97% Of Traders Are Failures?

[brerwallabi]

The comment in the Adaptive Analysis thread that 97% of traders failed really astounded me. Is this comment fact, can anyone show statistical evidence from a reliable source that this the case. Or is the comment used similar to the comments used by real estate agents, used car salesmen and other snake oilers. Am I one of the 97% or one of the 3%? I wonder how I determine success or failure. Is there cut off point in return from trading capital that determines success or failure. Is a 10% return failure or is 15%? Certainly losing your capital is failure. I would always like to improve my trading but how do I determine if I am successful? I have my trading plan and over the last three years have achieved my goals and have improved my performance (return) each year. So is someone failing if they do not achieve someone elses standard or use their method.

 

[It's Snake Pliskin]

Good thread!

I have been thinking the same. Why not 96% or 98%? Maybe 97% sounds more credible - not too close, nor too far from 100%. Personally I think it is the industry saying that most peole are unable to trade on their own and need their so called services - that aren't free by the way.

You've raised a good point. What is the benchmark of success or level of failure that determines this?

Is it sales pitching? We'll find out if there are some people who may have the answer.

 

[It's Snake Pliskin]

....and I've just got some info from Wayne. In another thread CFDs:

The "spread betting" houses and the UK government know most traders come to the market with casino mentality.

It's why 95% of traders lose.

95%! hmm interesting.

Maybe it is perception, or is it just guessing?

 

[wayneL]

Yer...it's really easy to fall for the propaganda.

I have no idea whether it's true or not.

But considering that most conventional businesses eventually fail, something like that figure, it's not hard to believe. But with trading you can do it a helluva lot faster.

Would be nice if someone actually came up with some fair dinkum statistics.

 

[tarnor]

I don't think you can really ever quantify that statement.. how many traders just fade away quietly after losing thier cash? could be like saying 97 percent of statistics are made up on the spot ...

maybe if they have access to the tax record of alll those who claim to be a trader for tax purposes?? but i'm sure this wouldn't be allowed

I don't mind someone out thier trying to help people save thier money.. but if its working towards some othermy way is the only way agenda i always switch off pretty quick

 

[money tree]

I have posted this many times.

In 1999 (during the tech boom no less) Etrade did a survey on client accounts. They found that 97% of these accounts had a zero balance after 12 months. This is either because they lost all the money, or pulled the money out (and you wouldnt do that if you were making money).

here is one supporting article:

http://www.timesonline.co.uk/article/0,,2097-1028048,00.html

another google:

"For example, Massachusetts regulators seized the records of one day-trading firm in the late '90s. They found that the firm had 68 traders, and 67 of them were losing money. This works out to be close to the typical failure rate of 97% for individuals who attempt to trade for a living."

 

[Knobby22]

Of course most short term traders lose money.
They are effectively making bets against the professional traders who are experts and they also have to cover commissions, ect. The cost of doing business.

Even successful short term traders have usually had a period when they were losing and still learning.

If you read the secrets of Buffett and Soros, (one a trader, one an investor), they take great pains to limit the costs of trading shares (using completely different techniques).

I personally go for the long term outlook where I trade as rarely as possible and always consider tax implications. Many people new to the stockmarket are too impatient.

I've said it before, if you are not doing well in this boom market, in good conditions - watch out!

Consider investing or at least long time frame trading, it requires less time and is a simpler path to wealth.

 

[rozella]

It is hard to believe that only 3% are successful, maybe we could have a poll, with a few options, keeping in mind there are full timers & part timers ???

 

[son of baglimit]

i read the 97% figure as '97% fat free', as its the fat that the successful ones are feeding off. if 97% are fat free, they aint got not fat to live on.
thats all.

 

[Smurf1976]

Most businesses cease to exist at some point so the 97% failure rate for traders sounds reasonable to me. The nature of trading being such that losses can accumulate rapidly when compared to most other businesses.

With enough leverage you can blow your account in an afternoon in a worst case scenario. Bit hard to do that running a shop.

Even the high flyers tend to come down in due course. A few examples...

1. General Motors is linked absolutely with 20th century US manufacturing and economic strength. As most people have heard at some point "General Motors is too big to fail".

If recent reports are any indication it's well on the way to failing. At best it will survive as a mere shadow of what it once was in terms of its US physical production.

2. Anyone under a certain age who has spent virtually any time in Adelaide will know where Heaven nightclub is. Adelaide's only "super club" as many termed it.

