Winners / losers statistics

[Riskmanager]

O.K., we've all heard about the supposed statistic, according to which 90-95% of all traders lose money in the markets.

I've actually had the opportunity to talk to the CEO of a day trading brokerage here in Europe about that. His customers primarily trade european & US-futures and CFDs & forex.
And trust me guys, his brokerage is not a rip off, but their commissions and trading platforms are among the best in that country for retail clients.

Now, according to that gentleman:

- it takes the average client 3 months to go broke
- about 90-95% of all futures traders lose money
- about 70-80% of CFD-traders (i.e. leveraged stock traders) lose money.

Edit: Oh, and I also asked him about his opinion why most traders lose money. He said it's because they don't let their winning trades run long enough but rather prefer to take a small profit in order to feel good in the short run.

 

[candletrader]

Quote from Riskmanager:

O.K., we've all heard about the supposed statistic, according to which 90-95% of all traders lose money in the markets.

I've actually had the opportunity to talk to the CEO of a day trading brokerage here in Europe about that. His customers primarily trade european & US-futures and CFDs & forex.
And trust me guys, his brokerage is not a rip off, but their commissions and trading platforms are among the best in that country for retail clients.

Now, according to that gentleman:

- it takes the average client 3 months to go broke
- about 90-95% of all futures traders lose money
- about 70-80% of CFD-traders (i.e. leveraged stock traders) lose money.

Those who win at this game understand that trading is nothing more than a numbers game, and tend to build simple strategies around that core reality...

Those who lose at this game have yet to simplify things or are incapable of doing so...

Another thing: the low barriers to entry to this game relative to other games results in a disproportionate number of losers relative to other games, since low capitalisation is a distinct disadvantage...

 

[candletrader]

Quote from Riskmanager:

Edit: Oh, and I also asked him about his opinion why most traders lose money. He said it's because they don't let their winning trades run long enough but rather prefer to take a small profit in order to feel good in the short run.

Running profits is not a pre-requisite to success... depending on your approach, it may actually be an impediment to success...

Running profits is an often quoted but all too vague term... to where should profits be run? Again, it boils down to approach...

 

[Riskmanager]

Quote from candletrader:

Those who win at this game understand that trading is nothing more than a numbers game, and tend to build simple strategies around that core reality...

Those who lose at this game have yet to simplify things or are incapable of doing so...

Absolutely! The pareto principle goes against pretty much everything evolution has installed in our genes. Took me ages to incorporate it on a belief level that the winning trades/losing trades ratio is totally unimportant in successful trading.

I recently read an interview with a trader, who is considered to be one of the best in the world. His reward/risk ratio is consistently around 10-15, in his best year it was around 30.
To put things in perspective: in the U.S., cta's who can acchieve a R/R ratio ~ 3 are considered very good (if I recall correctly from that article).

And what is his ratio of winning trades/losing?

He closes around 70% of his trades with a loss.

 

[FuturesTrader71]

Quote from Riskmanager:

[...]
Edit: Oh, and I also asked him about his opinion why most traders lose money. He said it's because they don't let their winning trades run long enough but rather prefer to take a small profit in order to feel good in the short run.

Not likely. The biggest reason for failure is risk management.. period. This may mean taking small winners and many big losses. However, the average guy does not account for the fact that to win in this you have to always protect the down side first and the upside takes care of itself. This means that you cannot be undercapitalized, you cannot continue to trade while losing, you cannot risk much on every trade, etc etc. The specifics of these depend on the market, product and style traded.

As I have said many times here, a trader's worst enemy is longevity (time). For most traders, by the time they think they have it figured out, they have run out of money. The only way to control this is through diligent risk management.

 

[candletrader]

Quote from Riskmanager:


He closes around 70% of his trades with a loss.

Marty Schwartz did the opposite and made millions...

Do not look for success in the analysis the R:R and hit rate numbers, since traders with diametrically opposite numbers can be equally successful...

If success were to be found in the analysis of such numbers in the context of a so-called positive expectancy approach (is any approach actually positive expectancy? -- no, not in the long run), all reasonably numerate and intelligent traders would be a success... my contention is that the vast majority of reasonably numerate and intelligent traders have already blown up their accounts or will blow up their accounts, generally by slow bleeding it away over a few years... and anyone who doesn't have reasonable numeracy or intelligence will also blow up his account, generally by fast bleeding it away within a matter of months...

