Why do so few succeed?

[jezza888]

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:

...and there I was thinking ego was bad for business

 

[new_trader]

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?

Yes it makes sense but I don't agree with where you draw the line. The vertical line should be drawn at 95.5% of the area or within two standard deviations. Anyone to the left of the line LOSES money and quits. The curve does not represent traders, it represents the entire population. The statistic is 97% of PEOPLE who start day trading lose money and give up. It's not the definition of success that is important, it is your definition of 'trader'.

 

[dbphoenix]

Yes it makes sense but I don't agree with where you draw the line. The vertical line should be drawn at 95.5% of the area or within two standard deviations. Anyone to the left of the line LOSES money and quits. The curve does not represent traders, it represents the entire population. The statistic is 97% of PEOPLE who start day trading lose money and give up. It's not the definition of success that is important, it is your definition of 'trader'.

However, you have yet to provide any evidence to support any of this.

If you guys want to believe that only a tiny percentage of traders succeed, that's perfectly okay by me. I'm only pointing out that this is a "false fact". My post isn't going to change this perception, but given the subject of the thread, it was worth pointing out.

 

[jezza888]

I totally agree with DB Pheonix.

Not only in the realistic figures of losers/winners but also in the complete irrelevance it should have on your own trading success. IMO.

 

[CityTrader]

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).

Guaranteed? quarter of a bar a year? I'd be happy with that. Why not sell it to the innocent masses - surely you'd make more than that by selling it, and then of course, whilst each of your disciples would probably make less, and less the more that came on board, I'd guess that there's a chance that with critical mass, and the right level of interpretation, you yourself could make even more from trading just ahead- knowing that all the punters who had bought your sysetm, were about to trade. Bring it on.

CT

 

[new_trader]

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.

You are right, I can’t provide any real evidence but inductive reasoning supports the premise. Frankly, I would be more surprised if the figure is less and utterly shocked and astounded if it was near the 55% -60% mark you quote. This means that just under half of the people who attempt day trading become successful!? This would make me feel like even more of a failure. Most people I know would rather watch “Desperate Housewives” or “Big Brother” than Bloomberg Television and I work in a professional field with skilled, educated people.

I don't think the success rate is irrelevant. People are more likely to become complacent and fail if they remain ignorant.

 

[jezza888]

I don't think the success rate is irrelevant. People are more likely to become complacent and fail if they remain ignorant.

The last thing I'm going to do is become complacent not knowing the figures! I am still going to work the hardest I can and apply discipline to my methods regardless of whether statistically 55% or 95% lose overall. I really don't care. Similar to what CharlieChan said earlier in the thread, I think the numbers exist to put negative thoughts into new traders minds and then they expect to lose.... more money for the succesful!

 

[new_trader]

The last thing I'm going to do is become complacent not knowing the figures! I am still going to work the hardest I can and apply discipline to my methods regardless of whether statistically 55% or 95% lose overall. I really don't care. Similar to what CharlieChan said earlier in the thread, I think the numbers exist to put negative thoughts into new traders minds and then they expect to lose.... more money for the succesful!

Fair enough. I still think that people should fully explore the good, the bad and the ugly before undertaking an endeavour. I would be concerned if statistically 45% succeed, especially when I read that less than 1% of traders properly back test their trading strategy. This thread wouldn't have attracted so much attention if there was such a high success rate.

 

[Splitlink]

You are right, I can’t provide any real evidence but inductive reasoning supports the premise. Frankly, I would be more surprised if the figure is less and utterly shocked and astounded if it was near the 55% -60% mark you quote. This means that just under half of the people who attempt day trading become successful!? This would make me feel like even more of a failure. Most people I know would rather watch “Desperate Housewives” or “Big Brother” than Bloomberg Television and I work in a professional field with skilled, educated people.

I don't think the success rate is irrelevant. People are more likely to become complacent and fail if they remain ignorant.

