Trend following is a lot more than buying a stock because it is trending upwards. It is not static. What happens when it goes sideways? Or has a deep pullback? Drawdowns is a huge problem both for traders and investors. Few people will be able to stomach 40% let alone 60% drawdowns. So, if you started with $10,000, your account is now worth only $6,000 or even $4,000? What do you do then? It boils down to risk management. You have to take risk into consideration before getting into a stock position. Most, because of hype, are already imagining the millions they will make before they even put on a position or trade. That is backwards! If you invest in the stockmarket, you will lose monies! Nobody wins 100% of the time! If you handle the risk and keep your losses small, you are already ahead of 90% of the other stock investors and traders. Small losses are not to be feared! It is the big losses which will damage your account. If your gains are far larger than your losses, a few large gains will offset your small losses and you will make monies! That is just common sense!
Why Traders Lose
- Thread starter smallfil
- Start date
Trend following is a lot more than buying a stock because it is trending upwards. It is not static. What happens when it goes sideways? Or has a deep pullback? Drawdowns is a huge problem both for traders and investors. Few people will be able to stomach 40% let alone 60% drawdowns. So, if you started with $10,000, your account is now worth only $6,000 or even $4,000? What do you do then? It boils down to risk management. You have to take risk into consideration before getting into a stock position. Most, because of hype, are already imagining the millions they will make before they even put on a position or trade. That is backwards! If you invest in the stockmarket, you will lose monies! Nobody wins 100% of the time! If you handle the risk and keep your losses small, you are already ahead of 90% of the other stock investors and traders. Small losses are not to be feared! It is the big losses which will damage your account. If your gains are far larger than your losses, a few large gains will offset your small losses and you will make monies! That is just common sense!
statistically the size of the stop doesn't make a difference (without considering slippage and commission)... the key issue is finding a legit edge, which most people can't, even after years/decades of searching.
which again is why just hold the QQQ.... problem is everybody and their mother in law think they belong to the top 0.1%
Odds are stacked against most retail investors and traders because they believe all the hype instead, of learning how to trade. Skill as a trader is developed and does not happen overnight! There are things you need to know and have to accept! You will lose monies trading the stockmarket. Nobody wins 100% of the time. Even with your best analysis, trades can go against you and you will lose monies! Risk management is at the top of things you must learn if you must be a market participant be it an investor or trader! Once, you understand the risk as it applies to trading, you are in a better spot to succeed in trading! Hedge fund managers, the most successful ones are stock traders. It is an occupation and they are doing nothing but, using their edge or advantage like the casino! Do that over hundreds then, thousands of trades, they make hundreds of millions and even billions at times! Can the retail trader do that? Of course, you can! You have less monies so, will make less but, if you grow your account 50% or 100% or more in months, isn't it worth it? You are in effect compounding your monies at a faster rate! Let me make clear, not slamming anyone and you do what works for you! You know your risk tolerance so, you know what is best for you! There are probably, 1,000 ways to make monies in the stockmarket. If it works for you, do it!
Most times, the stop loss will protect you 80% of the time. It is also, based on the risk of the trade and certain trades would have wider stop losses compared to others but, you will in effect buy less shares to reduce the risk of ruin! It will not protect you from a gap down! For a more robust protection if you have large gains, buying a put option makes more sense! Then, you are guaranteed at getting out at a certain price less the cost of the put option. If the stock continues to go up, you pile up more gains while, your put option loses value.
What fact? It is NOT fact that only a small number of investors are profitable in the market. You looked at the stats for "trading" and made it about everyone, which is wrong.
One of the easiest and most recommended investing methods for the average person is to put money in an index fund and let it grow over time. As the market has a long term bullish trend, the returns for the majority who have done this have been positive.
Trading on the other hand, requires far greater skills as it involves market timing as opposed to staying in the market full time with no adjustments.
The stats don't lie- only about 10% of traders can trade consistently over time and not lose money, and of that 10%, only half of them have the ability to earn enough to make a living. So you only have about a 5% success rate for anything meaningful regarding earning decent profits.
Trading is difficult because people fail to: take it seriously, eliminate their internal bias, and develop a methodical system that will give you high probability zones of either selling or buying so you know where to place your orders.
