Why Traders Lose

[dozu888]

let me summarize - traders lose because they don't know why they lose lol.

look at this thread, 8 pages long and only a couple of guys hit the nail on the head - the real reason is 'no edge'..

and the other 98 guys are saying 'too little capital.. over trading.. cut winner short' etc... all the peripheral stuff that have not much to do with the core issue.

this thread itself is a confirmation of the stats that only 1% can make enough to live on.

 

[smallfil]

Because trading/investing is a probability game. If you buy and hold for long term, the odds are in your favor. After 30-40 yrs, even if/when you have to withdrawal, the market hit another 2008, you probability will be ahead.

Maybe, it is just me. I started off investing in the stockmarket and buying and holding CSCO and kept holding. I lost quite a bit during that time. CSCO at the time was around $100.00 at the top and now, 18 years later is $43.25. Long taken my losses because I could not take more losses at the time. Looking back, having stop losses or even buying a put option would have saved me lots of monies and stress to boot! That is why I am a swing trader now who trades mostly, options directionally. Being a trader allows me more control over my positions as well as cap my losses to the cost of the options premium. Of course, I can get out sooner and save any residual value of the options premium if I am wrong for the next trade.

 

[speedo]

let me summarize - traders lose because they don't know why they lose lol.

look at this thread, 8 pages long and only a couple of guys hit the nail on the head - the real reason is 'no edge'..

and the other 98 guys are saying 'too little capital.. over trading.. cut winner short' etc... all the peripheral stuff that have not much to do with the core issue.

this thread itself is a confirmation of the stats that only 1% can make enough to live on.

Beginners don't know why they lose but even someone who understands price discovery and has developed a viable trade plan will lose by moving stops, adding to losers, taking impulsive entries etc....and they know damn well why they lose.

 

[smallfil]

Beginners don't know why they lose but even someone who understands price discovery and has developed a viable trade plan will lose by moving stops, adding to losers, taking impulsive entries etc....and they know damn well why they lose.

You cannot account for each and every variable. I carefully, select each and every trade I place yet, a lot of times, trades just do not work out even if the setups look good and you are buying at high probability areas. Despite, all that, you can still lose on that trade. So, what do you do? You have proper risk management rules which will dictate what you should do in a given situation. That way, there is no guessing as to what you should do! Keep your losses small and your gains multiples larger and you should do okay!

 

[Simples]

I visited this website too. I think they based it mainly on the Taiwan study which may be different from the US due to their casino mentality as outline in your summary.

The list cites 11 sources:

– 1Barber, Lee, Odean (2010): Do Day Traders Rationally Learn About Their Ability?
– 2Odean (1998): Volume, volatility, price, and profit when all traders are above average
– 3Barber, & Odean (2000): Trading is hazardous to your wealth: The common stock investment performance of individual investors
– 4 Kumar: Who Gambles In The Stock Market?
– 5 Barber, Odean (2001): Boys will be boys: Gender, overconfidence, and common stock investment
– 6Calvet, L. E., Campbell, J., & Sodini P. (2009). Fight or flight? Portfolio rebalancing by individual investors.
–7Barber, B. M., Lee, Y., Liu, Y., & Odean, T. (2009). Just how much do individual investors lose by trading?
– 8Gao, X., & Lin, T. (2011). Do individual investors trade stocks as gambling? Evidence from repeated natural experiments
– 9Strahilevitz, M., Odean, T., & Barber, B. (2011). Once burned, twice shy: How naïve learning, counterfactuals, and regret affect the repurchase of stocks previously sol.
– 10Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention
– 11De, S., Gondhi, N. R. & Pochiraju, B. (2010). Does sign matter more than size? An investigation into the source of investor overconfidence​

However, as with all statistics, it depends on what you measure, how you measure and how you aggregate. Ie. there's a world of difference buying mutual funds, and being an active trader, which is in #4 in the list. It makes perfect logical sense why most active traders win less / lose more than buy & hold investors, and matches reality of most who try. What I see however, is that people never brag about their losses, but once in a while, a huge winner stands out and become glorified, among all the unspoken invisible loser trades. The latest being latest crop of BTC winners, having 2x-5x-10x winnings. So there's a feedback loop of wrong impressions, and of crushed dreams and hopes and wishes. Worst of it all is the hope though, because it is false and non-repeatable for most.

