Why Do People Trade when the Failure Rate is So High?
- Thread starter stockgirl
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bluedemon77
Guest
As I suspected, a limited and non-representative sample from one firm (undoubtedly hired to perform research that would substantiate the conclusion already arrived at, more common than you might think). I did a survey of traders in my house and found that 100% were profitable! That's about equally valid.
Chuck
No he is not. He is telling the truth, in my case. But I have never been a loser. I have won much, as I look over my life. I have peace with God, and a wife that loves me and I have done a lot. What else is there?
Michael B.
Michael B.
I know someone very well who works for one of the biggest brokers in the world. They once made a study about the daytraders that used their services. They encountered a phenomena that was called: survival.
Most traders only survived a short period, so the person i know had only one worry: replace each month the clients that stopped trading or that went broke.
The study was based on a sample of many thousands of traders.
Most traders only survived a short period, so the person i know had only one worry: replace each month the clients that stopped trading or that went broke.
The study was based on a sample of many thousands of traders.
Funny, I did the same research during our family Christmas dinner...yep, all successful, LOL.
Don
bluedemon77
Guest
The fact that it was only one firm's clients considered means it is still not a representative sample even if the number in the sample was several thousand. It is interesting, though, that their response to this information was to recruit new suckers instead of trying to help the customers they already had be successful. Given the cost of acquiring customers, one could conclude that the brokerage realized they were in reality running a sophisticated version of 3 Card Monte that nobody can expect to win.
That aside, in my mind there is a huge difference between going broke and deciding not to be an active trader. If you decide it's a game that can't be beat and you do something else with your money, that is not failure except from the broker's point of view.
A much more interesting statistic would be the distribution of percent change in account balance over time. I have no doubt that this analysis would be discouraging to new traders, but probably not as discouraging as the often touted 90% failure rate. As others have said, it's a low entry barrier business. It's also a low exit barrier business and that's a good thing.
Chuck
Exactly right! Asking a brokerage how many accounts are coming and going is not conclusive evidence of trader success or failure. That is simply their churn rate, which I would expect to be high. IMO anyone that has traded for less than three consecutive years cannot be counted as people who either failed or succeded. They were merely checking it out.
bluedemon77
Guest
It's a function of the normal distribution curve. A fraction of the portion of people who start college graduate, very few people become CEO's, etc. Does that mean it's ridiculous to try? Only if you're not willing to do what it takes to succeed. That's the difference between a goal and a fantasy.
Anybody who ever achieved anything truly great had scores of people telling him/her it couldn't be done and it was foolish to try. It comes down to who's mind is smaller, the person making the attempt or the naysayer. Some of the most negative people on ET have admitted they don't even trade or they themselves are losing money! Why take advice from a person like that?
The factor that is unaccounted for is luck. Are the top 5% of traders really superior or just lucky? If it's not luck, then it means it can be done; you just have to figure out how.
Chuck
What?!
Are you saying that you've lobbied the nanny-state to request more regulations and restrictions?