Why Do People Trade when the Failure Rate is So High?

Quote from roberk:

There have been several studies over the last 100 years showing that 10% success rate is rather optimistic. The traders who make serious money year after year - is probably less than 1%.
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I do not doubt the failure rate is discouraging. All I'm saying is that I've never seen any credible evidence to back this 90% figure up. The phrase "studies have shown..." has the ability to deceive unless you look at how the studies were constructed and how the data were analyzed. I guess my experience in corporate America over the years has taught me to question people talking with absolute confidence while having no credible facts.

Also consider where people fall in the bell curve with respect to other endeavors. What percentage of people reach the pinnacle of their careers as university presidents, best selling authors, $1 million per engagement motivational speakers, $10k/day consultants, 7-figure salesmen, Fortune 500 CEO's, astronauts, Navy SEALs, Generals, US Senators, etc? You would see the same kind of distribution in terms of success. Depending on how you define it, only 5% of the french fry operators at McDonald's are successful. It would be unreasonable to expect a high percentage of the people entering trading to be top money earners when the only prerequisite is a little cash.

Chuck
 
Quote from Don Bright:

LOL, what are doing...are we in the business of buying/selling futures on women entering the workforce? Women enter the workforce more when the economy is "off" a bit...(not a sexist statement, just an obvious reaction when a second income is needed more). Of course, the percentage of women in the workforce overall has increased (and rightfully so, IMO)...

Now, what was this thread about again?

Don:confused:
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<b>As you may recall, it was about THIS:</b>

Quote from Don Bright:
Hmmm? "Allowed" yes, because this is still America. Should they, I don't think so...and we have lobbied hard to make the distinction that "trading should be left to professionals".

Don


Quote from Rearden Metal:
<b>What?!

Are you saying that you've lobbied the nanny-state to request more regulations and restrictions? </b>
 
Quote from bluedemon77:

I do not doubt the failure rate is discouraging. All I'm saying is that I've never seen any credible evidence to back this 90% figure up. The phrase "studies have shown..." has the ability to deceive unless you look at how the studies were constructed and how the data were analyzed. I guess my experience in corporate America over the years has taught me to question people talking with absolute confidence while having no credible facts.

Also consider where people fall in the bell curve with respect to other endeavors. What percentage of people reach the pinnacle of their careers as university presidents, best selling authors, $1 million per engagement motivational speakers, $10k/day consultants, 7-figure salesmen, Fortune 500 CEO's, astronauts, Navy SEALs, Generals, US Senators, etc? You would see the same kind of distribution in terms of success. Depending on how you define it, only 5% of the french fry operators at McDonald's are successful. It would be unreasonable to expect a high percentage of the people entering trading to be top money earners when the only prerequisite is a little cash.

Chuck
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The following was posted to another thread and may be of interest to you:

[The percentages] come from brokerage figures, but they are at best anecdotal. Like the misinformation about terrorists and finding a husband after 40 or whatever, the "fact" is extremely sticky.

The fact is that the "failure rate" among traders isn't that much different than the failure rate among small businesses in general (which may also be not dissimilar from the failure rate in professional schools, or, perhaps, the failure rate in anything), which is around 55 to 60%. And the causes are pretty much the same: lack of preparation and overconfidence. And both of these lead -- for traders -- to the most common specific cause: selling winners too soon and not selling losers soon enough.

There is also the question of how one defines "failure". The so-called failures don't all go bankrupt and move under the bridge. Many just break even, which, if one isn't keeping up with the averages, constitutes "failure". Or, they may be in the black, but, again, are not keeping up with the averages and thus "fail".

As can be expected, a smaller percentage consistently beat the averages. An even smaller percenage beat them to a remarkable degree. And an even smaller percentage make the kind of bucks that make them famous, or at least well-known in the trading community. And all of this follows pretty much a normal distribution.
 
Quote from Rearden Metal:

<b>As you may recall, it was about THIS:</b>

Quote from Don Bright:
Hmmm? "Allowed" yes, because this is still America. Should they, I don't think so...and we have lobbied hard to make the distinction that "trading should be left to professionals".

Don


Quote from Rearden Metal:
<b>What?!

Are you saying that you've lobbied the nanny-state to request more regulations and restrictions? </b>
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Oh yeah...and BTW, we only "lobbied" to keep our exchange member status vs. retail....not for "more regulations per se'.

Don

(Is Labor Day over yet, can't get much slower, LOL)
 
Quote from Don Bright:
Hmmm? "Allowed" yes, because this is still America. Should they, I don't think so...and we have lobbied hard to make the distinction that "trading should be left to professionals".

Don




i thought the bright brothers were libertarians?!

another thought, where will the $$ come from if trading is left to true professionals??

surf:confused:
 
Quote from marketsurfer:

Quote from Don Bright:
Hmmm? "Allowed" yes, because this is still America. Should they, I don't think so...and we have lobbied hard to make the distinction that "trading should be left to professionals".

Don




i thought the bright brothers were libertarians?!

another thought, where will the $$ come from if trading is left to true professionals??

surf:confused:
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(I happen to register as an Independent, FWIW) LOL.

And I prefer "progressive capitalist" when asked....(LOL#2).

Good point...the money comes from mutual funds, retirement fund mangers, overall "fund managers" and, yes, from the "non-professional" type of "trader".

Our point is that if you're going to trade anyway, why not go for it seriously, get trained, get licensed (if need be), and treat it like a true profession, not a "sell real estate on the weekends" kind of thing. But, it takes all kinds, I suppose.

Don
 
Quote from stockgirl:

If +90% of people fail at trading then why would anyone risk trading any type of investment vehicle when the odds are stacked against the average retail investor?
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HOPE

Hope in a trade is deceiving, hope in life drives us.

Hope could be misguided, however it allows people to achieve their vision. Some fail, sometimes virtually all fail.
What would people achieve in all endeavors without hoping and trying.

I choose to try. I am fully aware what I risk (more lost time, stress, money). I am also aware of the potential benefits and their likelihood. For me it is better to try now, than to wonder what could have been in 30,40, or 50 years.

I am 28 and have been trying for 2 years. Success, the product of my efforts has been elusive. At least major success. Yet i choose to add to this loosing trade and invest more time and stress in it. Obviously I have reasons to believe in what I am doing.

If I choose to stop trading it will be my choice as well.


Nobody's Victim
 
Why do people trade with a high failure rate?

I think the decision matrix for a beginning trader looks much the same for Pascal's Wager:

If a trader can reach unlimited wealth with fantastic change in life style = he wins;

If the beginning trader does not take the trading opportunity = misery (missed chance of a lifetime) Always wonders if he could have been successful.

However, if the new trader tries but cannot succeed = status quo (usually $10000 or less loss, no change in life style, regret but less than the misery of missing the chance of a lifetime)

In a population of sufficient size there will be people waiting to pay to see if they can just possibly succeed. Nothing wrong with this at all.

What is interesting to me is not the number of people who try and fail. But, the number of people who try and fail and then remain bitter that they took the chance. Or, the people who fail with an approach and hold on to it long after the method has proved to not work....

The raw numbers of winners/losers are only part of the story....


Good luck! :)
 
Quote from stockgirl:

If +90% of people fail at trading then why would anyone risk trading any type of investment vehicle when the odds are stacked against the average retail investor?

Also, should retail investors be allowed to trade stocks without some type of certification or training?
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Money is made by doing your DD and backtesting your system while controlling your emotion. Most people fail due to emotion. Trading scared money will never yield a positive return.
 
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