Were they trying to get rich quick and just jumped in too early? Did they just blow out their accounts and decided not to keep going? Did they put in thousands of hours of screen time and yet still fail? Did they backtest their strategies and still failed? If you're now consistently profitable but you blew out one of your accounts before, then does that place you in the 95% group or the 5% group? I'd really like to know how much effort those that failed put in before they finally gave up. Can anybody shed some light?
1 major reason is that they are undercapitalized. Most traders start with a $25k account and maybe a few months living expenses. Now even if you are profitable right off the bat and can generate a 100% return per year, thats only $25k or about $2k per month and you know its not going to be consistant. If you have a month where you only made $1k, how do you pay your bills? You take from your capital and now your 25k account is $24k which is almost $100 per month less than what you made before. A few months like that and you eat your capital and ultimately fail. Thats what happens if you are a GOOD trader and dont lose money! Most traders, you will find, do not do that much better than market returns. Sometimes 20%-100% per year seems to be the norm with the occasional great year of something like 400% or higher. Some make incredible returns year after year, but you cant expect to be like them. No new trader wants to hear this, but if you want to be a trader, you need someone supporting you financially, or you need a job until you build your account over at least a minimum of $100k (preferably $250k) otherwise your account will never grow if you are living off it. But every new trader wants to believe they are going to drop $25k in an account and have a million dollars by the end of the year because they hear 1 story out of 10,000 that someone else did it. Talking to other traders and I have found that most seem to lose about as much money as a college education would cost ($25k-$100k) before they start making money.
My problem isn't capitalization - I'm not rich by any means but I have a day job to support myself currently. I guess my question is: As a beginner, what is the most important thing that I should be doing? Am I suppose to study charts? Backtest different strategies? Try to figure out why price action moves the way it does? Read books? Read all the threads on ET?
There are many ways to fail in this game. EMG is very annoying and acts ridiculous and says some ridiculous things too. However... For me.. I've always won. So, I've been consistently winning ever since I started trading -- on the simulator and with real money too. So, let's look at this. Let's say you have 5k to start with and let's say you can do 100% net returns, I mean net of all costs, which would be outstanding. At the end of the year, you've made measly 5k and to make that 100% you had to a lot more risk then a guy trying to make just 30%. Let's say you have 10k and make 100%. At the end of the year, you've made 10k which is only $50 per day. Let's say you have 25k and you make 200% return. At this rate, you're only making about what the average joe makes. So, we can see that even with more capital then most retailers have and outstanding returns that the amount of money isn't enough to both support the trader and grow the account. I think it becomes question then for someone without capital -- like myself. Basically, I ask often is it worth it? Do I think I can make this work? A lot of small businesses fail simply because the owners lose interest. And, so I think most traders think about this cataclysmic event that does them in but probably just as often trading is not rewarding enough either on some psychological or monetary level to continue to put in the effort. That's one way it can end. Of course, traders who don't learn to manage risk often do end up with steep losses. In terms of why someone wouldn't learn to trade in the first place.. I'm not going to give my secrets. But, often is it the result of failing to learn from the market. It is a gross overconfidence and a lack of ability to communicate with the market. Communicate means to establish a 2 way street that leads to performance and understanding. As for why beginning traders who haven't spent considerable time investing in their abilities, documenting their strengths, and researching the market in all forms then if you ask why they fail my answer would be to imagine a person who was going to attempt brain surgery by only looking at a diagram or reading a small 20 page booklet. Obviously, in this analogy the brain surgery is certainly going to be a failure and it doesn't make sense to ask why because it never had a chance to work. I would use this analogy to compare someone who maybe is just starting and thinks they can do what I can do. Another analogy is, I started programming when I was about 6 years old and while I'm not a genius or even a great programmer. If you take an average person who learned in college (not someone talented) then I could show them stuff everyday and most would never learn it deep enough and wide enough to really do what I can do. Some people are talented and might surpass me. One thing I found is that constantly challenging oneself is important. I met programmers who hadn't learned anything in 20 years. If you can constantly challenge yourself and learn then certainly someone who was really brilliant could probably surpass anything I could in maybe as few 4 years.