Thank goodness that I do not allow the 95% or the 60% statistic to worry me. It should not you, either, except as an incentive not to be one of that number. Or, perhaps, it makes you feel better
to be one of the 65-95%? They say that there is safety in numbers but don't you think that there is too much value attached to the academics of trading, rather than the practical? Statistics, for me, as far as trading is concerned, is to backtrack a short distance in time and try to observe what normally happens to that price under certain circumstances and how often it is repeated. After that, the matter ends for me as far as trading is concerned. As for those who watch reality shows- don't underestimate their intelligence.

Split

 

[new_trader]

Thank goodness that I do not allow the 95% or the 60% statistic to worry me. It should not you, either, except as an incentive not to be one of that number. Or, perhaps, it makes you feel better
to be one of the 65-95%? They say that there is safety in numbers but don't you think that there is too much value attached to the academics of trading, rather than the practical? Statistics, for me, as far as trading is concerned, is to backtrack a short distance in time and try to observe what normally happens to that price under certain circumstances and how often it is repeated. After that, the matter ends for me as far as trading is concerned. As for those who watch reality shows- don't underestimate their intelligence.

Split

I don't underestimate their intelligence, I estimate the misapplication of it

I also want to make it clear that the statistic does not worry me simply because from what I read, and in my experience with other matters, it does not require much effort to be in the top 3-5%.

Here are some Warren Buffett tenets that will help explain my view:

o You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.

o It is optimism that is the enemy of the rational buyer.

o The ability to say "no" is a tremendous advantage for an investor.

o Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.

o It is not necessary to do extraordinary things to get extraordinary results.

 

[barjon]

.............................and in my experience with other matters, it does not require much effort to be in the top 3-5%...........................


................... Most investors cannot resist the temptation to constantly buy and sell ..................

.

nt

For the first, unless you are favoured by an accident of birth, effort beyond that which the 95 - 97% apply is the only way.

For the second, trading you mean :cheesy:

good trading

jon

 

[new_trader]

nt

For the first, unless you are favoured by an accident of birth, effort beyond that which the 95 - 97% apply is the only way.

For the second, trading you mean :cheesy:

good trading

jon

Yes, I should be more precise with my wording--Much more effort to be in the top 3-5%.

for the second... you figure it out

 

[Splitlink]

I don't underestimate their intelligence, I estimate the misapplication of it

I'll go along with that with no reservations, except to wonder why they do it. I don't like to ask my kids, both of whom run a business. Oh, well, I read crime novels

Split

 

[dbphoenix]

You are right, I can’t provide any real evidence but inductive reasoning supports the premise. Frankly, I would be more surprised if the figure is less and utterly shocked and astounded if it was near the 55% -60% mark you quote. This means that just under half of the people who attempt day trading become successful!? This would make me feel like even more of a failure.

Your last sentence goes a long way toward explaining why so many people hang onto this belief that the task is impossibly difficult and only a small percentage of those who make the effort will succeed. By believing this, one can then find all sorts of reasons to rationalize failure without assuming any responsibility whatsoever for the results himself. After all, with so many people failing, it's really not his fault, is it?

Being shocked and astounded is fine as long as that prompts you to explore the subject and find the facts. But to say that "inductive reasoning supports the premise" doesn't even begin to be enough, particulary since your data is of such poor quality.

Misery loves company, but this task is not nearly as difficult as generally believed, and anyone who fails at it has only himself to blame.

 

[Sirlosealot]

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.

DB

Do you happen to know where this statistic comes from. Some time ago I read Odean's study where, from memory, he comes up with 20% of daytraders make money but I'd be interested in having a look at a study that puts the figure at 40-45% (depending on how the study defines failure!!)

Cheers

Gerard

 

[Bigbusiness]

I am sure that since joining here, the number quoted for those that fail has continually gone up. A few years ago, it used to be around 80%, then it went to 85,90 95 and recently as high as 97%. In a few years time, it might be 105%

Perhaps the higher failure rates are for those that day-trade or do lots of short term spreadbets. As some people use spreadbets and futures trading to hedge options positions, I don't know how the correct number can be derived.

