Why Traders Lose

ironchef said:
Everyone here quoted statistics: 90%, 95%, 99%, 99.9% are numbers been thrown around as the % of losing traders. And yet on ET, the majority of you are winners and trade profitably. Something just does not add up? o_O

I have been trying to find actual numbers from brokerage firms, academic studies and just could not find any verifiable statistics except one study about Taiwan day traders. There I remember the number was like 80%/20%? I attribute the poor showing there to uneducated traders a with gambling mentality (amount of day trading dropped the moment they started a lottery so it seemed the folks there treated trading as casinos).

Perhaps ET statistics could be the real gauge of trading successes?
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The spreadbetting firm I use have said that at any one time about 78% of their clients are consistently losing. They said this is what they had also seen in studies by the University of Taiwan and CME/CBOT. In this case, the ratio is a snap-shot but this is a more rigorous way to assess profitability: a winner:loser %age is meaningless unless a time period is specified.
 
Reasons of being failure in the trading world could be manifold. some of the common reasons which are likely to make traders fail are poor trading plan, poor risk management, lack of patience, greed, over trading, indiscipline etc.
Forex is not everyone's cup of tea, very few traders are able to make money out of forex.
 
ironchef said:
Everyone here quoted statistics: 90%, 95%, 99%, 99.9% are numbers been thrown around as the % of losing traders. And yet on ET, the majority of you are winners and trade profitably. Something just does not add up? o_O

I have been trying to find actual numbers from brokerage firms, academic studies and just could not find any verifiable statistics except one study about Taiwan day traders. There I remember the number was like 80%/20%? I attribute the poor showing there to uneducated traders a with gambling mentality (amount of day trading dropped the moment they started a lottery so it seemed the folks there treated trading as casinos).

Perhaps ET statistics could be the real gauge of trading successes?
More...


IB's Retail Forex Traders for Q2 - https://www.interactivebrokers.com/en/index.php?f=3731
 
schweiz said:
The first time I see REAL PROVEN figures. Completely different from the 99% lose myths.
And I think the highest percentage of losers is in Forex, not in futures or stocks.
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I was thinking the same thing, about FX traders. Somebody has stated that IB customers are more savvy than most other traders, I don't know about that, maybe in hunting cheaper commissions in the retail sphere.

Statistically speaking these numbers can be misleading as the one's that were 50% profitable this quarter weren't necessarily the one's that were profitable in the previous quarter, and to what extent were they profitable and unprofitable is also a factor.
 
They said:
I was thinking the same thing, about FX traders. Somebody has stated that IB customers are more savvy than most other traders, I don't know about that, maybe in hunting cheaper commissions in the retail sphere.

Statistically speaking these numbers can be misleading as the one's that were 50% profitable this quarter weren't necessarily the one's that were profitable in the previous quarter, and to what extent were they profitable and unprofitable is also a factor.
More...
Exactly. If the simulation model was akin to tossing a coin; the results would be roughly 50:50 for any given period. This does not reflect consecutive months for any specific individual and therefore does not contradict the 90% fail claim.

"The NASAA Group released a report for the SEC whereby it was tasked to respectively, 1) tabulate data, and 2) analyze activity in a sampling of customer day trading accounts. The conclusions are consistent with regulators’ warnings that most customers will lose money day trading.
The analyst concluded that, based on the study of accounts, “70% of public traders will not only lose, but will almost certainly lose everything they invest.” He also concluded that only 11.5% of the accounts reviewed evidenced the ability to conduct profitable short-term trading."

The findings of the above report can be found online: http://www.nasaa.org/wp-content/uploads/2011/08/NASAA_Day_Trading_Report.pdf
 
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swatson said:
Exactly. If the simulation model was akin to tossing a coin; the results would be roughly 50:50 for any given period. This does not reflect consecutive months for any specific individual and therefore does not contradict the 90% fail claim.

"The NASAA Group released a report for the SEC whereby it was tasked to respectively, 1) tabulate data, and 2) analyze activity in a sampling of customer day trading accounts. The conclusions are consistent with regulators’ warnings that most customers will lose money day trading.
The analyst concluded that, based on the study of accounts, “70% of public traders will not only lose, but will almost certainly lose everything they invest.” He also concluded that only 11.5% of the accounts reviewed evidenced the ability to conduct profitable short-term trading."

The findings of the above report can be found online: http://www.nasaa.org/wp-content/uploads/2011/08/NASAA_Day_Trading_Report.pdf
More...

That study is almost 20 years old and pertains to stocks only. Also it was conducted before the PDT rule which itself shook out many unqualified traders. The numbers could be different in stocks now being that many of the pikers without $25K went into FX.
 
They said:
That study is almost 20 years old and pertains to stocks only. Also it was conducted before the PDT rule which itself shook out many unqualified traders. The numbers could be different in stocks now being that many of the pikers without $25K went into FX.
More...

The only correct way would be to follow each account from start to finish, and then see how many accounts were profitable.
But then the next question is: what with people who have several accounts, or start again after being wiped out?
But I don't believe +90% end up losing.
 
https://www.quora.com/Do-90-of-day-...y-30-so-is-this-simply-beginners-luck?share=1

Some nice answers on top of this page, and statistics lifted from another article:

  1. 80% of all day traders quit within the first two years.
  2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.
  3. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.
  4. The average individual investor under performs a market index by 1.5% per year. Active traders under perform by 6.5% annually.
  5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.
  6. Traders with up to a 10 years negative track record continue to trade. This suggest that day traders even continue to trade when they receive a negative signal regarding their ability.
  7. Profitable day traders make up a small proportion of all traders – 1.6% in the average year.However, these day traders are very active – accounting for 12% of all day trading activity.
  8. Among all traders, profitable traders increase their trading more than unprofitable day traders.
  9. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income.
  10. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios.
  11. Men trade more than women. And unmarried men trade more than married men.
  12. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features.
  13. Within each income group, gamblers under perform non-gamblers.
  14. Investors tend to sell winning investments while holding on to their losing investments.
  15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002.
  16. During periods with unusually large lottery jackpot, individual investor trading declines.
  17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss.
  18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks.
  19. Individual investors trade more actively when their most recent trades were successful.
  20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.
  21. The average day trader loses money by a considerable margin after adjusting for transaction costs.
  22. [In Taiwan] the losses of individual investors are about 2% of GDP.
  23. Investors overweight stocks in the industry in which they are employed.
  24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.
I think trading has lower successrate, especially active trading, than say the statistics for startups. Though the barriers to entry is also much lower for trading, than for making a startup.
 
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