What are your questions about trader performance?

[timsk]

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?

I'll stick up for day traders here Tom and answer this by saying that the principle of letting winners run is the same for day traders as it is for swing or position traders. It's just magnified the further out you go on the timescale.

That said, I suspect you're spot on about many newbies starting and ending their brief careers as traders on an intra day time frame. However, I doubt the reason for their demise is an inability to run winners. As John suggests, it's much more likely to be an inability to cut losers.
Tim.

 

[Rhody Trader]

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

The variable I'm using simply measures average holding period in days and fractions thereof (for example, 12 hours would be 0.5). When I said moving to a shorter time frame I simply meant that variable's value drops from one month to the next. I haven't looked specifically at what happens if one goes from say holding periods of days (swing trading, for example) to hours, or anything like that as yet.

 

[Rhody Trader]

However, I doubt the reason for their demise is an inability to run winners. As John suggests, it's much more likely to be an inability to cut losers.

Actually, the psychology is that the two go hand-in-hand.

 

[hjg]

"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.

Full 3 years? :-0 I would have sworn an year was enough.

 

[Rhody Trader]

Full 3 years? :-0 I would have sworn an year was enough.

The problem is I'm only going on what they ticked in their profile. I don't know how much trading they've actually done, how much was demo vs. live, etc. The only thing I know is that the difference between those with 0-3 years indicated experience and those with 3+ years is statistically significant.

 

[Forexmospherian]

Full 3 years? :-0 I would have sworn an year was enough.

I am amazed its not over 5 yrs for traders still part time to become consistent

If you need 10k hrs study etc for being looked at as experienced or proficient - then I reckon you need at least 4 or 5k hours to become at least an intermediary level

If a part time trader spends say 15 hrs a week on his new hobby of trading - ie study - watching charts etc etc - then in one year not even 800 hrs - even if he works at it every week.

So for a minimum 4k hrs of study etc - then 5 yrs.

This is the problem - so many new traders thinks it easy after say 5 or 10 winning trades and only a few losses.

They are in for a shock for sure - and then when they move off demo onto live and lose their first few grand - they are scarred and their method becomes tainted.

Therefore after 2-4 yrs so many give up and maybe another few years and they would have cracked the code to the safe - and start being consistent every month an quarter etc - rather than the yo - yo life of a new trader

The trouble is - I never hear the industry or guru's saying this - they try and make out in 2 yrs you will be an expert - dream on ;-))

Regards


F

 

[Rhody Trader]

I should make it clear that the 3 year break point doesn't actually mean that's when they turn profitable. The more experienced folks are just significantly better. They still lose money on average.

 

[Forexmospherian]

I should make it clear that the 3 year break point doesn't actually mean that's when they turn profitable. The more experienced folks are just significantly better. They still lose money on average.

I remember the ex antique dealer on the BBC program on currency trading admitting after 7 years trading he felt he was nearly there - ie not losing so much and nearly turned the corner to ongoing profits etc

So many have say 1 months good results or even 6 months - and then lose double they gained in next year thinking they are there.

After a few thousand live trades you should be getting there and after 5000 live trades - if you are not consistent on at least every 100 - then try harder.

10 -15 consecutive losses can still happen - even with a 70%+ win ratio - and when it does - traders forget all about there 20 or 30 consecutive winners etc and get disheartened etc etc - simply because more than likely there smaller number of losses will be greater than their wins - money wise.

With regards to time scales on trading - short term should be more profitable once you have the skill level. Longer term - over weeks and months is fortune telling as too many factors can change what should happen.

We can all call the weather in next 5 -`15 minutes - but not in 15 days or 5 weeks -it guessing.

Traders also do not realise inefficiencies of waiting days or weeks for trades with RR's of 4 - when you can intraday the same in under 30 mins - but so many just dont want to spend the 5 - 10 k hrs getting there - its just too long a period for the majority

 

[PualoP]

The truth is, despite all the guru advice you see on the internet about risk/reward, most traders are taking 10pip winners and "running" their losers to 50 pips. Most traders are incapable of trading with a low percentage trading system i.e less than 50%. The Human need "to be right" is the downfall of most traders.

 

[hjg]

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.

I think it is detrimental for the experienced and vice versa for the inexperienced. Though it doesn't hurt for the experienced to take breaks too. Besides,they could get more ideas from others too.

 

[Rhody Trader]

I think it is detrimental for the experienced and vice versa for the inexperienced. Though it doesn't hurt for the experienced to take breaks too. Besides,they could get more ideas from others too.

