Why do 95- 98% of retail traders fail

[keithh]

HI,

if you know it or not a survey carried out by FXCM concluded that 95 - 98% of retail traders fail. so why is this? So how do you become one of the select few to succeed?

Before I continue and discuss the why's. a bit about me I have been trading since 2006 initially part time and spent time on this forum, before going full time which meant I stopped contributing to concentrate on my trading. I feel that now is a good time to come back and may be discuss, share some insights into what is a successful trader.

what I trade
when I trade
how I trade.

I guess I am aiming this more at newbies rather than seasoned traders as I expect most seasoned pros to already have the experience.

I will leave it for now with the opening statement , if anyone out there is interested to discuss post or message me.

In the mean time feel free to view some of my old posts.

 

[Davidee]

Since trading is essentially just competing amongst traders to take each others money most will fail. Most traders will end up giving their trading capital to the few highly skilled traders. When you think of it like that, you kinda realise that the market has to do whatever it takes to make most traders wrong, most of the time.

If that doesn't make sense, imagine any competition where 100 people were all playing against each other to take each other's cash.

This article http://www.forextradingforbeginners.org.uk/?page_id=67 explains that this manifests it's self as the right thing to do is the thing that feels wrong to most people.

 

[SpreadDoctor]

Since trading is essentially just competing amongst traders to take each others money most will fail. Most traders will end up giving their trading capital to the few highly skilled traders. When you think of it like that, you kinda realise that the market has to do whatever it takes to make most traders wrong, most of the time.

If that doesn't make sense, imagine any competition where 100 people were all playing against each other to take each other's cash.

This article http://www.forextradingforbeginners.org.uk/?page_id=67 explains that this manifests it's self as the right thing to do is the thing that feels wrong to most people.

Yes I agree with you but I would also add that most retail traders are not trading the market they are trading against a market maker who are easy prey for them. Yes the ones that do trade in the market are in essence in a competition. You are correct with your statement about the market having to move to make most of the traders wrong over time.

 

[12WBT]

Yes I agree with you but I would also add that most retail traders are not trading the market they are trading against a market maker who are easy prey for them. Yes the ones that do trade in the market are in essence in a competition. You are correct with your statement about the market having to move to make most of the traders wrong over time.

What if the market maker is easy prey for the trader.

 

[SpreadDoctor]

What if the market maker is easy prey for the trader.

Well I suspect you already know the answer you little tinker. For the sake of completeness winning customers are identified and hedged.

for a more complete explanation see 1m48s into this video

 

[WklyOptions]

HI,

if you know it or not a survey carried out by FXCM concluded that 95 - 98% of retail traders fail. so why is this? So how do you become one of the select few to succeed?

Before I continue and discuss the why's. a bit about me I have been trading since 2006 initially part time and spent time on this forum, before going full time which meant I stopped contributing to concentrate on my trading. I feel that now is a good time to come back and may be discuss, share some insights into what is a successful trader.

what I trade
when I trade
how I trade.

I guess I am aiming this more at newbies rather than seasoned traders as I expect most seasoned pros to already have the experience.

I will leave it for now with the opening statement , if anyone out there is interested to discuss post or message me.

In the mean time feel free to view some of my old posts.

Hi, Keith H,

Well, most traders fail for several important reasons:

1. Lack of focus - too distracted, too easily swayed to change opinions/trading actions.
2. Lack of trading plan with statistically-backed trading edge.
3. Inability to focus on winning trading plan (if have one really?) due to lack of experience in dealing with anxiety, fear, stress, of dealing with uncertainty and random distributions of outcomes.
4. Insufficient bankroll (again related to insufficient trading plan).
5. Bet sizing too large for trading edge.
6. Trading for status, "action", attention, etc.

In summary - there is a very appropriate phrase attributable for retail traders:

"...they do not get what they want (profits)...they only get more of who they are (distracted, low standards, no discipline, no skills)..."

Sorry to be so direct/blunt on this very important topic you have raised.

If only more traders/newbies have the focus, courage, and will power - to raise their Standards to trading...

W/o the necessary Standards and Skills, chance of trading success is < 1%!

Thx for at least bringing into awareness a critical issue/study/discussion topic of interest to all traders!

WklyOptions

 

[Piman78]

You need DMA/ECN to make sure you're trading against other market participants and not your broker. If you broker has a vested interest in getting you then you really are toast.

But even with true level 2 DMA most traders will have to fail. A big poker game would work exactly the same way, most would lose their money and a few would make a lot of money. The few highly skilled would take everything. Since traders are moving the market the market will HAVE to do whatever it takes to make most people wrong.

 

[WklyOptions]

You need DMA/ECN to make sure you're trading against other market participants and not your broker. If you broker has a vested interest in getting you then you really are toast.