Then it started to go wrong. Patronage fell and it came to the point of a management change and relaunch as Heaven II nightclub. Well, guess what? It's shut again.

Whilst this latest shutdown has plenty to do with being on the wrong side of the law, the point is that it is shut. Why is less relevant although them not paying copyright fees on the music they were playing (amongst various other more serious problems) does suggest that business wasn't exactly booming from a financial perspective despite the image they tried to create.

3. For half a century the Tasmanian town of Burnie and the APPM (Associated Pulp and Paper Mills) company were effectively the same thing. 4500 workers, both male and female, drawn mostly from a town of under 20,000 people with most of the rest working at the nearby Tioxide or North-West Acid plants, the port or supporting service industries. What could possibly go wrong?

Well, the former N.W. Acid plant site is now a collection of sheds used as, amongst other things, a trucking depot.

The Tioxide plant is completly gone with vegetation returning to the site.

The APPM board mills and Eastern paper mill are empty buildings whilst the pulp mill is gone altogether. Only part of the Western paper mill is still in operation but even that produces only a low grade product using imported pulp. And the workforce is down fully 95% from the peak.

4. Those who were around in the 1980's will remember that at one point Alan Bond was very well respected. How times change...

5. Go to any shopping centre that you recall visiting as a child. You will find that most of the businesses that were there 20, 30 or however many years ago are long gone. Most likely whoever took over that shop after them is gone too. Individual shops have probably changed occupancy half a dozen times since you first went there. And most of them will change again in the coming years. Sure, some operators simply move but many cease to exist.

6. Drive around the industrial zone of any city and you will find numerous once well known factory sites which now sit empty or are used as warehouses, discount furniture retailers etc. The story is the same whether it's automotive component manufacturers in Melbourne, the wool mills in Launceston or electronics factories in Adelaide. Once they were massive, now they are gone.

The moral of the story here is quite simply that most businesses will at some point cease to operate and in most cases that will be because they cease to be profitable. It stands to reason that trading would have an even higher failure rate due to the low barriers to entry which encourages substantial (in $ terms) operations to be established by those with no real plan. It's not surprising that most of them fail.

 

[kaveman]

I have always heard the figure was 98%, so maybe first time traders are improving. One thing I have noticed in books is that the gurus of trading often themselves went bust in their first attempts at trading. Just a matter of learning from your mistakes.
So does that 3%/97% include the ones who are second or 3rd time rounders?

 

[Dan_]

Smurf,

Great post, hit it on the head :hammer:

 

[RichKid]

Great post Smurf, nothing lasts forever.

I agree with Money Tree about the source of stats, I've seen some comments about brokerages compiling stats on their clients (was it TechA who mentioned something like that?) and the anecdotale figure is around 90% either lose money or don't make money.

So if any of you folks know brokers (especially large ones like ComSec) or people who've worked for them ask if they can tell you the figures for the number of traders that lose money or close accounts due to not winning more than they spend. I bet they have very specific data on it as they need to know their market and customers to construct their profit/financial models. So, those who have connections, let's see if you can find some figures from within the industry. Maybe Nick Radge himself knows since he was an insider for awhile.

 

[tech/a]

Anyone in my view can trade a winner---but,
2-5% will consistantly profit from trading--consistantly being over a period of 12 mths or more and over Breakeven including brokerage.

Tree has quoted statistical evidence.

My view.

 

[wayneL]

Consider investing or at least long time frame trading, it requires less time and is a simpler path to wealth.

I agree in part, because short term trading and inesting for wealth are two different things

For those folk who have no intention of trading as an exclusive living (have job or other business), I agree one hundred percent.

But for those who it is their only living, like myself, a different mindset is necessary. Short term trading is the bread and butter, it replaces the income that would be from a business or job otherwise. It is not "investing". It is no different than buying or selling any commodity in business. To stay in business, your income must be higher than cost of goods + expenses.

N.B. Yes many fail! But so do many people who start a normal business fail and lose their capital as already stated.

It is just a different psychology and rule base, and thats what most people don't understand. Just like people(ex employees) start a business and bring their employee attitude to the business, and fail to adjust...and wonder why customers never return.

I have a completely different mindset towards my trading "business" and my "investments".

Those of us who trade for a living watch forums and see comments like;

"all daytraders lose"

"trading forex is the best way to lose your shirt"

"short term trading/daytrading is gambling"

etc etc etc

We can only shake our heads because it is not the reality of the professional trader.

They are effectively making bets against the professional traders

This is exactly why they lose....gambling mentality

I would bet my bottom dollar that professional/successful traders would have a win/loss ratio no better than an amateur. The pros just use different rules that the amatuers never bother to learn...like risk and money management for example. They wouldn't knoe an expectancy calculation if it fell out of a packet of cornflakes.

That really the only difference between a winner and a loser in this game.

 

[Knobby22]

There is a lot of truth in that. It's a well known fact that bad golfers will buy new clubs rather than take lessons, however a lot of people have not got the psychological makeup or the analytical skills to be a trader easily.

I know of others like you that split their activities between investing and short term trading. How do you stop day trading with investments i.e. how do you keep your hands off them as you would have the temptation to play with them all day or do you write what you plan to do with these stocks and set aims for them?


....and why didn't the quotes work?

 

[wayneL]

I know of others like you that split their activities between investing and short term trading. How do you stop day trading with investments i.e. how do you keep your hands off them as you would have the temptation to play with them all day or do you write what you plan to do with these stocks and set aims for them?

With my brokers software, I can create different pages, so short term instruments on on page and longer tem on another.

I resolved not to look at the longer term page during trading hours. But I do have alarms/stops set, so I know if action is needed.

....and why didn't the quotes work?

Here's the format, except I'll use different parentheses so you can see:

{QUOTE=Knobby22}....and why didn't the quotes work?{/QUOTE}

So you enclose both the beginning and ending code with parentheses [ and ]. You'll also notice the ending code also has a / incuded.

Cheers

 

[mit]

It is hard to believe that only 3% are successful, maybe we could have a poll, with a few options, keeping in mind there are full timers & part timers ???

I think a poll (even if everybody is honest) would show a much smaller failure rate as everybody here is at least trying to educate themselves. I know a lot of people who buy shares and never read a book, know nothing about position sizing and buy on rumours and NEVER sell. I tell to get some education and treat it like a business but I tend to think they don't believe it.

MIT

 

[Julia]

If it's any comfort to the 97%, I recently "audited" my portfolio to see whether the stocks I chose myself without any advice from broker were doing as well as or better than those recommended by full service broker (with their astonishingly high brokerage attached). The results were interesting:
There are 28 companies in the portfolio;
20 of these were my own choice : two out of the 20 are currently 10% approx below the cost price. Remainder are well ahead of cost price.
8 were recommendations by full service broker and were stocks I would never have chosen myself: 3 have shown growth of at least 10% but the remaining five are more than 10% below cost price.
Time frame on the above is about 18 months.

So the full service broker has been given the flick. So much for depending on opinions of experts. If I'm paying about $250 in brokerage on a trade of only about $10,000 I expect some positive results. Although my own choices had done reasonably well in previous years, I thought things could only get better if I used the services of "experts". Well, now I know how expert they are.

Julia

 

[brerwallabi]

So the full service broker has been given the flick. So much for depending on opinions of experts. If I'm paying about $250 in brokerage on a trade of only about $10,000 I expect some positive results. Although my own choices had done reasonably well in previous years, I thought things could only get better if I used the services of "experts". Well, now I know how expert they are.

Julia

Well I am really out of touch with reality I hope people are not trading or trying to trade short term and paying $250.00 brokerage because thats what I will I will make sometimes on a $10,000 trade. Julia you did say you had a portfolio so I know you are not trading short term but when I was trading full time to pick up $250 in a couple of hours was a fair gain, no wonder people lose money, buying 10000 shares at $1.00 every 1 cent gain gives you a $100.00 profit so you need a 2.5 cent rise to cover your brokerage so in many eyes the share would have to be maybe a $1.10 to give a reasonable gain. I might have traded it many times in a timeframe that may have been a period of days (usually stocks I now really well) and it never went for example over a $1.05. Note I always got out very quick if the direction was not going as anticipated.
I really don't know how people lose money but when brokerage is costing 2.5% a la as above maybe people panic when a share falls and sell. I have my set rules for 97% of the time what a coincidence and only occassionally forget my own rules of buying and selling.
Leaving money in the bank costs basically nothing and gives you possibly 5.5% or roundabouts so a share that cost a $1.00 that falls to 95 cents on 2.5% brokerage becomes a real issue I think for some - yes a loss , in they come out they go all 97 of them ha.
All this aside I still can't determine if I am a sucess or a failure where is the benchmark and who are 97%, it must be a big market to exploit, hmmm sounds like a good business venture if you can convince people they are underperforming, no intention to discredit the genuine in that comment.