Whether the failure rate statistic above is as high as the oft quoted 95% for retail traders - there is no way of knowing. What is clear though is that the failure rate is very high. Below I list some of the reasons for this.
a. The sub culture that surrounds trading as I intimated above suggests that you can ' get rick quick ' and work ' just five minutes day ' etc. This is plainly false and very misleading. It causes many to follow these apparent shortcuts letting their hope / greed cloud their common sense. If it looks too good to true - it usually is !
b. When they commence live trading - they simply don't know what it is they need to know and are distracted by false noises such as detailed in point a. above. They have no idea that actually trading isn't about getting involved in as many opportunities as possible - but about disregarding as many risks as possible to leave only the highest probability trading opportunities. This requires patience and discipline. It was Aristotle that said ' Patience is bitter - but it's fruit is sweet. '
The 1st goal of a trader should always be capital preservation, (Ie you have to be able to 'stay in the game ' through sensible and proven risk management techniques.) Only then can you achieve the 2nd goal which is to grow that capital. The 3rd task is to learn from every trade you place.
c. They are generally under funded and as a result of this (and greed) are over leveraged. Whilst the leveraging of margin can magnify gains it can magnify losses also. All too often they take advantage of the ridiculous levels of leverage willingly offered by the brokers and the result in more cases than not is that sooner or later they blow out their accounts and lose their trading margin.
d. They have no idea what a Trading Edge is, how to acquire one or what they then need to know about it in order to ensure that it throws up no surprises that can lead to problems, and a loss of trading margin.
e. They don't understand the psychological barriers that can prevent them from achieving their trading aims even with a proven Trading Edge. In his book Reminiscences Of A Stock Operator about the legendary Wall Street Trader Jesse Livermore, Edwin Lefevre suggests that one of the prime reasons most never make it is because;
i. When the natural human instinct is to hope - in trading you have to fear
ii. When the natural human instinct is to fear - in trading you have to hope
I.e: Most times the necessary cognitive responses required in trading run counter to the instinctive human ones. Furthermore when entering a market you have to be right at the right time, not right at the wrong time - because this is the same as being wrong. For example in a bullish market you have to know what the highest probability set-ups are to buy to profit from the rising price. If you buy in the wrong place and price corrects to the downside, even though it may resume it's rise you have been stopped out for a loss. You were right - the market was bullish - but you were right at the wrong time !
My experience is that developing the necessary 'trading psychology' can prove harder than mastering the technical stuff. Getting a proven consistently profitable way to trade (ie a Trading Edge) that can be relied upon to produce a regular income is one thing, but as the excellent Mark Douglas (Trading in the Zone, The Disciplined Trader etc) points out - it is the destructive effects of the human emotions connected with any discretionary trading that can lead to the ' Profit Gap, ' ie the difference between having a proven trading edge and actually being able to make a reliable and consistent income from it yourself. Of course the first step is to actually acquire a proven consistently profitable trading edge, but even given this - some never close this 'profit gap.'
G/L
