I;'ve got a confession to make: I never made money trading discretionary, in fact I lost the most money on discretionary trades. I've only made money whenever I was trading a mechanical edge that was backtested by computer in advance(and sometimes forward tested).:eek: my anecdote seems to confirm your finding.
Traders usually fail because they either lack profitable method (also called edge) or willpower to execute it correctly. Under-capitalization can be the cause of a blow up, but I would relate it to the second case listed above (not being disciplined enough to execute strategy correctly), because taking too much risk is an obvious lapse in discipline.
Steps to profitable trading: 1. First you need an edge. 2. Then you need to convert that edge to a profitable trading plan. 3. You need an account with sufficient capital to trade your plan. 4. You need perfect Discipline to execute your plan.
It isn't the under capitlization itself but the tendency for those without sufficient capital to over leverage and/or trade instruments not appropriate for their capital. Scenario, wannabee trader with the wanna get rich quick attitude. Trading CL with a $5K account, GC with a $10K account. ES with $500 margin, etc... Oh no, ETF's, stocks, Forex aren't for me, I am going to trade with the big boys, with big boy instruments [i.e. Futures and highly leveraged instruments] Newbie trader's: Going to take $700 to $100K Going to double/triple my account in 12 months using a MACD cross. I have been paper trading for 1-year and just opened an account with... Successfully paper trading, borrowing money from family, quitting a job, going to trade for a living The list goes on, ET is ripe with them. It isn't the account size which makes people fail, it is their attitude. Granted no one is going to be able to support themselves with a small account, doesn't mean they need blow up either. They can refine trading skills until capital becomes available without creating bad habits. Slowly increasing size by reinvesting profits. Nobody wants to hear or accept the truth, it takes years of experience, trial and error, commitment, discipline and yes "Money" to become successful as a trader. "Successful" being defined as the ability to support oneself purely on trading profits consistently. It takes money to make money, that is a fact. Proper capitalization allows for proper money & risk mgmt. And on the other hand, no amount of capital will overcome poor discipline, skill and lack of experience, especially scared or borrowed money. As previously stated, proper capitalization isn't an edge, it is an advantage. Hence, under capitalization it is a disadvantage if the goal is to support oneself via trading. One cannot deny that fact.
undercapitalised? Is that the same as oversizing? I'm sure it is - anyway, both are extremely problematic.
undercapitization is the number 1 reason for failure they overestimate their so called edge and underestimate just how much money it takes for that weak edge to play out call it what you want, money management, risk management, proper position sizing they loose because they went broke before they figured out how the deal works
The trader doesn't operate like a casino, the trader operates in the casino. The market is the casino, the market makers and brokers are the dealers and pit bosses, and we are the players. There seems to be much resistance here at ET to accepting that trading is nothing more than gambling. Why? The reason seems to be that most are not satisfied to work with the definition of gambling as the placing of wagers on uncertain events or outcomes. Instead, they define "gambling" the same way they likely trade - emotionally. To them, gambling is a degenerate and immoral activity, a gamble involves nearly unbounded risk, and a gambler places bets helter skelter without care or concern as to the risk involved. There are no doubt gamblers who approach their play in such a manner, whether their game is blackjack or the futures market. But when I say trading is gambling, I mean nothing other than that trading is the placing of bets on uncertain outcomes with the purpose of obtaining a profit. Why is this so important to me? Because once you accept that trading is gambling, then you can get to the business of really determining, mathematically, whether you have any edge at all, and if so, you can calculate the size of your edge. If you know this, you can then use the same principles of bankroll management that professional gamblers use to maximize the rate at which your capital will grow. The reason most traders fail is the same as the reason most gamblers fail: Most have no edge, they lack the open-mindedness, emotional control, and mental equipment to calculate their edge (or lack thereof), and even if they do stumble upon an edge, they do not learn the principles that will allow them to both protect their capital from going bust and increase their capital at the maximum rate possible without going bust. Afterall, having edge is no guarantee against blowing your bankroll if you do not size your bets appropriately. A trader needs to think like a sports bettor, or a card-counting blackjack player, not a casino operator. A trader has to think like a player.
I couldn't agree with you more. The only one I know who has an "edge" is the broker. All the rest are just gamblers who think they have an edge based on historical data. Heck, gamblers have been doing that for years when the only time you bet against the Dodgers was on the Sabbath, because you knew Koufax wouldn't be on the mound. by low sell high, that is the job of a trader nothing wrong with being a merchant it is a risky business Macy started out with a cart, buying for a nickel in hopes he could sell it for a dime sometimes, you can't even unload it for a penny and even have to pay the junk man to haul it off for you but this idea that there is some kind of "Edge" to being in the retail business, and if you are a trader, that is the business you are in is crazy talk. you buy low, you sell high, they have been doing it for centuries that is the business you are in there is no edge to it if you want an edge, buy a casino, or become a broker
I define gambling in tiers. lottery.....$1 bet can be 300 million; powerball poker.....$25 can be 9 million. win ticket to WSOP, etc... trading.....$10,000 can be $100,000..... so, yes, gambling, but it's not like some other forms of gambling. of course you can lose if under-capitalized. mainly because the sucker that puts in $2000 has something called expenses. say rent at $800, and other life expenses at $1000 per month. you can't avoid this fact, so it becomes harder and most fail because they don't have enough cash to play it out. now if you have $2000 but $40000 in the bank for savings....well, that is different, but i still say you need futures $25k to start and $100k to start for stocks. scared money is scared. the entire game is to convince the sucker to bet and lose. make it seem like TA works. make it seem like it's easy. make it seem like you can turn 10k into one billion. yes, you are the tiger woods of trading. no, you're not. so first sell trading services, then get OPM to trade with.
So in plain English, you are saying there is no edge at all, for nobody. Tell me again, why are you on this forum?