Why do 5% of Traders Win?

some of us made a living from a 10k account, but that was what it was worth in the depth of a severe drawdown.

 

Ha ha, good one!

 

10k account and $400 /day is misleading.
it is hard to achieve.

I have a 4k account two years ago, I tried my best to trade crude. managed to make like $300 a day, but it proved to me it is hard. in one month, I managed to grow my 4k account into 7k. every day I felt I was dying, one mistake I am out. this feeling is good,keep me make good decision, but most time backfired, the feeling of "I am out" is so overwhelming, at some point I could not trade. when I thought even those 3k profit need be withdraw to pay bill, I feel "man, I need do it again! ", so the pressure is even higher!

the bottom of my heart is I was treating trading like a regular job. the results is high pressure. when the pressure is too high, most not strong minded people will give up(they do not say it of course), like trading in a whim, overtrading (try to realease their pressure, they think do something will solve the problem, but it backfire)

then late, I did several good trades on Gold, my account grew into 40~50k within very short time. I began to think "trading is a regular job", I started to realize my orginal plan is flawed, trading is not a regular job. if do right, one year's even two's earning is done just within one trade!

there is no connection between doing lot and winning lot. most 95% just have this misleading belief. "doing lot mean reward lot".maybe because of tradational education from old time parents: work hard, derserve better reward. but it is wrong. it is just a moral wish.

when you do lot, treat trading like a regular job, your decision is whim based, most will be bad decision.the results is losers.

so I start to shift to focus on just few trades. make sound decision (I have lots of time to prepare, think). I found I leaped.

 

My guess is there was more statistical significance in your day trading experience, and less so with your occasional gold trades. So it is hard to walk away with the conclusion that less trading is better. In other words, you might have just gotten lucky on those gold trades, where as if you day trade enough and show consistent profits, it is less likely that you just got lucky. Just my opinions.

 

If you had a huge drawdown then I doubt very much you were/are a scalper, or a skilled scalper. NoD makes her money scalping which means she is doing lots of small trades every trade. I'd be surprised if you can do one trade a day or swing trade with a $10,000 account and make a decent living.

 

Pareto principle.

But it's not necessarily only a couple of trades a year. It's also applicable to day trading, like trade during time of the most liquidity and volatility (usually first couple of hours after open in most markets).

Or it can be taking the best setups and letting profits run etc.

As for your story about being stressed, it means you were not confident enough about your ability to pull that profit you did on the consistent basis. It has nothing to do with account size, it has with how you trust (or not) your abilities.

 

I see your point. the fact is for a 10k account, there is no room to play statistical game to trade crude. several rounds loss, you are out.

statistical game is based on "you can play as much as you can or you can play infinitely", the reality is you have limited resources and limited mindset.

the less is better suits small account trader. they have more time to plan next trade, research trading idea, prepare next profitable trade. they will most likely target on those most profitable ones. if win 95% time, the results are they are 5% among the crowd.

mentally if you feel relaxed, calm, you will do better decision. if you do lot, get tired, mess things up, try to beat yourself up, that will drain you, your decision will be worse. will create a vicious cycle. that will put you among the 95%.

if tomorrow, you have an important exam to do, what will you do? you do not sleep, and study hard overnight, you can imagine next day your exam is a mess!

but if you plan ahead, study daily, make a brief review before the exam, then have a good sleep, you may get far more better results, even better than you expected.

 

look at those wild animals. they do not hunt blindly. they do not think hunt is a statistical game. they patiently wait prey, study the timing, analysis which target (weakest among the crowd) to target.

in one side, they are hungry, no food die. but if blindly waste their energy, they die sooner.

 

That's ridiculous. If you trade with a maximum stop loss of $200 in crude, it would require more than 30 losses in a row to knock a $10K account below intraday margin requirements. The only way that will happen is if you a) don't know how to trade, or b) have serious psychological problems.

Since nobody has the ability to play infinitely when trading (everyone's account size is finite, even LTCM and MF Global), developing a plan based on probability in your favor and mastering the ability to trade that plan is crucial. It doesn't matter if your average risk is far greater than your average reward, doesn't matter if your win percentage is 90% or 10%; all that matters is that the trading plan produces profit consistently in the time frame you're trading.

For example, if you have a 10% win rate, but your average winning trade is fifteen times greater than your average losing trade, that's a tremendous edge. If your risk:reward ratio is 5:1, but you have a 90% win rate, that's also a tremendous edge. If your win rate is 50%, you can do very well with a 1:2 R:R.

Here's a scenario: Trader A with a $50K trading account has a trading plan that produces consistent profitability trading a single futures contract, enough profit to make a living. This trader teaches Trader B how to trade this way. Trader B practices in a demo account and generates excellent daily profits trading a single contract. Trader B then begins trading live with the minimum account needed to trade this futures contract ($5000) and loses money.

What happened? Trader B strayed from proper trade management in order to avoid the possibility of losses (moving stops to break even way too quickly, and never exiting losers way too quickly). Trader B has psychological problems related to money and loss.

Another scenario: Trader A with a $500,000 trading account trades a single contract of CL and generates an average profit of $400 a day over a period of time through varying market conditions, producing an annual "salary" of $90,000 without ever averaging down, trading without a stop loss, or increasing size. People think, "Yes, that's a very nice 18% return, well done! It demonstrates that a well-capitalized trader can actually make a living at this."

Trader B with a $10,000 trading account trades a single contract of CL and generates an average profit of $400 a day over a period of time through varying market conditions, producing an annual "salary" of $90,000 without ever averaging down, trading without a stop loss, or increasing size. People think, "A 900% return??? That's a bunch of bullshit! Anyone claiming that is a liar or a snake oil salesman or both!"

Now the reality is that the intraday margin requirement to trade a single contract of CL is less than $5000. Well-capitalized Trader A doesn't need a $500K account to make $90,000 a year. If you dig deeply into why many traders (or wannabe traders) believe that being extremely well-capitalized is an absolute requirement for profitability, you'll often find that such traders believe the only way to trade profitably is to be able to handle deep drawdowns, mainly as a result of trading without protective stops and/or averaging down.

In fact, this is not a requirement for profitability.

I'll continue with a graphic demonstration of the thought processes of the average 95% who lose, as compared to the 5% who win.

 

Oil’s gone up 8 days in a row, up 9.00 in 8 days! It's nothing but a big f*cking short squeeze, bunch of idiots buying this! Amateurs! The professionals are selling into this short squeeze. Sell into strength, they say, that’s what the pros are doing, while the stupid herd keeps buying into this fake rally. This thing is gonna sell off big time and I’m gonna hit me a home run!

Ha, there’s the reversal signal! I’m shorting right here, close of this reversal candle, 108.84. Patience pays off. Wait for the final blowoff top where all the bonehead stops are, and short when you see a bearish candle. Look at those stupid early shorts who had their stops at 109.01 and they got stopped out at the top! Just a big stop run at the end of a short squeeze and those morons who bought this thing are gonna get screwed now!