP WINNING TRADERS WIN MORE, NEW TRADERS WIN BIG ENOUGH TO BE HAPPY WITH THEIR NEW PROFESSION AND LOSING TRADERS BECOME WINNING TRADERS. MY PROFESSIONAL AND SOCIAL CIRCLE EXTENDS TO MANY OF THE MOST SUCCESSFUL AND LEGENDARY TRADERS IN THE BUSINESS. IN MY HUMBLE, BUT EXPERIENCED [DECADES] OPINION HERE IS THE TRUTH. IF ONE IS TO CHOOSE A FACTOR THAT IS MOST IMPORTANT --- AS IS REFLECTED IN THIS POLL AND IN "FOLK LORE" IN SUCH BOOKS AS "THE MARKET WIZARDS" PSYCHOLOGY IS BY FAR THE MOST IMPORTANT FACTOR. BUT WITHOUT FURTHER DEFINITION AND ACTUAL UNDERSTANDING OF THAT DEFINITION THE TERM "PSYCHOLOGY" IS NOT GOING TO HELP ANYONE. IN ADDITION, FOR THOSE WHO SAY THE CAUSE OF LOSING IS FAILURE TO DEVELOP A "GOOD" SYSTEM I SAY THAT "PSYCHOLOGY" IS WHAT LEADS A PERSON TO DEVELOP A "GOOD" SYSTEM OR NOT. IF ONE'S GOAL IS TO BE A VERY SUCCESSFUL TRADER THE QUESTION TO ASK IS A LITTLE DIFFERENT THAN THE ONE IN THIS THREAD. THE BEST QUESTION IS "HOW CAN I BECOME A SUCCESSFUL TRADER". WHICH MEANS YOU MUST DEFINE "SUCCESSFUL TRADER FOR YOURSELF PRECISELY. IT ALSO MEANS THAT YOU MUST ASK, "HOW YOU CAN I DEVELOP A TRADING PSYCHOLOGY AND A TRADING METHODOLGY THAT WORK TOGETHER TO MAKE ME A SUCCESSFUL TRADER. THIS IS MORE COMPLEX THAN IT MAY SOUND ON THE SURFACE. SOME "TRADING COACHES" SAY THAT YOU NEED TO DEVELOP A TRADING SYSTEM THAT IS CONSISTENT WITH YOUR PERSONALITY. BUT THIS IS ONLY TRUE A SMALL PERCENTAGE OF THE TIME. ONE OF THE REASONS THAT SO FEW TRADERS SUCEED TO ANY GREAT DEGREE AND MOST THAT DO RARELY HAVE LONG TERM SUCCESS WITHOUT DIFFICULT [LOSING] LEARNING PERIODS IS THAT THE PERSONALITY TRAITS THAT SOCIETY "SYSTMATICALLY" TRAINS MOST OF US TO HAVE ARE EXACTLY THE TRAITS THAT MAKE US LOSE AS TRADERS. OFTEN THE MORE SUCCESSFUL SOMEONE HAS BEEN AT ENDEAVORS SUCH AS SCHOOL AND CERTAIN PROFESSIONS THE MORE DIFFICULT IT IS FOR THEM TO LEARN TO TRADE SUCCESSFULLY. SO IT IS NOT ENOUGH TO SAY THAT THE SYSTEM MUST MATCH THE PERSONALITY. MOST TIMES CERTAIN ASPECTS OF THE PERSONALITY MUST BE ADJUSTED SO THAT THEY ARE CONSISTENT WITH A SUCCESSFUL TRADING METHODOLOGY. I SAY METHODOLOGY RATHER THAN SYSTEM BECAUSE OFTEN PEOPLE TAKE SYSTEM TO MEAN COMPUTERIZED SYSTEM. WHILE IT IS TRUE THAT COMPUTERIZATION AND BACK TESTING CAN BE VERY HELPFUL IN MANY CIRCUMSTANCES, THEY ARE NOT ALWAYS NECESSARY AND HAVE THEIR OWN PITFALLS. AS COMPUTING POWER AND GOOD DATA BECOME UBIQUITOUS THEY FAIL TO GIVE US THE EDGE THAT WE NEED TO BE A VERY SUCCESSFUL TRADER