Why do so few succeed?

[Baruch]

You can read it here:

http://www.amazon.com/gp/product/0870340751/104-0281607-0111955?v=glance&n=283155

 

[dbphoenix]

This 95% business just won't die, and it probably makes no difference whatsoever that it isn't true (the inaccuracy is printed on page one, but the retraction is always buried somewhere in the classifieds).

The fact is that the "failure rate" among traders isn't that much different than the failure rate among small businesses in general (which may also be not dissimilar from the failure rate in professional schools, or, perhaps, the failure rate in anything), which is around 55 to 60%. And the causes are pretty much the same: lack of preparation and overconfidence. And both of these lead -- for traders -- to the most common specific cause: selling winners too soon and not selling losers soon enough.

Not that pointing this out is going to have any lasting effect, but it ought at least to be mentioned.

 

[Trader333]

If all the "professionals" are buying when all the "idiots" are selling, which way will the market move?

Up (Eventually)


Paul

 

[new_trader]

This 95% business just won't die, and it probably makes no difference whatsoever that it isn't true (the inaccuracy is printed on page one, but the retraction is always buried somewhere in the classifieds).

The fact is that the "failure rate" among traders isn't that much different than the failure rate among small businesses in general (which may also be not dissimilar from the failure rate in professional schools, or, perhaps, the failure rate in anything), which is around 55 to 60%. And the causes are pretty much the same: lack of preparation and overconfidence. And both of these lead -- for traders -- to the most common specific cause: selling winners too soon and not selling losers soon enough.

Not that pointing this out is going to have any lasting effect, but it ought at least to be mentioned.

I should point out that the 97% figure I quote is referring to Day Traders. This figure could just be just a legacy from the tech boom and the madness that ensued. Apparently more than 90% of the Internet companies that started up around that time have failed.

 

[dbphoenix]

I should point out that the 97% figure I quote is referring to Day Traders.

And where did you get it from?

 

[donaldduke]

As I've said before, if anyone is dumb enough to believe that ANY system will make them money, then there would be no market to trade in. The system would have ben honed and devolped by the Morgan Stanley, Deusche banks and Goldmans of the world- until it was foolproof- then of course nobody would ever sell, as every trader would have the same foolproof "buy signal" i.e it is impossible.
CT

Hmm, my system makes me money.. but it wouldnt make the same % return for a multi
million dollar account as it would for a sub million dollar account.
So i couldnt see the likes of Goldmans being much interested in it.
A quarter or half a million in trading profits a year is alot of money for most people but its peanuts for these banks (and perhaps ex city traders like yourself).

 

[new_trader]

Up (Eventually)


Paul

True, but by then I'm sure many "professional" stops would have been hit. Otherwise my understanding of supply and demand, the herd mentality and "The Trend is Your Friend" is all wrong

 

[TheBramble]

The fact is that the "failure rate" among traders [...] is around 55 to 60%.

Although I have no empirical basis on which to challenge that, it just doesn't 'seem' right.

I appreciate t2w (or any financial trading bulletin board) is probably not the best barometer of individual success in trading, but I don't get any 'sense' that of the 50,000 odd members (some very odd) on this site, 22,500 of them have made that transition from newbie to consistently successful.

And of people I know outside these boards (let's call them 'normal people') who have attempted to trade, that figure doesn't stack up either. Could be I just mix with a bunch of losers of course. And the sample size of traders (ex- or active) I know personally isn't that large, true. So statistically, a road to nowhere.

But short of any appropriately controlled study on this data, we'd probably do as well between ourselves, based on our personal knowledge of those who we personally know who have attempted trading and failed to gain sufficient proficiency before running out of funds or giving up completely for other reasons, to assess a more statistically valid level of success.

If those succeeding ("Why do so few succeed") is a whopping 40%, the other 60% are taking a real hammering!

 

[dbphoenix]

Success among traders/investors -- depending on how one defines "success" -- is not all that different from a standard distribution: some do extremely well, some do very badly, most breakeven or do fair to middling. Therefore, before even beginning to discuss "success", one must first define the term. Is success making a profit? Or is it tripling your equity every year?

And making any judgements based on message boards would require an assumption that members of websites, much less habitues, are representative of the population of traders as a whole. However, most people who join these sites do so, I would guess, for information. A large part of the rest do so to feed their egos, solicit subscribers/clients, vent their rage of one sort or another, or just fill time. Those who are actually doing the work are, for the most part, doing the work.

 

[new_trader]

And where did you get it from?

