What are your questions about trader performance?

Haven't been around for a while as I've been working diligently - well at least sometimes - on my PhD. My focus has been on retail forex trader performance, some of which was the subject of this thread. My work is winding down now, so I have a chance to turn my focus to other stuff once again.

The research I've done is obviously quite academic, but at least some of it has the potential to be of practical use to traders. My plan is to start sharing it in a non-academic manner in hopefully the not-too-distant the future. Part of my intention there is to really get specific about how real traders do in the markets - actually returns and performance.

My question for the group is what questions you have on the subject. Aside from the "Do 95% of traders really fail?" is there anything else you're curious about?

Rhody Trader said:

Haven't been around for a while as I've been working diligently - well at least sometimes - on my PhD. My focus has been on retail forex trader performance, some of which was the subject of this thread. My work is winding down now, so I have a chance to turn my focus to other stuff once again.

The research I've done is obviously quite academic, but at least some of it has the potential to be of practical use to traders. My plan is to start sharing it in a non-academic manner in hopefully the not-too-distant the future. Part of my intention there is to really get specific about how real traders do in the markets - actually returns and performance.

My question for the group is what questions you have on the subject. Aside from the "Do 95% of traders really fail?" is there anything else you're curious about?

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Maybe slightly off-topic, but I'd be really interested to know how long on average it takes for a trader to become consistently profitable.

Big_P said:

Maybe slightly off-topic, but I'd be really interested to know how long on average it takes for a trader to become consistently profitable.

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"Consistently profitable" is tricky. I may not have the data to draw any real conclusions.

What I can say, though, is that in general terms there seems to be something around the 3 year mark where experience makes a significant difference in returns. It's definitely worth seeing if I can drill down on that.

Rhody Trader said:

Haven't been around for a while as I've been working diligently - well at least sometimes - on my PhD. My focus has been on retail forex trader performance, some of which was the subject of this thread. My work is winding down now, so I have a chance to turn my focus to other stuff once again.

The research I've done is obviously quite academic, but at least some of it has the potential to be of practical use to traders. My plan is to start sharing it in a non-academic manner in hopefully the not-too-distant the future. Part of my intention there is to really get specific about how real traders do in the markets - actually returns and performance.

My question for the group is what questions you have on the subject. Aside from the "Do 95% of traders really fail?" is there anything else you're curious about?

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I'm looking forward to seeing what stats and analysis you've come up with.

My first question would be where did you get the data from. This isn't because I'm nosey (although I am) but because I have a problem believing anything that's being presented as the 'truth' until I am familiar with the source.

me turning round and saying 90% of traders lose 90% of their money in 90 days doesn't mean much unless there is some evidence that I am prepared to share to support it.

I hope you don't get criticised for your efforts because that would be a shame. To offer a deep insight in to this industry and be prepared to back it up with proof should be something that all retail traders should look forward to reading.

If the data you've collected is from spreadbet firms that want to remain anonymous then i'm afraid my interest will wane because I know a lot of these people in the spreadbetting firms who provide data that they want to provide. For example a spreadbetting firm who says to you 60% of our traders are in a winning trade at any one time doesn't mean anything unless we know what spreadbet firm it is, what products they're talking about over what time frame and whether that includes commission and financing or just the difference between the original entry and marked to market rate.

I don't want to dampen any enthusiasm you have for this and I am sincerely looking forward to reading the fruits of your labour, but please, to make it really solid provide all the evidence to back up your stats rather than just quote stats at us that have been provided anonymously from various SB/CFD/FX firms.

good luck with your PHD.

The data question is a very reasonable one. I will definitely fully document the source. It would make for an overly long post here, so let me address what I think is your main concern - that someone could have provided biased data.

The data does not come from any single broker source, and none comes from a spreadbet shop. The collection of the transaction information was done at the individual level. By that I mean each trader permissioned full access to their transaction record, unfiltered. The system gathered everything in real-time directly from the trader's broker account with no trader intervention.

Rhody Trader said:

The data question is a very reasonable one. I will definitely fully document the source. It would make for an overly long post here, so let me address what I think is your main concern - that someone could have provided biased data.

The data does not come from any single broker source, and none comes from a spreadbet shop. The collection of the transaction information was done at the individual level. By that I mean each trader permissioned full access to their transaction record, unfiltered. The system gathered everything in real-time directly from the trader's broker account with no trader intervention.

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What are you selling (or hoping to sell eventually)?

neil said:

What are you selling (or hoping to sell eventually)?

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Are you being contrary and suspicious neil? Or do you have something in mind?

This is a book idea, plain and simple.

Hi John

Looking forward to finding out more about the performances of FX retail traders

For FX spreadbetting in the UK to come under the gambling act and be tax free - it needs to have over 75% of the clients lose money

Personally I dont believe 90 -95% of all FX traders lose either short term or over a longer period etc etc

I reckon the fact that we dont actually know how many there are around the world - ie 500k? 1 million ? 1.5 / 2 million FX traders - it must be very difficult to get true facts - but i reckon the real loser percentage is actually around 82 to 85%.

With regards to how long it takes the average Fx trader to be consistently profitable - that is really a "how long is the piece of string" question

From my own findings based on just 8 traders I have known over 10 years - only 2 have made it - one of them being me. I have now easily done over the 10k hours studying live charts at the coalface -ie tick to 5 min charts - but I reckon you do need more then 5K hours of study and chart readings etc etc

So for a part timer spending say just 15 hrs a week - it could be easily over 5 yrs to get to a decent level

If part time and only trading longer term off 4 hr / daily charts and not watching live charts more than 10 hrs per week - I personally think its the 5 -7 yr mark - all depending then how good the study as been and whether the trader has the suitable mindset and disciplines to go through psychological hell.

