Why do traders fail?

Discussion in 'Trading' started by Tradester123, Sep 10, 2013.

  1. Squilly D - You make some great points. Spoken like a wise person.
     
    #31     Sep 12, 2013
  2. Jason Rogers

    Jason Rogers ET Sponsor

    You make a great point and this is where risk management comes in. For example, let's compare two traders. Trader A risks more per trade than he seeks as reward. Trader B seeks more as reward than he risks per trade.

    Trader A
    • Win percentage: 66%
    • Average amount made on winning trades: 52 pips
    • Average amount lost on losing trades: 122 pips
    If he places a trade, then it has a 66% chance of making 52 pips, and a 34% chance of losing 122 pips.

    • Expected value = (0.66 * 52) - (0.34 * 122) = 34.32 - 41.48 = (-7.16)
    Trader A's expected value is (-7.16) which mean on average he loses 7.16 pips per trade. He may win 66% of the time, but in the long run he will lose money.


    Trader B
    • Win percentage: 34%
    • Average amount made on winning trades: 122 pips
    • Average amount lost on losing trades: 52 pips
    If he places a trade, then it has a 66% chance of making 52 pips, and a 34% chance of losing 122 pips.

    • Expected value = (0.34 * 122) - (0.66 * 52) = 41.48 - 34.32 = 7.16
    Trader B's expected value is 7.16 which means on average he makes 7.16 pips per trade. He may lose 34% of the time, but in the long run he will make money.

    A high percentage of winning trades is not as important as having a positive expected value. A big part of achieving a positive expected value is having a good risk/reward ratio. It's a good idea to seek more as reward than you're willing to risk on a trade.

    It's interesting you should mention that. The analysts at DailyFX actually use an indicator called the Speculative Sentiment Index (SSI). It shows the ratio of long to short positions in a given currency pair among retail traders. For example, an SSI value of 1.80 means there are 1.80 long positions for every short position. An SSI value of (-3.13) means there are 3.13 short positions for every long position.

    [​IMG]

    SSI is used as a contrarian indicator meaning if the majority of traders are long a given currency pair, that is actually a bearish indication that the price may drop. Conversely if the majority of traders are short, then this is a bullish indication. The was an article today on DailyFX.com about latest SSI readings.
     
    #32     Sep 12, 2013
  3. Qwerty

    Qwerty

    It’s sad commentary that Emg seems to take delight in berating or rather browbeating those with small accounts. He probably does so out of ignorance, surely not out of malice I hope.

    I truly find fault with Emg’s viewpoint. We are a community of traders, and it would surely be of great benefit for Emg to extend a hand, or to take someone under his wing for example or provide some insight in what he knows about the markets so that many can benefit instead.

    I also find it baffling how people expend vast amounts of energy in these forums browbeating instead of providing insight.

    Emg insinuates that he’s one of those individuals that make up the 10% that consistently win, and rarely lose. I wonder how it would be to have Emg under a microscope or to watch him put on positions over time, then analyze his outcome and truly see if he’s consistently in the negative column or not, really getting to the truth of what he’s claiming. Then we would surely know if he’s being arrogant, or sincere. Irregardless of the outcome though, of greater value would be for someone of his enormous intellect to give back to the community.

    Emg also claims that Higher Education is key in order to become a successful trader. Not so. Just look at some hedge funds that imploded in recent years, Amaranth Advisors, Long-Term Capital Management, the list goes on and on… it’s obvious that those hedge funds were being operated by individuals that had trophy rooms filled with advanced degrees. Of what value was higher education in these instances? What does this prove?

    What an advanced degree typically does provide is an opportunity; doors do tend to open up, which has some value in today’s economy. I definitely will give credit where credit is due. But it surely does not give any person a greater zeal or make a person become a more ardent student of the markets over a person that has little or no education.

    Chris Gardner the homeless individual that was portrayed by Will Smith in the movie, The Pursuit of Happiness, was he so inept that he could not succeed? Did Mr. Chris Gardner even have time to contemplate Emg’s claim that he had to pursue an advanced degree in order to put food on the table or have a roof over his head?

    Michael Parness is another example of a person that went on to become wealthy trading the financial markets without higher education. Mr Parness was ironically advised by his broker friend who had higher education at the start of his career which in turn caused him to lose a vast fortune. Again, what benefit did higher education have here?

    Desire and hunger for something better is often times the key in order to become a success, not always an advanced degree. Many leaders of industry in the corporate world do not have Higher education as Emg arrogantly puts it.




     
    #33     Sep 12, 2013

  4. you have to admit that emg is funny. lol.
     
    #34     Sep 12, 2013
  5. #35     Sep 12, 2013
  6. Qwerty

    Qwerty



    You're missing the entire point stock777. The comments i made regarding Michael Parness centered on the start of his trading career, in order to make a point, not on what Mr. Parness did years later. You'll have to take your argument somewhere else.
     
    #36     Sep 12, 2013

  7. I think Qwerty makes a good point because most traders who fail are that of illustrious college prodigies, stay at home types with no education, and/or regular part time working class people.. It doesn't matter to me which cloth you are cut from, as long as you have a true desire to learn and grow your knowledge, then I'm happy..

    Most traders fail not because of a college degree or lack of education, but making bone headed moves that cost them dearly... Qwerty has some good points and although I don't agree with everything he has said, I agree with 90% of it.
     
    #37     Sep 13, 2013
  8. Hi Qwerty! nice post.
     
    #38     Sep 13, 2013
  9. Traders fail because they do not have the necessary experience and basic knowledge required to understand the state of the market. :confused:
     
    #39     Sep 13, 2013
  10. The FXCM data posted by Jason is interesting. It shows clearly that retail traders are more interested in a high win rate than in profitability. As the SSI data from DailyFX show, they also tend to be countertrend traders. So to sum up, bad traders take larger losses than wins, maximize win rate over profitability, and tend to countertrend trade. Now I know all of this . . . and I still do stupid things like pull stops and countertrend trade (but getting better . . . ). So again, the point is that it's not a matter of knowledge, it's a matter of avoiding bad habits. And those habits are very hard to avoid, usually by traders who believe that the problem isn't staring them in the mirror, it's that they haven't hit on the holy grail yet.
     
    #40     Sep 13, 2013