What are your questions about trader performance?

tomorton

Legendary member
8,420 1,343
Thanks John - I am wondering if the underlying raw data show they do indeed do better - until they go broke? ;-)
 

PualoP

Well-known member
402 36
Even though every one knows the old adage "run your winners, cut your losers", friends who work at spread betting firms tell me that the majority of traders actually do the opposite, and this is the major reason why the majority of traders do lose money?
 

tomorton

Legendary member
8,420 1,343
Agree with that PualoP - and it comes back to my theory that most traders start and finish their trading careers on intraday only action - after all, how can you run a winner if you have told yourself you have to be flat by 4:30 this afternoon?
 

Rhody Trader

Senior member
2,620 266
Even though every one knows the old adage "run your winners, cut your losers", friends who work at spread betting firms tell me that the majority of traders actually do the opposite, and this is the major reason why the majority of traders do lose money?

In academic speak this is referred to as the disposition effect. Kahnemann & Tversky won a Nobel Prize in economics for the work that led to finance researchers developing this theory. Basically, K & T found that people are irrational when it comes to how they feel about gains and losses. The pain of losing is more potent than the joy of winning, which is why we have such a hard dealing with the idea of giving back what we've made or accepting a loss by closing out a losing trade.

There is definitely evidence of the influence of the disposition effect in my data, though I haven't specifically done down that research path. Roughly 60% of trades are winners, but the losers are on average much bigger than the winners.
 

timsk

Legendary member
7,604 2,377
. . . I haven't explicitly looked at that yet, but in general terms it does appear that traders operating in shorter time frames do better, all else being equal.
Hi John,
Can you be more specific regarding "shorter time frames" - are you talking minutes, hours or days?
Tim.
 

timsk

Legendary member
7,604 2,377
Agree with that PualoP - and it comes back to my theory that most traders start and finish their trading careers on intraday only action - after all, how can you run a winner if you have told yourself you have to be flat by 4:30 this afternoon?
I'll stick up for day traders here Tom and answer this by saying that the principle of letting winners run is the same for day traders as it is for swing or position traders. It's just magnified the further out you go on the timescale.

That said, I suspect you're spot on about many newbies starting and ending their brief careers as traders on an intra day time frame. However, I doubt the reason for their demise is an inability to run winners. As John suggests, it's much more likely to be an inability to cut losers.
Tim.
 

Rhody Trader

Senior member
2,620 266
Hi John,
Can you be more specific regarding "shorter time frames" - are you talking minutes, hours or days?
Tim.

The variable I'm using simply measures average holding period in days and fractions thereof (for example, 12 hours would be 0.5). When I said moving to a shorter time frame I simply meant that variable's value drops from one month to the next. I haven't looked specifically at what happens if one goes from say holding periods of days (swing trading, for example) to hours, or anything like that as yet.
 

hjg

Junior member
29 2
"Consistently profitable" is tricky. I may not have the data to draw any real conclusions.

What I can say, though, is that in general terms there seems to be something around the 3 year mark where experience makes a significant difference in returns. It's definitely worth seeing if I can drill down on that.

Full 3 years? :-0 I would have sworn an year was enough.
 

Rhody Trader

Senior member
2,620 266
Full 3 years? :-0 I would have sworn an year was enough.

The problem is I'm only going on what they ticked in their profile. I don't know how much trading they've actually done, how much was demo vs. live, etc. The only thing I know is that the difference between those with 0-3 years indicated experience and those with 3+ years is statistically significant.
 

Forexmospherian

Legendary member
39,928 3,301
Full 3 years? :-0 I would have sworn an year was enough.

I am amazed its not over 5 yrs for traders still part time to become consistent

If you need 10k hrs study etc for being looked at as experienced or proficient - then I reckon you need at least 4 or 5k hours to become at least an intermediary level

If a part time trader spends say 15 hrs a week on his new hobby of trading - ie study - watching charts etc etc - then in one year not even 800 hrs - even if he works at it every week.

So for a minimum 4k hrs of study etc - then 5 yrs.

This is the problem - so many new traders thinks it easy after say 5 or 10 winning trades and only a few losses.

They are in for a shock for sure - and then when they move off demo onto live and lose their first few grand - they are scarred and their method becomes tainted.

Therefore after 2-4 yrs so many give up and maybe another few years and they would have cracked the code to the safe - and start being consistent every month an quarter etc - rather than the yo - yo life of a new trader

The trouble is - I never hear the industry or guru's saying this - they try and make out in 2 yrs you will be an expert - dream on ;-))

Regards


F
 

Rhody Trader

Senior member
2,620 266
I should make it clear that the 3 year break point doesn't actually mean that's when they turn profitable. The more experienced folks are just significantly better. They still lose money on average.
 

Forexmospherian

Legendary member
39,928 3,301
I should make it clear that the 3 year break point doesn't actually mean that's when they turn profitable. The more experienced folks are just significantly better. They still lose money on average.

I remember the ex antique dealer on the BBC program on currency trading admitting after 7 years trading he felt he was nearly there - ie not losing so much and nearly turned the corner to ongoing profits etc

So many have say 1 months good results or even 6 months - and then lose double they gained in next year thinking they are there.

After a few thousand live trades you should be getting there and after 5000 live trades - if you are not consistent on at least every 100 - then try harder.

10 -15 consecutive losses can still happen - even with a 70%+ win ratio - and when it does - traders forget all about there 20 or 30 consecutive winners etc and get disheartened etc etc - simply because more than likely there smaller number of losses will be greater than their wins - money wise.

With regards to time scales on trading - short term should be more profitable once you have the skill level. Longer term - over weeks and months is fortune telling as too many factors can change what should happen.

We can all call the weather in next 5 -`15 minutes - but not in 15 days or 5 weeks -it guessing.

Traders also do not realise inefficiencies of waiting days or weeks for trades with RR's of 4 - when you can intraday the same in under 30 mins - but so many just dont want to spend the 5 - 10 k hrs getting there - its just too long a period for the majority
 

PualoP

Well-known member
402 36
The truth is, despite all the guru advice you see on the internet about risk/reward, most traders are taking 10pip winners and "running" their losers to 50 pips. Most traders are incapable of trading with a low percentage trading system i.e less than 50%. The Human need "to be right" is the downfall of most traders.
 
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hjg

Junior member
29 2
Actually, my PhD research provides an indication that social interaction can actually be detrimental. A lot more work needs to be done, but there definitely appears to some kind of negative social influence on returns, though it seems to be different for experienced vs. inexperienced traders.

I think it is detrimental for the experienced and vice versa for the inexperienced. Though it doesn't hurt for the experienced to take breaks too. Besides,they could get more ideas from others too.
 
 
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