With regards to thinking a retail trader can make it to a high level in a couple of years - yes possible if full time with a great mentor who can actually walk the walk - and not just analyse and make cold readings along with just theory.

Books / courses / DVD's / internet chat rooms and forums all help the process - but how many traders really meet the pre requisites really needed for trading - ie strong mindset - a brain and good eyesight and health - Time - and of course - money to play with ?

Regards


F

Forexmospherian said:

Books / courses / DVD's / internet chat rooms and forums all help the process

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Actually, my PhD research provides an indication that social interaction can actually be detrimental. A lot more work needs to be done, but there definitely appears to some kind of negative social influence on returns, though it seems to be different for experienced vs. inexperienced traders.

Rhody Trader said:

Actually, my PhD research provides an indication that social interaction can actually be detrimental. A lot more work needs to be done, but there definitely appears to some kind of negative social influence on returns, though it seems to be different for experienced vs. inexperienced traders.

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That make sense

At least 80%+ of the traders who do social interactive lose money - so in a sense its the blind leading the blind

I remember on another Forum - a Hedge fund manager and tutor you would know of ( Chris Capre ) saying he did not like to read or look at any other traders analysis - as it might make him question his own more and give him doubts.

I found that interesting as I love to read everyone's take on major FX pairs - appreciating they all might be forecasting different periods in the future - but even if I read say 6 different traders views and they were all different to mine - I would not question mine at all - as even though I will never be 100% correct - I have 100% confidence in my own decision making - whether it turns out good or bad.

Have you been able to find out more about commercial and broker "plants" or "spoilers" who join in to mislead etc etc on so many trading sites ?

Every trader involved in trading social interaction will have their own agenda ( s ) - after all this is a big "game" and as in any business - the opposition want things to go more their way - rather than any so called "newbie" finding out too much too quickly - ie under at least 3k hours of study and chart watching

Regards

F

Forexmospherian said:

I remember on another Forum - a Hedge fund manager and tutor you would know of ( Chris Capre ) saying he did not like to read or look at any other traders analysis - as it might make him question his own more and give him doubts.

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Once I reached the point of having a consistent approach to my own trading I began to feel the same way. Other people's commentary tends to muddle my own thinking. I may read it, but not when I'm in the process of working through a trade of my own.

Have you been able to find out more about commercial and broker "plants" or "spoilers" who join in to mislead etc etc on so many trading sites ?

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Not at this stage, no.

Every trader involved in trading social interaction will have their own agenda ( s ) - after all this is a big "game" and as in any business - the opposition want things to go more their way - rather than any so called "newbie" finding out too much too quickly - ie under at least 3k hours of study and chart watching.

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I would definitely like to get deeper into looking at the influence of motivation on performance of social network members.

Agree indicators are a small part of trading but 10% is too much.

pravin03 said:

Is it necessary to use or take the help of any indicator to be a successful trader?
because I think indicators are only 10% of the trading as a whole.

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My data doesn't provide that level of granularity. I will say, though, that what people indicate as their trading style (technical, fundamental, news, etc.) appears to have no impact on monthly returns.

Rhody Trader said:

My data doesn't provide that level of granularity. I will say, though, that what people indicate as their trading style (technical, fundamental, news, etc.) appears to have no impact on monthly returns.

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My gosh John, that's a real surprise.

Do your data distinguish between returns to daytraders and longer-term traders?

tomorton said:

Do your data distinguish between returns to daytraders and longer-term traders?

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Since I have all of the transaction data I can analyze the average holding periods of each trader. I haven't explicitly looked at that yet, but in general terms it does appear that traders operating in shorter time frames do better, all else being equal.

Thanks John - I am wondering if the underlying raw data show they do indeed do better - until they go broke? ;-)

Even though every one knows the old adage "run your winners, cut your losers", friends who work at spread betting firms tell me that the majority of traders actually do the opposite, and this is the major reason why the majority of traders do lose money?

Agree with that PualoP - and it comes back to my theory that most traders start and finish their trading careers on intraday only action - after all, how can you run a winner if you have told yourself you have to be flat by 4:30 this afternoon?

PualoP said:

Even though every one knows the old adage "run your winners, cut your losers", friends who work at spread betting firms tell me that the majority of traders actually do the opposite, and this is the major reason why the majority of traders do lose money?

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In academic speak this is referred to as the disposition effect. Kahnemann & Tversky won a Nobel Prize in economics for the work that led to finance researchers developing this theory. Basically, K & T found that people are irrational when it comes to how they feel about gains and losses. The pain of losing is more potent than the joy of winning, which is why we have such a hard dealing with the idea of giving back what we've made or accepting a loss by closing out a losing trade.

There is definitely evidence of the influence of the disposition effect in my data, though I haven't specifically done down that research path. Roughly 60% of trades are winners, but the losers are on average much bigger than the winners.

Rhody Trader said:

. . . I haven't explicitly looked at that yet, but in general terms it does appear that traders operating in shorter time frames do better, all else being equal.

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Hi John,
Can you be more specific regarding "shorter time frames" - are you talking minutes, hours or days?
Tim.