So what I'm saying is one should only do trading and research on such if that is what one love / like to do, it doesn't upset your life and one can have a good balance with it. Most may do better becoming investors though, as successrate is clearly higher.

 

[ironchef]

Maybe, it is just me. I started off investing in the stockmarket and buying and holding CSCO and kept holding. I lost quite a bit during that time. CSCO at the time was around $100.00 at the top and now, 18 years later is $43.25. Long taken my losses because I could not take more losses at the time. Looking back, having stop losses or even buying a put option would have saved me lots of monies and stress to boot! That is why I am a swing trader now who trades mostly, options directionally. Being a trader allows me more control over my positions as well as cap my losses to the cost of the options premium. Of course, I can get out sooner and save any residual value of the options premium if I am wrong for the next trade.

Good luck and best wishes to you.

 

[smallfil]

Good luck and best wishes to you.

Thank you and I wish you the best too in your stockmarket endeavors.

 

[ironchef]

The list cites 11 sources:

– 1Barber, Lee, Odean (2010): Do Day Traders Rationally Learn About Their Ability?
– 2Odean (1998): Volume, volatility, price, and profit when all traders are above average
– 3Barber, & Odean (2000): Trading is hazardous to your wealth: The common stock investment performance of individual investors
– 4 Kumar: Who Gambles In The Stock Market?
– 5 Barber, Odean (2001): Boys will be boys: Gender, overconfidence, and common stock investment
– 6Calvet, L. E., Campbell, J., & Sodini P. (2009). Fight or flight? Portfolio rebalancing by individual investors.
–7Barber, B. M., Lee, Y., Liu, Y., & Odean, T. (2009). Just how much do individual investors lose by trading?
– 8Gao, X., & Lin, T. (2011). Do individual investors trade stocks as gambling? Evidence from repeated natural experiments
– 9Strahilevitz, M., Odean, T., & Barber, B. (2011). Once burned, twice shy: How naïve learning, counterfactuals, and regret affect the repurchase of stocks previously sol.
– 10Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention
– 11De, S., Gondhi, N. R. & Pochiraju, B. (2010). Does sign matter more than size? An investigation into the source of investor overconfidence​

However, as with all statistics, it depends on what you measure, how you measure and how you aggregate. Ie. there's a world of difference buying mutual funds, and being an active trader, which is in #4 in the list. It makes perfect logical sense why most active traders win less / lose more than buy & hold investors, and matches reality of most who try. What I see however, is that people never brag about their losses, but once in a while, a huge winner stands out and become glorified, among all the unspoken invisible loser trades. The latest being latest crop of BTC winners, having 2x-5x-10x winnings. So there's a feedback loop of wrong impressions, and of crushed dreams and hopes and wishes. Worst of it all is the hope though, because it is false and non-repeatable for most.

So what I'm saying is one should only do trading and research on such if that is what one love / like to do, it doesn't upset your life and one can have a good balance with it. Most may do better becoming investors though, as successrate is clearly higher.

But mostly from Odean, all around 2009/10?

 

[Simples]

But mostly from Odean, all around 2009/10?

And 2000/2001, but surely not mostly? But you're right in that Odean is a bigger influence, almost half of them in fact.

 

[tommcginnis]

I am going to disagree because various stocks take their turn in the spotlight. Even the likes of Coke, Dell, Walmart, etc. at some point was the stock to be in. The problem with diversification is if you own 500 stocks in a mutual fund, you in effect dilute the few outstanding performers in that fund. The bad stocks will drag down the entire fund because of it!

That (watering down) is what also dilutes losses, right? And smooths returns so management can see their variance shrink against the market? So, two sides of the same coin, which in a bull market makes the manager look like a schmuck, and in a plunging market, makes 'em look like a friggin' genius. ("Yay, my team!!")

At any event, CNBC just put the kibash on my (narrow-climb) market thesis: Mike Santoli (always a voice of reason) just reported that the equal-weight S&P500 is just a percent-or-so behind the actual S&P500 for the year -- NOT what I had thought at all.

(On a side note, /ES volume this morning was way low, VIX9D was very flat-and-low, AND behind the VIX by 1.5pts., and the TRIN was weirdly flat -- no motion to it. This reminds me so much of December-into-January: like the BUYS are with reluctance, while everyone has their finger on the SELL button, waiting to flush. Trying like hell again, to keep all my option positions on top, while selling nothing on the bottom. FUCK this is how people get old. Fast.)