The biggest weakness to conquer is eliminating internal bias. Without bias, you have near even odds of either making or losing money trading since you can go long or short- with the only drag being the cost of commissions. Yet most people wind up losing much more than gaining due to internal bias such as fear of missing out (FOMO), and fear of loss. FOMO entices people to jump into the market at the wrong times in the wrong direction and fear of loss makes people stick with their losers too long and sell their winners too soon, the opposite of what they should be doing.
The solution is to rewire one's thinking in order to view the market without that bias- which is one of the greatest hurdles there is. Changing habits is difficult and changing one's mindset even more so. And even if you manage to beat the odds and eliminate your bias, you still have to develop a working trading system, which is also a huge hurdle.
So the question becomes how focused/dedicated are you willing to work to make it to that 5%? Or would you be better off just investing in an index fund?
I'll add one more thing because it irritates me to no end when people take those low stats to jump to the WRONG conclusion that trading is impossible or that the market is random and can't be predicted by probabilities. The 5% who are successful should be proof enough that this skill is achievable, albeit with great difficulty. More definitive proof is the Renaissance Medallion fund which gets double digit returns year after year since its inception over 25 years ago. Anyone who sees the returns from Renaissance and still claims the market is random is suffering from their own internal mental bias.
https://www.bloomberg.com/news/arti...-medallion-fund-became-finance-s-blackest-box
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of all the zero sum games, trading is one of if not the worst to be in... there are other zero sum games where the success rate is higher.
that is if zero-sum gambling is something you absolutely have to do.
how robust is this economy.... they are hiring programmers without college degree now... get some training and get in, you be earning 6 figures.
trading is a waste of time.... and I am saying this after having pulled lots of dough from the market.
that is if zero-sum gambling is something you absolutely have to do.
how robust is this economy.... they are hiring programmers without college degree now... get some training and get in, you be earning 6 figures.
trading is a waste of time.... and I am saying this after having pulled lots of dough from the market.
THe reasons are, in order:
1) no winning system. Not paying attention to 99% of the posts on this forum, this is the number 1 reason. Consider some of these lies:
1) all systems work, it's just the trader. Lie.
2) it's easy to find a good system. Lie.
2) someone doesn't have the psychology to trade the system. I have a really hard time believing this one, because if you have a winning system, you just use it. But I guess, somewhere, there is a person with a winning system (not common, see number 1) who cannot follow it.
3) there is no 3. The actuality is, most systems are just applying nonsense to randomness. Of course they don't win. So there's no sense in following them. All systems you see online, with the possible exception of this one, aren't even quantified enough to be usable. And that's on purpose, so they can blame the trader when it doesn't work. Check all the gurus on this forum who knowingly post vagueness.
1) no winning system. Not paying attention to 99% of the posts on this forum, this is the number 1 reason. Consider some of these lies:
1) all systems work, it's just the trader. Lie.
2) it's easy to find a good system. Lie.
2) someone doesn't have the psychology to trade the system. I have a really hard time believing this one, because if you have a winning system, you just use it. But I guess, somewhere, there is a person with a winning system (not common, see number 1) who cannot follow it.
3) there is no 3. The actuality is, most systems are just applying nonsense to randomness. Of course they don't win. So there's no sense in following them. All systems you see online, with the possible exception of this one, aren't even quantified enough to be usable. And that's on purpose, so they can blame the trader when it doesn't work. Check all the gurus on this forum who knowingly post vagueness.
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this post is spot on.
there is really only 1 reason - no edge.... and that comes from no training, no information etc.
People are vague because they are not going to give out their secret sauce in the stockmarket. Why would they when it will dilute if not render it ineffective? Most people peddling their seminars and books give you crumbs to whet your appetite. So, that you buy their next book or attend their next seminars. It is all a business after all!
I can only speak for myself.
I'm well capitalized, I keep my losses small, My expectations are reasonable and I have a plan and feel I have the discipline to follow it.
I do much better than buying and holding either QQQ or SPY since I quit buy and hold in 2002.
There is nothing wrong with trading if you follow a well thought plan.