To be honest, I can't remember. I came across that figure when researching and it stuck with me. Bell curves are useful for showing the normal distribution in many fields.

http://en.wikipedia.org/wiki/Normal_distribution


Some notable qualities of the normal distribution:

The density function is symmetric about its mean value.
The mean is also its mode and median.
68.268949% of the area under the curve is within one standard deviation of the mean.
95.449974% of the area is within two standard deviations.
99.730020% of the area is within three standard deviations.
99.993666% of the area is within four standard deviations.


The mean is average so it would be hard for me to believe that people within 1 standard deviation would make good day traders, 97% is a believable figure.

 

[dbphoenix]

To be honest, I can't remember. I came across that figure when researching and it stuck with me. Bell curves are useful for showing the normal distribution in many fields.

http://en.wikipedia.org/wiki/Normal_distribution


Some notable qualities of the normal distribution:

The density function is symmetric about its mean value.
The mean is also its mode and median.
68.268949% of the area under the curve is within one standard deviation of the mean.
95.449974% of the area is within two standard deviations.
99.730020% of the area is within three standard deviations.
99.993666% of the area is within four standard deviations.


The mean is average so it would be hard for me to believe that people within 1 standard deviation would make good day traders, 97% is a believable figure.

You're being awfully judgmental as to what constitutes "success". You've decided for yourself that you want to be among the top 3% of traders in order to consider yourself a success. But this is a very different matter than spreading the notion that only 3% of traders are successful.

If you want to set the bar that high, that's your choice. But suggesting that someone in the top 20% or 30% or even 40% is not successful simply because he is not in the top 5% or 3% is a bit rigid.

 

[TheBramble]

Success among traders/investors -- depending on how one defines "success" -- is not all that different from a standard distribution: some do extremely well, some do very badly, most breakeven or do fair to middling. Therefore, before even beginning to discuss "success", one must first define the term. Is success making a profit? Or is it tripling your equity every year?

OK. If we take as a working hypothesis that those who enter trading do so to (a) make money (b) continue to make money on a consistent basis. That gets around any need to get into subjective and personal valid definitions of 'levels' of success (from tripling capital each and every day to eking out basic subsistence from a low-paid day job).

If you really mean the standard distribution, that would imply about 33.5% of those who get into trading, do averagely well - that is, are successful (as defined above). 33.5% do averagely badly (get out with all to some of their starting capital). We then move on into the 2nd and 3rd deviations, but basically, the normal distribution, if applied to starting to traders, would yield 50% doing from averagely well, to stupendously well. I don't believe that is the case.

And making any judgements based on message boards would require an assumption that members of websites, much less habitues, are representative of the population of traders as a whole. However, most people who join these sites do so, I would guess, for information. A large part of the rest do so to feed their egos, solicit subscribers/clients, vent their rage of one sort or another, or just fill time. Those who are actually doing the work are, for the most part, doing the work.

I was very careful to separate members of trading BBs from the class of all traders - successful or otherwise. The members of BBs provide opportunities for studies of other kinds, pretty much in line with those sub-categories you mention.

 

[timsk]

Therefore, before even beginning to discuss "success", one must first define the term. Is success making a profit? Or is it tripling your equity every year?

For the purposes of this thread, may I suggest we keep it simple. I propose therefore that:
- Trading success means being consistently profitable no matter how small the profits may be. At the end of the week the day traders' account is healthier than it was at the start of it. At the end of the month, the swing traders' account is more healthy than it was at the start of it, etc, etc.
- Trading failure means being consistently loss making, i.e. the reverse of the above. The day trader is down over the week and the swing trader is down over the month etc, etc.

"The fact is that the "failure rate" among traders isn't that much different than the failure rate among small businesses in general (which may also be not dissimilar from the failure rate in professional schools, or, perhaps, the failure rate in anything), which is around 55 to 60%." This flies in the face of what I had embraced as accepted wisdom, i.e. that 90% - 95% of private retail traders fail. This is very, very heartening to read, if true. Dbp, is your comment gut instinct or is it based on tangible evidence?

Tim.

 

[barjon]

This 95% business just won't die, and it probably makes no difference whatsoever that it isn't true (the inaccuracy is printed on page one, but the retraction is always buried somewhere in the classifieds).

The fact is that the "failure rate" among traders isn't that much different than the failure rate among small businesses in general (which may also be not dissimilar from the failure rate in professional schools, or, perhaps, the failure rate in anything), which is around 55 to 60%. And the causes are pretty much the same: lack of preparation and overconfidence. And both of these lead -- for traders -- to the most common specific cause: selling winners too soon and not selling losers soon enough.

Not that pointing this out is going to have any lasting effect, but it ought at least to be mentioned.

db

I doubt than any figure can be established with a satisfactory degree of accuracy - it can only be a guesstimate at best.