IN MOST CASES. THEREFORE MOST OF US MUST FIND AN EDGE THAT GOES BEYOND "NUMBER CRUNCHING." THIS LEADS US BACK TO PSYCHOLOGY AND FINDING THE EDGE THAT WORKS FOR YOU AS AN INDIVIDUAL. VERY FEW IN THE TRADING COMMUNITY UNDERSTAND BOTH WHICH PERSONALITY TRAITS NEED TO CHANGE AND HOW TO CHANGE THEM WHILE LEAVING THE INDIVIDUALS OTHER POSITIVE TRAITS INTACT. BUT UNLESS SOMEONE IS ONE OF THE VERY FEW LUCKY ONES WHO INNATELY HAVE THE PSYCHOLOGICAL TRAITS AND FORTUNATELY ENCOUNTERS [OR DEVELOPS QUICKLY] THE APPROPRIATE METHODOLOGY THERE IS LIKELY TO BE MOSTLY LOSING MONEY UNTIL AND UNLESS THE INDIVIDUAL CHOOSES TO CHANGE FOR THE POSITIVE. IN EVERY OTHER ENDEAVEOR THAT I CAN THINK OF THAT IS SKILL BASED AND POTENTIALLY HIGHLY COMPENSATED THE INDIVIDUAL SEEKING SUCCESS ALMOST ALWAYS HAS A COACH AND/OR MENTOR. EVEN THE VERY BEST: MICHAEL JORDAN, TIGER WOODS ETC. I KNOW OF TOP TRADERS THAT PAY UP TO $ ONE MILLION PLUS PER YEAR TO BE COACHED. PHIL JACKSON CAN NOT PLAY LIKE MICHAEL JORDAN. EVEN AS A PLAYER AT HIS PEAK HE WAS NOT EVEN CLOSE. BUT I AM CONFIDENT THAT MICHAEL JORDAN BELIEVES THAT JACKSON HELPED HIM TO BE A BETTER PLAYER. AS A FORMER ATHLETE AND LONG TIME TRADER/COACH/PSYCHOTHERAPIST IT SEEMS CLEAR TO ME THAT COACHING WITH A DEEP UNDERSTANDING OF PSYCHOLOGY IS MUCH MORE IMPORTANT IN TRADING THAN IN SPORTS. YET VERY FEW STRUGGLING TRADERS SEEK A PROPERLY SKILLED COACH. A HIGHER PERCENTAGE OF HIGHLY SUCCESSFUL TRADERS SEEK A PROPERLY SKILLED COACH TO MAKE SURE THEY ARE ALWAYS AT THEIR BEST. HOW WOULD I DEFINE "SUCCESS" AS A TRADER? ASSUMING THAT ENJOYMENT IS EQUAL, A TRADER SHOULD BE ABLE TO MAKE MORE MONEY PER HOUR AND OVERALL AS A TRADER THAN AT ANY OTHER JOB THEY MIGHT CHOOSE AS AN ALTERNATIVE. A FINAL RESPONSE FOR THIS POSTING TO THE MANY FINE PREVIOUS POSTINGS IN THIS THREAD: IN MY EXPERIENCE IT IS NOT NECESSARY TO SPEND OUTRAGEOUS HOURS PER DAY TRADING TO SUCCEED IF YOU HAVE THE RIGHT METHODOLOGY AND PSYCHOLOGY. IN FACT, WITHOUT THE CORRECTLY MATCHED PSYCHOLOGY AND METHODOLOGY TOO MUCH TIME CAN BE COUNTER PRODUCTIVE. I HOPE THIS HELPS THOSE OF YOU WHO ARE SINCERELY SEEKING A HIGH LEVEL OF SUCCESS.
Starting small. Nothing is more critical than starting small. Everyone want to make huge money right away. Once you get good, consistant, slowly increase your size. slowly increas as you get bigger. (As account is up %200 , Increase size by 50%) The amount of size people trade here with such limited capital boogles my mind.