 

[dbphoenix]

DB

Do you happen to know where this statistic comes from. Some time ago I read Odean's study where, from memory, he comes up with 20% of daytraders make money but I'd be interested in having a look at a study that puts the figure at 40-45% (depending on how the study defines failure!!)

Cheers

Gerard

Partly from Odean's study, partly from a Google search. I don't have any links because I didn't save any of it. I'm not preparing a paper or attempting to prove anything, just pointing out that this particular "fact" about the 95% failure rate is little more than an "urban legend".

There are many other false facts, such as that 90% of restaurants fail in their first year, or some extraordinarily high percentage of all small businesses fail in their first year. I don't know where people get this stuff. Perhaps from newspapers. And the vast majority of people seem to cling to the belief that if it's in the paper (or somewhere in print), it must be true, even though reporters aren't nearly as diligent as they used to be.

Other studies show that 25% lose, 50% break even, 25% succeed. Still others show that individual investors pretty track the performance of mutual funds, except that the individual's costs tend to be higher.

 

[charliechan]

the 90% failure rate comes from an nfa survey (state side) several years ago. they got the data from brokerage stats. i would imagine that the stats are the same for stock brokerage clients, as the reasons for failing are usually inside you, not outside of you.

90% of futures accounts opened are either ran into the ground within 9 months, closed, or the funds are simply left dormant.

the survey was done quite a while ago (10 years +??) and i guess education levels have gone up since then. (is that good or bad?)

do 90% of all traders fail then? no. if we say the survey is still true then the real outcomes look like this:

90% of people opening their first account are likely to fail, and if they are still going after a year, there is much hope for them. it would obviously be foolish to say 90% of ALL traders fail, cos those who have been trading for 5 years + are much less likely to blow up.

of ALL traders the world over, what % do the 1st account newbies consist of?


p.s.

in my efforts to keep you lot thinking in the positive, rather than the negative, please can we refrain from words like 'loser', 'failure', numbnuts' etc. instead, please could we use the word 'successfully challenged' so as not to cause any offence to any minority asylum seekers who may be trading here.

yours,

diane abbott, dawn primilolo, and that other commie lezbo bird who luvs ken.

 

[new_trader]

Your last sentence goes a long way toward explaining why so many people hang onto this belief that the task is impossibly difficult and only a small percentage of those who make the effort will succeed. By believing this, one can then find all sorts of reasons to rationalize failure without assuming any responsibility whatsoever for the results himself. After all, with so many people failing, it's really not his fault, is it?

Being shocked and astounded is fine as long as that prompts you to explore the subject and find the facts. But to say that "inductive reasoning supports the premise" doesn't even begin to be enough, particulary since your data is of such poor quality.

Misery loves company, but this task is not nearly as difficult as generally believed, and anyone who fails at it has only himself to blame.

Db,

I appreciate the fact that this figure may be unsubstantiated. If it is purely urban legend as you assert then I think it’s equally reckless to quote another unsubstantiated figure. I would say the business failure rate is obtained from the number of businesses that file for bankruptcy each year.

“Your last sentence goes a long way toward explaining why so many people hang onto this belief that the task is impossibly difficult and only a small percentage of those who make the effort will succeed.”

I think you are missing my point that I have attempted to clarify a few times. I have said it does NOT require much more effort to be in the top 3-5% of traders. You are making it seem an impossibly difficult task by trying to discredit this figure. Saying that every 3rd moron can be successful at trading isn’t encouraging.

Using a Trading System that has proven to be robust through back testing puts you in the top 1% ¹ of traders, it’s that simple.


1. David Jenyns is recognized as the leading expert when it
comes to MetaStock & designing profitable trading systems.

 

[dbphoenix]

the 90% failure rate comes from an nfa survey (state side) several years ago. they got the data from brokerage stats. i would imagine that the stats are the same for stock brokerage clients, as the reasons for failing are usually inside you, not outside of you.

While I agree that the reasons for failure (your word) are usually inside you rather than outside, equating futures trading with stock or index trading is something of a stretch. I suppose it could be quantified, but, in the meantime, I'd be cautious about making any assumptions.