The only figure I have come across that can be said to be reasonably well based came from a spreadbetting company who said that 95% of their customers finished up with less in their account than they started with. Speadbetting, of course, can hardly be regarded as representative of trading as a whole. However, in UK at least, spreadbetting is a popular route for newcomers to take so it is a figure that is worth them bearing in mind.

good trading

jon

 

[dbphoenix]

OK. If we take as a working hypothesis that those who enter trading do so to (a) make money (b) continue to make money on a consistent basis. That gets around any need to get into subjective and personal valid definitions of 'levels' of success (from tripling capital each and every day to eking out basic subsistence from a low-paid day job).

If you really mean the standard distribution, that would imply about 33.5% of those who get into trading, do averagely well - that is, are successful (as defined above). 33.5% do averagely badly (get out with all to some of their starting capital). We then move on into the 2nd and 3rd deviations, but basically, the normal distribution, if applied to starting to traders, would yield 50% doing from averagely well, to stupendously well. I don't believe that is the case.

It's not. You'd have 16.5% doing from "averagely well to stupendously well" and the other 16.5% at the opposite end.

 

[dbphoenix]

F This flies in the face of what I had embraced as accepted wisdom, i.e. that 90% - 95% of private retail traders fail. This is very, very heartening to read, if true. Dbp, is your comment gut instinct or is it based on tangible evidence?

Tim.

Based on research. Anyone who's interested can start with Odean's work if they like. However, rather than perseverating on some number, the individual who wants to succeed will focus on the reasons for success or failure, which are essentially the same as they were a hundred years ago a la Wyckoff and Livermore: don't overtrade, sell your losers, keep your winners.

As to being "heartening", it shouldn't be. Or disheartening, for that matter. If one truly wants to be a trader, the success or failure of others, regardless of how one defines it, is completely irrelevant.

 

[Trader333]

True, but by then I'm sure many "professional" stops would have been hit. Otherwise my understanding of supply and demand, the herd mentality and "The Trend is Your Friend" is all wrong

It is all to do with understanding: Accumulation, Mark up, Distribution and Mark Down and not where supposed "Professional Stops" may be placed..


Paul

 

[TheBramble]

It's not. You'd have 16.5% doing from "averagely well to stupendously well" and the other 16.5% at the opposite end.

OK. I guess I need a refresher course in basic stats.

Don't want to take this thread off topic, but if by normal distribution you mean the bell curve (which I do not believe is as standard as we have been assuming by a long stretch [no pun intended]) there is a central vertical line - AVERAGE. Straddling with equal area each side of that vertical line - accounting for 67% of traders, is the first standard deviation. Half of these (33.5%) will be on the 'profitable' side - half of these (33.5%) on the 'not profitable' side.

Taking a beautifully symmetrical bell curve, EVERYTHING to the left of that central vertical AVERAGE line, is on the 'profitable' side. 50%.

I don't believe normal distribution applies to the class of all traders if what I have outlined above is a correct interpretation of the normal distribution curve.

If I were to suggest a curve (and I'm about to) representing from left-to-right diminishing success of the class of traders; it would start real low and then curve exponentially upward to the right with the 'profitable' vertical line almost against the left hand side.

Interpretation: - A very tiny minority are profitable and an increasingly large number lose an increasingly larger percentage of their starting capital, right over to the right hand side where those poor souls have lost it all.

Does this make sense?

 

[timsk]

...As to being "heartening", it shouldn't be. Or disheartening, for that matter. If one truly wants to be a trader, the success or failure of others, regardless of how one defines it, is completely irrelevant.

Dbp,
Knowing your BB persona as well as I do now, I kinda expected this response - and I take it on board. That said, regardless of my personal desire, enthusiasm and commitment to being a trader, I am a pragmatist. I don't believe in flogging a dead horse. I'm looking to stack the probabilities in my favour any way that I can! I've defined trading success and failure as I see it. Your stat's suggest to me that the task isn't as difficult or as monumental as I'd previously imagined it to be. That's heartening!

Based on research. Anyone who's interested can start with Odean's work if they like. However, rather than perseverating on some number, the individual who wants to succeed will focus on the reasons for success or failure, which are essentially the same as they were a hundred years ago a la Wyckoff and Livermore: don't overtrade, sell your losers, keep your winners.

Don't overtrade, sell your losers, keep your winners.
Is this the 'Holy Graille' - is this really what it all boils down to?
Tim.

 

[TraderPattern]

Let's face it. Most of you here are (statistically-speaking) failed or failing traders.

So, hands up the 5%

Here's my hand :arrowu: