Forex trader success rates - some real data

[BeginnerJoe]

I have seen stuff which suggests account size does play a factor in performance (I think maybe from FXCM/DailyFX). The data I have does include some account balances, but I hesitate to rely on them too much. Trade size, however, could be a dirty proxy for account size.

Care to reveal what size (account or trade) begins to have an impact ?

 

[counter_violent]

I have seen stuff which suggests account size does play a factor in performance (I think maybe from FXCM/DailyFX). The data I have does include some account balances, but I hesitate to rely on them too much. Trade size, however, could be a dirty proxy for account size.

Inappropriate trade size relative to account size could be the single biggest reason why there are so very few long lasting profitable accts.

 

[Rhody Trader]

Care to reveal what size (account or trade) begins to have an impact ?

Looking at that sort of thing is on my to-do list. Early days yet for the research.

Inappropriate trade size relative to account size could be the single biggest reason why there are so very few long lasting profitable accts.

I'd tend to agree with you, but I'll be curious to see if the numbers back that up.

 

[Rhody Trader]

Thanks to some feedback I've edited the post this morning to hopefully make things a bit more clear. Bottom line remains the same - the broker-reported data belies the reality of trader profitability, especially when thinking in terms of consistency.

 

[bbmac]

Trading success is most effectively measured by longevity and consistency of returns over an ongoing period.

I believe the main reasons most fail are that firstly they don't know they need to have an edge or indeed know what one is (and what it is not,) and if/when they do realise this - they don't realise what they need to know about that edge (ie it's typical - maximum metrics) and how this info is needed so that they can optimise their money and risk management to it. Further to this they don't realise that even having an edge and knowing what they need to know about it - they need to give it the appropriate time practising trading it to close the ' profit gap ' - ie the difference between having a proven trading edge in theory and actually making money from it consistently themselves beacuse they don't know that there is a very high likelihood that such a 'profit gap' (read Mark Douglas) will exist for them - this gap in terms of duration is different for everone but typically think years not weeks or months and is essentially the mastering of the trading psychology and identifying the good habits needed/bad habits exhibited leading to building those good habits/eliminating the bad - appropriate to that edge.

All the above is a plan and most don't have one or know the likely progression of such a plan/have the time to devote to it due to pressing mercantile considerations (ie needing to earn some money) so spend time switching between half baked edges never really getting anywhere, and most probably consistently losing (being in a net loss situation) since they began ' trading ' over howsoever long that period is.

G/L

 

[Rhody Trader]

bbmac, I may just have to quote you in my dissertation.

Basically, you make the case behavioral finance theorists make, albeit in much less opaque language.

 

[neil]

I've read Taleb. I know exactly what you're talking about. You're absolutely right that you want time as well. Ideally, you have in someone's history coverage of all potential future market conditions, though that's a bit unrealistic. Given an either/or choice, however, you favor quantity because it will help you establish if there are significant patterns of behavior/performance. Time is only useful if there are enough meaningful observations. A 50-year track record isn't any good if there are only 10 trades. Extreme example, obviously, but you get the point.

As for the vending crack, if my time as a member here, and my service to the community in various roles over the years, doesn't earn me any credibility then maybe I should pack it in and say my farewells.

No crack old chap - you are a training vendor thus performance is important. So at least you realise you need suitable numbers of observation over time (longer the better). But I,m stating the obvious.And please,lighten up- I wasn't making a crack.

 

[Rhody Trader]

No crack old chap - you are a training vendor thus performance is important.

So the extent that I'm a trader, academic (now), journalist, or whatever other non-vendor role i might be in at a given time, performance doesn't matter?

 

[the hare]

you are a training vendor thus performance is important.

I'm sure publishing a link to those statistics is more than enough for immediate expulsion from the honorary guild of snake oil salesmen !

Any snake oil salesman worth his salt would be trying to manipulate the data to show the exact opposite of what John's analysis shows.

 

[neil]

I'm sure publishing a link to those statistics is more than enough for immediate expulsion from the honorary guild of snake oil salesmen !

Any snake oil salesman worth his salt would be trying to manipulate the data to show the exact opposite of what John's analysis shows.

Good point and duly noted

 

[jungles]

it is...............for 0.4% of traders; i dont know whether to laugh or cry

They think the market is some kind of an ATM.

 

[jungles]

Broker customer profit records I’ve always thought suspect. They exclude some key variables such as account/trade size, number of trades taken and profitability across a "significant" amount of time.