>As a beginner, what is the most important thing that I should be >doing? >Am I suppose to study charts? Backtest different strategies? Try to >figure out why price action moves the way it does? Read books? Read >all the >threads on ET? Now, that is a different question. If you want to be successful then you need to make as much money as possible because again we got that capitalization factor. So, you gotta get a job making as much as you can or work 2 jobs and be prepared to go beg for some capital. Other then that, the first thing you should is an inventory of your strengths. What do you do good? What to do you bring to the table? Now, if you are just a beginner then you probably won't know how your strengths will apply to trading. But, try to recognize what you do well. If you are a very mathematical then a quantitative approach may work for you. If you understand public policy and like to read lots of financial news then you may want to try an approach that incorporates fundamental data. If you're a programmer then that doesn't mean that you must program your strategies but it may be an edge that you can bring to the table. So, you want to find what you bring to the table. You need to experiment and try a lot of different methods. I don't recommend reading many books at the beginner stage. But, then again the books, the fantasy, is going to be key. So read books for inspiration but don't read books for knowledge per se. I prefer when I read a book to only partially understand what I'm reading. I don't want to understand what what I'm reading: I only want to get an idea. So, that's how you read books. You don't read for the truth. You read for ideas. The second thing is you have to open your mind. You have to be open to whatever the market is going to tell you. I would recommend starting one or a few simulated accounts. You probably don't want to trade with real capital for first 6 months to 1 year. You have to learn the market and then you have to learn your own ability to basically gamble. These are 2 different skills. You need to learn execute, as well. So, what I'd recommend would be: 1. Inventory assessment. Identify strengths. 2. Idea storming. Get a lot of ideas for trading. If the best you can come up with is scalping the e-mini then you're doing terrible -- although that may what you end up doing. 3. Simulator time. Spend 6 months on the simulator.. trying different things 4. Gambling and money. Start a small NADEX account with 1k or a small options account or a Forex account. The purpose is to learn how money influences your decision making. The key is to learn to make good decisions even when risking your money. 5. If you do this and you do well then within maybe 1 to 2 years you can start to build or trade real size. You'll have narrowed down what you're good at and can focus on that. That's certainly a solid path to try. The other path would be too find a mentor. The problem with seeking a mentor is that the mentor may have a much different view of trading then what would work best for you. So, you probably need to figure out what you're good at before looking for a mentor for help or at least get some ideas what you want to do. The path above is good enough to get you started. But, it is not enough to get you to the top levels of performance. To do that will require constant work, constant self-evaluation, and constantly learning. The problem is if you start at the end game then it may be so much work that you were overwhelmed. So, when starting you really want to treat this as a game. It is important that you crystallize some great performance so that you continue on. The way I see it is that if you've ever won then you know what it is like to win and you will be more likely to continue. So, you really want to make sure you are having fun and enjoying every win because the road is long and hard.
most people fail because they never learn how to hedge amateur = scalper pro = hedge legit = hedge hedges
They: 1) don't have a profitable system (I would estimate this is 99% of people who give trading a serious try) 2) don't have the emotional control to follow their system (I see this a lot on ET... "If only I'd followed my rules today it woulda been a gain rather than a loss...") 3) both of those. Many people can't follow their system's rules, but it doesn't matter because it wouldn't be profitable anyway even if they did.
Thanks for your input. 1. I've never really sat down to identify my strengths. I would lie if I said I was a hard worker (I do work hard but I know I can always work harder). My strength right now is that I have a good amount of free time at my day job to devote to trading and learning how to trade. 2. I've read books and threads to gather ideas - reversion to mean, buying pullbacks, scalping the ES, using MACD-histogram, etc. 3. I simulated for a while and found that I wasn't learning much. 4. I started an account with IB and began scalping the ES. Luckily after about a month or so I've broken even. Biggest lesson learned - discretionary trading felt too much like gambling to me. Studying charts didn't help. 5. I'm now onto system trading and development. I just hope I'm headed down the right path. Completely agree with you on the mentor part. I've asked a ton of people on ET for their ideas and although alot were honest and helpful, I knew I couldn't follow their guidance since it didn't fit my personality.