Trading is brutal... success can only be found on recognition of the fundamental truths of trading, which will often vary from person to person... but trading will still be brutal... trading is easy, and therein lies the attraction of it for the neophyte... but trading successfully is anything but easy...

 

[PitchBlack]

Quote from FuturesTrader71:

Not likely. The biggest reason for failure is risk management.. period. This may mean taking small winners and many big losses. However, the average guy does not account for the fact that to win in this you have to always protect the down side first and the upside takes care of itself. This means that you cannot be undercapitalized, you cannot continue to trade while losing, you cannot risk much on every trade, etc etc. The specifics of these depend on the market, product and style traded.

As I have said many times here, a trader's worst enemy is longevity (time). For most traders, by the time they think they have it figured out, they have run out of money. The only way to control this is through diligent risk management.

The only thing risk management does is manage the risk. That's why it's called risk management.

To make money you need a system that generates profits. A risk management will never do that; it will only limit losses.

To trade profitable you need a "system". The system should generate profits. But as systems are never perfect and markets can be unpredictable one needs a system to get out of a trade when the system fails.

So a bad system with a very good risk management might never be profitable.

 

[Magna]

Quote from spike500:

The only thing risk management does is manage the risk. That's why it's called risk management.

To make money you need a system that generates profits. A risk management will never do that; it will only limit losses.

To trade profitable you need a "system". The system should generate profits. But as systems are never perfect and markets can be unpredictable one needs a system to get out of a trade when the system fails.

So a bad system with a very good risk management might never be profitable.

Absolutely agree. The finest risk management in the world will only slow the bleed. You must have a system that generates profits, and then good risk management will extract more out of it than bad risk management.

 

[yeayo]

Quote from Riskmanager:

O.K., we've all heard about the supposed statistic, according to which 90-95% of all traders lose money in the markets.

I've actually had the opportunity to talk to the CEO of a day trading brokerage here in Europe about that. His customers primarily trade european & US-futures and CFDs & forex.
And trust me guys, his brokerage is not a rip off, but their commissions and trading platforms are among the best in that country for retail clients.

Now, according to that gentleman:

- it takes the average client 3 months to go broke
- about 90-95% of all futures traders lose money
- about 70-80% of CFD-traders (i.e. leveraged stock traders) lose money.

Edit: Oh, and I also asked him about his opinion why most traders lose money. He said it's because they don't let their winning trades run long enough but rather prefer to take a small profit in order to feel good in the short run.

Trading is a negative-sum game - give 100 traders 100 million. And all of them combined will lose 50 million to the broker. The remaining 50 million they lose to each other, maybe 10 of them will take a cut of 50 million and 90 will lose a cut of 50 million. The broker always will make the most money. This is just my theory but you get the point and I'm sure the reality is pretty close to it. That's why I don't understand why traders give so much money to the broker by trading an insane amount of shares. Of course the positive thing about brokers getting rich is increased liquidity.

 

[FuturesTrader71]

Quote from spike500:

The only thing risk management does is manage the risk. That's why it's called risk management.

To make money you need a system that generates profits. A risk management will never do that; it will only limit losses.

To trade profitable you need a "system". The system should generate profits. But as systems are never perfect and markets can be unpredictable one needs a system to get out of a trade when the system fails.

So a bad system with a very good risk management might never be profitable.

This is a given. The idea is that you still have money left when you have figured that system out or when you find out that your system is no longer working. Again, focus on protecting the downside.

Quote from Magna:

Absolutely agree. The finest risk management in the world will only slow the bleed. You must have a system that generates profits, and then good risk management will extract more out of it than bad risk management.

Like Spike, you are making my point for me. A system doesn't pop out of thin air, it takes trial and error and money to figure out what works. Many traders run out of money before they can come up with a "system" that generates profits. The idea is to stay in the game and allow time to get there. I believe it is obvious to everyone here that you can't make money by simply not trading (the ultimate way to manage risk ), so I didn't mention that.