As part of my PhD research (yes, I'm doing a doctorate focused on trading) I am looking into retail forex trader profitability. Since the whole question of whether 95% of traders actually fail or not is such a hot button topic, I figured I would take that on as a bit of a side project and share what I find with folks as I work through the numbers. I've posted some initial results on my blog in the post Starting to detail forex profitability data. As the title implies, it is just a start at this stage. There's a lot of data and a lot of ways to slice and dice it. Still, comments are very welcome.

I will post further results as I am able to do additional analysis.

 

[cablemonster]

If you want to make some kind of accusation, just spit it out already and be done with.

I will give you something to chew on.

Would you ask an estate agent (realtor) what his opinion on house prices are?

Would you ask a bank employee if it is sensible to take out a loan?

Would you ask a broker if your money is safe?

Would you ask an academic who also happens to sell trader training what the average trader failure rate is?

remember the 80/20 rule, 80% of people are muppets.

wooooooooooooooooooooooooooooooooooshhhhhhh

 

[the hare]

Would you ask an academic who also happens to sell trader training what the average trader failure rate is ?

No I wouldn't, and for obvious reasons.

However, if such a person where to publish those figures on a blog, then I'd take a look

If those figures where similar to what I'd expect based on probability, a decades experience dealing with muppets, and data that I'd seen from a smaller sample, then I'd conclude that he had no real axe to grind.

I suspect the honorary guild of vendors and snake oil salesmen have already issued a fatwa and Johns currently enjoying the benefits of the FBI's witness protection program.

If I where a broker (or a forum owner) I'd be furious !

 

[jungles]

the logic of your statement is only valid if the academic/ trainer were peddling a stat higher than, or comparable to, broker profit statements

jeeez (rolls eyes)

Would you ask an academic who also happens to sell trader training what the average trader failure rate is?

 

[NVP]

As part of my PhD research (yes, I'm doing a doctorate focused on trading) I am looking into retail forex trader profitability. Since the whole question of whether 95% of traders actually fail or not is such a hot button topic, I figured I would take that on as a bit of a side project and share what I find with folks as I work through the numbers. I've posted some initial results on my blog in the post Starting to detail forex profitability data. As the title implies, it is just a start at this stage. There's a lot of data and a lot of ways to slice and dice it. Still, comments are very welcome.

I will post further results as I am able to do additional analysis.

good luck with the PHD

if you consider the % of Golfers actively playing that dont make the US or European Tour you will see why 95% failing in trading is not as big an issue as you think

N

 

[Rhody Trader]

good luck with the PHD

Thanks

if you consider the % of Golfers actively playing that dont make the US or European Tour you will see why 95% failing in trading is not as big an issue as you think

I've never thought the 95% failure rate was much to squawk about. I would, however, push back a bit on the golf analogy because someone who's not on the Tour can still get quite a bit of reward out of participation at the lower levels, just not the financial pay-off (I assume, not being a golfer myself).

 

[Shakone]

So what do other traders think of these statistics (which I believe to be true because they sound about right to me, for what little that is worth)? Do they think they are unique and it doesn't apply to them? Given the fact that so few are successful every quarter, has it changed anyone's expectations? Does anyone now consider that perhaps being profitable every month or every day is unlikely and an unrealistic expectation? That we need to accept there will be losing months. That perhaps the profit targets for the year should be a more reasonable 10-30%, and that we should be more focused on the losing months and drawdown. Or is it just ignored?

If you studied this business with stats you believed in which showed that less than 1% make consecutive quarterly profits, and that most likely even less make consecutive monthly and even less make consecutive weekly profits, every week, would you carry on?

 

[the hare]

If you studied this business with stats you believed in which showed that less than 1% make consecutive quarterly profits, and that most likely even less make consecutive monthly and even less make consecutive weekly profits, every week, would you carry on?

I did, and I did

Motörhead - Ace Of Spades - YouTube

And I'll keep on milking that cow till it runs dry

 

[GumRai]

So what do other traders think of these statistics (which I believe to be true because they sound about right to me, for what little that is worth)? Do they think they are unique and it doesn't apply to them? Given the fact that so few are successful every quarter, has it changed anyone's expectations? Does anyone now consider that perhaps being profitable every month or every day is unlikely and an unrealistic expectation? That we need to accept there will be losing months. That perhaps the profit targets for the year should be a more reasonable 10-30%, and that we should be more focused on the losing months and drawdown. Or is it just ignored?

If you studied this business with stats you believed in which showed that less than 1% make consecutive quarterly profits, and that most likely even less make consecutive monthly and even less make consecutive weekly profits, every week, would you carry on?

People believe what they want to believe.
Most people get into trading because they believe all the hype from people selling systems that promise easy money for no effort.
It takes a while for reality to change their beliefs