But even with true level 2 DMA most traders will have to fail. A big poker game would work exactly the same way, most would lose their money and a few would make a lot of money. The few highly skilled would take everything. Since traders are moving the market the market will HAVE to do whatever it takes to make most people wrong.

Hi, Piman78,

I don't really think most retail traders have to worry about having aggressive stalking broker orders against the retail traders' own positions/orders.

Retail traders need to worry about themselves doing more damage to their own accounts than by brokers, etc.

If a retail trader is able to learn to "see" big money trends and momentum biases, for example, and then bet size accordingly and get on the big money trends, then the brokers actions will not be effective.

As I've mentioned before - it is the lack of focus, trading plan, standards, and skill sets, that really destroy a retail trader's longevity and $$$ bankroll.

Regards,

WklyOptions

 

[Jason Rogers]

if you know it or not a survey carried out by FXCM concluded that 95 - 98% of retail traders fail. so why is this? So how do you become one of the select few to succeed?

Hi Keith,

I see that 95 - 98% figure mentioned a lot on the forums, but without any real supporting evidence. Some have mistakenly attributed those percentages to one of our surveys, but it's not true. The real findings from the DailyFX Profitability Studies are as follows:

"Research shows that the amount of capital in your trading account can affect your profitability."

The same studies show that FXCM client accounts with a balance of $10,000 or more had a profitability rate of 44.09%. The data is in line with quarterly reports that US brokers have to file with the CFTC which show that roughly 30% of retail traders are profitable while over 40% of retail traders are profitable at brokers that have a $10,000 account opening minimum.

Why the strong correlation between account balance and profitability?

Some traders with larger account balances might be more experienced/sophisticated and thus more confident in their trading strategy to be able to take larger positions. Other traders with larger account balances might have gotten to that point by growing their accounts to that size from smaller balances.​

Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?

The DailyFX researchers believe there is! :smart:

"What we have found out through the analysis of thousands of trading accounts is that traders with larger account balances tend to be profitable on a higher percentage of trades. We feel this is a result of the EFFECTIVE LEVERAGE used in the trading account.

"Traders with at least $5,000 of capital tend to utilize more conservative amounts of leverage. Traders should look to use an effective leverage of 10-to-1 or less."​

So to answer your question, if you want to increase your chances of becoming one of the profitable 30% then consider limiting your leverage to 10:1 even though you have the ability to use much more. An analogy would be that if you want to increase your chances of reaching your destination safely then stick to the speed limit even though your car is capable of going 200 kph.

 

[postman]

FX may be a zero sum game where 95% of traders lose, but index trading most certainly is not! Come over to the dark side where everyone can make money.
Dont believe me just look at a chart of your favoured currency pair over time, if its horizontal on a 20 year span your going to lose money its you vs 'them'. Indexes have a bias, they go UP, new money comes in each month, just compare GBP/USD to the Dow or FTSE.

In the poker game analogy its 10 people against each other with one winner in FX. With indexes some pension fund comes along after each hand and puts extra chips into the winning pot. Even if everyone wins one pot you all come out winning.

As to the comment above
"...Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?..." The DailyFX researchers believe there is!
Nothing personal but trading FX is like entering a turd in a beauty contest, your going to lose. However FXCM and the like will happily take your money and polish your turd for you.

Good luck trading Forex, your going to need it, oh wait a minute luck is for gamblers! :whistling

 

[ffsear]

Come over to the dark side

something i'm in the process of doing

 

[keithh]

Fx

I don't trade FX either its the DAX and FTSE for me generally in the morning between 8 and 12.

 

[keithh]

Hi All

good info here I agree with the comments. so we have established a lot of areas as to why retail traders fail. One mentioned is and if I can simplify it to lack of professionalism or in other words trading as BUISNESS.

developing a trading plan is a key ingredient

what to trade, when to trade, position size, risk profile and the psychology of trading and as mentioned sticking to it .

What to trade a starter for 10

Depends on the individual and what they have set a goal to achieve, these days you can trade anything, Fx pairs, indices, commodities, shares, bonds etc, even binaries? the choice is massive, there is also a direct correlation as to the time you have to devote to trading. intraday, end of day,

the choice of what to trade and when to trade will have a direct effect on what size of bank you will need in order to be successful. for example an intraday trader can start with a smaller bank than an end of day trader,

in essence choose a market that fits with your time commitment, you cannot be an intraday trader on the European indices if you can only trade in the evening despite what brokers offer as a 24 hr index, the volume just isn't there. but you can be an end of day trader.

my last put for know before I hand over to you guys is choose a market that you some understanding of. if your into FX don't pick some far out pair kike ZAR/ JPY if you have no idea what it is and how it performs.

