Why do 98% of traders fail???

Discussion in 'Professional Trading' started by womblevader, Jun 28, 2008.

  1. My rationale for this is as follows:

    If you can identify what doesn't work then you are well on the to finding out what does work.

    I wont bore you with my life story but I made some money during the long bull run, switched to trading last year, made enough in the first 6 months to buy the new M3, but just when I was convinced that trading was esy, in the fateful month of October I managed to lose all my profits and a good portion of my initial capital as well.

    I now trade conservatively but profitably with modest but consistent profits. My humility has improved a lot as well.

  2. By chance you would expect 50% of trades to be winners and 50% to be losers and through money management and placement of stops and targets you could reaosnlbly expect to be able to make profits orat least keep losses relatively small even including commissions and spreads.

    Many new traders seem to do far worse than this and it is almost like they have found a system that consistently beats the odds, in a bad way, and their entries are like a high probability contrarian indicators..

    My view that it is most likely psychological, something to do with people fearing loss more than making money so they have a tendency to a] close out trades at a loss fearing a bigger loss and 2] not letting winning trades run long enough.

  3. bstay


    Why do 98% of traders fail??? The answer is so simple.

    I will use an often-quoted example: if the regulations have changed and anyone can open a dental clinic or medical practice, just by self-learning or taking online courses. The attraction of course is that you can make as much money as any other dentists/doctors.

    How many of these clinics will fail?

    But in trading, it's so easy to just go buy a book and read over weekends. Then start placing orders on Monday and attempt to make a living trading. Will it work? Yes, trading is the only profession where a total beginner has even chance of getting the job right (that is winning on a trade or two) and make some money.

    Over time, as your title suggests 98% will fail simply because too many people came on board to try their hand.
  4. Precisely that. Very good post.

    Basically there are two pillars in trading. One is theory which can be learned rather quick. What is the market doing and where is the overall direction intraday or multiday? Pick a good entry to participate in that direction and manage the position.

    Then there is psychology and I agree that this is where the failure rate shoots up. Emotional individuals trade with "gut feeling" believing that if they don't exit now with a small loss or profit the market is going to reverse and trigger the stop, hoping the next trade will become better. But it never does with this method! I have observed that on so many traders and it's ridiculous how self-confident men turn chicken.
  5. First of all, I doubt 98% is accurate. No one knows for sure. Most think its around 90%.

    Anyway, I believe the reason is that people simply run out of cash before they learn the ropes, especially the mental part. The mechanics of trading are fairly straight forward, as is the money management.

    The psychological part however: revenge trading, locking in small profits, covering and quitting for the day when back to even, etc, is what really kills you. Some people can NEVER get over chasing breaks, even if its printed on their screen to not do so.

    The whole process is one massive mind fuck.

    Now as for the thread starter. If you made enough in the first 6 months to buy a M3, you were either over trading, or you got lucky on a big option trade or something.

    keep with it though, and if possible, find a mentor.
  6. Joab


    It's actually a very different reason then most people think.

    The market cycles over an average 7 year period.

    The reason that traders fail is because of the constant CHANGES that the market cycles through.

    In my opinion you can not call yourself a professional trader till you have last through 7-10 years and remained consistent.

    After 25 years in this biz I'm still learning every day.
  7. sg20


    Part of the reasons traders failed also because they haven't found a niche that can offer consistent profits; your ability to find that edge is important IMO.
  8. gwac


    traders fail because they cannot take realistic losses.
  9. Natural human emotions compel us to be risk averse in the face of a profit and risk seekers in the face of loss.

    I believe that any individual who could effectively re-wire their brain to be the exact opposite of this natural human emotion could succeed at trading with random entries.

    If such an individual developed a strategy, any strategy, that faded the market's most immediate, recent move on their chosen timeframe, then their profitability would increase tenfold.

    If that individual, through intense personal market research and study, was able to pinpoint the price levels at which large orders would most likely flood into the market, then the majority of their positions would spend very little time underwater and their losses could be kept very small.

    If that individual's strategy was to fade the market's most immediate move, yet only take positions in the direction of a stronger move on a higher timeframe, then that individual would be well positioned to take advantage of very high reward:risk ratios and let their profits run while cutting their losses short. Result? World = their oyster.

    As for me, I'm still trying to rewire my brain.
  10. Traders fail because they do one of the following:

    A) Enter the market without a solid trading plan

    B) Think they have a solid trading plan when they don't.

    C) Enter with a solid trading plan but execute it poorly due to lack of discipline

    D) Enter with a solid trading plan and the plan stops working in the current environment due to the ever evolving conditions of the market.

    I've been in this business for far too long, I assure you, it's one of the above.

    #10     Jun 28, 2008