Part of my PhD thesis is looking to see whether unsophisticated traders (inexperienced, negative return history, small accounts) or sophisticated traders (experienced, positive return history, upper quartile account balance) see any impact from joining the network. The hypothesis is basically that the former gain from an educational perspective while the latter maybe can get some kind of informational edge (improved strategies, sentiment, etc.). It's looking like the unsophisticated folks do benefit, but the sophisticated ones take a serious hit.

 

[f2calv]

upper quartile account balance

What level of balance would qualify as upper quartile?

 

[Rhody Trader]

What level of balance would qualify as upper quartile?

For the sample I'm using in my thesis it's about $7500 and up. There's obviously a huge potential range to the "and up" part of that. Gives you a pretty good idea, though, about how small retail forex traders tend to be. I've got over 4 million daily account balance observations for about 7200 traders. Half of them show a balance of less than $575.

 

[f2calv]

OK sounds a reasonable limit.

So presumably if these are live account balance readings i.e. updated daily, you can/could determine after a significant "black swan" event (such as SNB CHF floor removal) who won, who lost and who got wiped out? That would sure make interesting reading

 

[Forexmospherian]

For the sample I'm using in my thesis it's about $7500 and up. There's obviously a huge potential range to the "and up" part of that. Gives you a pretty good idea, though, about how small retail forex traders tend to be. I've got over 4 million daily account balance observations for about 7200 traders. Half of them show a balance of less than $575.

Interesting info

What's your take on the total number of retail traders - is it still under 1 million world wide or in the 2 -3 million as some sources have suggested - bearing in mind guestimates with unregulated and fairly unknown brokers - who might provide for countries where trading is still illegal ?

If its over a million - then are you happy you have a fair and representative cross section - ie say for over 10 or 20 countries and at least 25 different brokers etc etc.

OK you would expect only the more serious or experienced traders to have balances over $25 and $50k - and then you would think that must represent less than say 10% of the 7200 traders - as they might be the ones with at least some positive cash history

All fascinating info - really look forward to you sharing more


Regards


F

 

[Rhody Trader]

So presumably if these are live account balance readings i.e. updated daily, you can/could determine after a significant "black swan" event (such as SNB CHF floor removal) who won, who lost and who got wiped out? That would sure make interesting reading

Yeah, live accounts and the daily entries are date/time-stamped, so there is definitely the potential to look for major market events. That's a whole other line of research from what I'm doing now, but could indeed be an interesting project down the line somewhere.

 

[Rhody Trader]

What's your take on the total number of retail traders - is it still under 1 million world wide or in the 2 -3 million as some sources have suggested

Tough question. I've seen quite a bit of stuff on volume estimates, but not much on trader counts. The CFTC-mandated reporting by US brokers puts the number of active accounts right around 100k each quarter. I know of one bit of research that pegged Japanese traders at 120k, but that was back in 2007. I think the deciding factor on over/under a million is probably China. If forex has become active there then they could dwarf the rest of us without much trouble.

... are you happy you have a fair and representative cross section - ie say for over 10 or 20 countries and at least 25 different brokers etc etc.

Whether the data is representative is always open for debate. Yes, there are loads of different brokers - about 70 of them. Yes, there are traders from all over the world. I've only got US, Europe, and Asia/Pacific, and "No Entry" as geographic indications because of the way the profile data was collected, but there is good representation from each. Europe is the largest at 35%. Time frames vary. Trading frequency varies. Preferred trading style is all across the spectrum.

The catch is that it's a bunch of traders who self-selected into a social network. As such, you can challenge how fully representative it is on the basis that there may be some commonality between these traders.

OK you would expect only the more serious or experienced traders to have balances over $25 and $50k - and then you would think that must represent less than say 10% of the 7200 traders - as they might be the ones with at least some positive cash history

Going back to the account balance breakdown I brought up above, 90% of the entries are about $16,000 or less, with the 95% cut coming at about $42,900, so the $25k value falls somewhere in the lower 90s. These are based on daily observations, though, not on people, so the percentages don't necessarily translate directly across. My guess is they actually overstate things because in general the data shows bigger traders being more active than smaller ones.

In terms of the sample I'm using, about 10% of them fall into the sophisticated category. That means at least $7500 in average monthly account balance before joining the network, a positive average monthly return pre-network, and an indication of having at least 3 years experience in their profile data.