 

[Piman78]

FX may be a zero sum game where 95% of traders lose, but index trading most certainly is not! Come over to the dark side where everyone can make money.
Dont believe me just look at a chart of your favoured currency pair over time, if its horizontal on a 20 year span your going to lose money its you vs 'them'. Indexes have a bias, they go UP, new money comes in each month, just compare GBP/USD to the Dow or FTSE.

In the poker game analogy its 10 people against each other with one winner in FX. With indexes some pension fund comes along after each hand and puts extra chips into the winning pot. Even if everyone wins one pot you all come out winning.

As to the comment above
"...Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?..." The DailyFX researchers believe there is!
Nothing personal but trading FX is like entering a turd in a beauty contest, your going to lose. However FXCM and the like will happily take your money and polish your turd for you.

Good luck trading Forex, your going to need it, oh wait a minute luck is for gamblers! :whistling

I (sort of) agree. I believe the reason why indexes are easier to trade than currencies is because the market is less competitive. Most of the money driving the FTSE is the likes of hedge funds buying shares, especially when there is one of those minor corrections that happens every week or so. Currencies are constantly being exchanged one into the other by traders, large financial institutions and even central banks all trying to determine their value relative to the USD.

 

[DionysusToast]

Hi Keith,

I see that 95 - 98% figure mentioned a lot on the forums, but without any real supporting evidence. Some have mistakenly attributed those percentages to one of our surveys, but it's not true. The real findings from the DailyFX Profitability Studies are as follows:

"Research shows that the amount of capital in your trading account can affect your profitability."

The same studies show that FXCM client accounts with a balance of $10,000 or more had a profitability rate of 44.09%. The data is in line with quarterly reports that US brokers have to file with the CFTC which show that roughly 30% of retail traders are profitable while over 40% of retail traders are profitable at brokers that have a $10,000 account opening minimum.

Why the strong correlation between account balance and profitability?

Some traders with larger account balances might be more experienced/sophisticated and thus more confident in their trading strategy to be able to take larger positions. Other traders with larger account balances might have gotten to that point by growing their accounts to that size from smaller balances.​

Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?

The DailyFX researchers believe there is! :smart:

"What we have found out through the analysis of thousands of trading accounts is that traders with larger account balances tend to be profitable on a higher percentage of trades. We feel this is a result of the EFFECTIVE LEVERAGE used in the trading account.

"Traders with at least $5,000 of capital tend to utilize more conservative amounts of leverage. Traders should look to use an effective leverage of 10-to-1 or less."​

So to answer your question, if you want to increase your chances of becoming one of the profitable 30% then consider limiting your leverage to 10:1 even though you have the ability to use much more. An analogy would be that if you want to increase your chances of reaching your destination safely then stick to the speed limit even though your car is capable of going 200 kph.

There you go - put more money in your bucket shop account and you'll be more successful!

 

[Piman78]

"The same studies show that FXCM client accounts with a balance of $10,000 or more had a profitability rate of 44.09%. The data is in line with quarterly reports that US brokers have to file with the CFTC which show that roughly 30% of retail traders are profitable while over 40% of retail traders are profitable at brokers that have a $10,000 account opening minimum."

It's possible that 30% are successful over a 3 month period of time. That just means that 70% have already failed and the majority of the remaining 30% haven't failed yet.

Over a longer period of time I think the failure rate is more likely to be around 95%

 

[SpreadDoctor]

It's possible that 30% are successful over a 3 month period of time. That just means that 70% have already failed and the majority of the remaining 30% haven't failed yet.

Over a longer period of time I think the failure rate is more likely to be around 95%

ah Piman78 you are spot on there. just a hint of survrship bias is present in the statistics presented. so traders in those stats bust their accounts out and the % of profitable accounts goes up as they are no longer including the busted accounts which are now out of sample!

A simple analogy would be to visit Hiroshima 1 year after the bomb had landed and measure the mortality rate of residents from a sample of those that were still living and excluding the vast majority that were wiped out prior to that date. You could then go on to say that 1 year after the bomb 50% of people are in good health lol. Does that mean your chances of dying in a nuclear bomb are 50%, nope. A simple slight of hand for the naive here.

 

[foroom lluzers]

There you go - put more money in your bucket shop account and you'll be more successful!

how did you do?

 

[mitch mconal]

haha you digging up these old threads make me laugh...you are a character but with a good heart (isuspect, don't know for sure)

i wouldn't have it any other way

 

[foroom lluzers]

haha you digging up these old threads make me laugh...you are a character but with a good heart (isuspect, don't know for sure)

i wouldn't have it any other way

Funny enough he dissapeared for last 2 years , these failures talk about 95% 98% (themselves) , then they see others in their mirrors.