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Why do most traders lose money in the market?

  • Post #1
  • Quote
  • First Post: Jan 30, 2012 3:30am Jan 30, 2012 3:30am
I am sure most of you have heard of the statistics that states that 9 out of 10 people lose money from trading, be it whether it is trading equities, currencies, commodities, futures or options. I do acknowledge trading is 'difficult' to a certain extent. Let's discuss about the common reasons why many traders incur losses from trading.
'For the market to work, it needs people who think that they can beat it.'
There will be the usual replies based around technicals, let this run and cutting that short. All important to a degree, but as I had to learn the hard way for the last 12 years or so, a lot of traders lose money simply because they don't understand themselves.

We all have internal triggers, warning signs that something is not in balance with a decision made, and whether that be in health, safety or trading, it is easier to ignore those signs than act on them.

A blown account is a loss of self control, I see very few accounts get blown up simply because they were trading a net loss trading system and slowly trading their account into the ground. In fact most systems are net break even, it is us that push it one way or the other.

You may be surprised how much of the "edge" we all seek really lies in ego control.

Happy trading.
You can quit and they won't care, but you will always know.
I think most of us know that the majority of people are not mentally strong enough to trade well and frequently do the opposite of what's in their own best interests. It's a peculiar human trait but we've all been there, even people that are profitable now.

All that said though, who actually knows that these over-used stats are even close to being true. Because of the absence of pooled data on the subject, people can only guess what % of traders are actively profitable either now or on a more long-term basis. Most brokers seem to report that at any one time, they have 15-45% profitable accounts but it's not easy to translate this into long-term profitability. Has anyone ever seen anything approaching a conclusive study into this theory?
The 90-95% statistic actually has suffered from Chinese whispers somewhat. I believe I read originally that this stat referred to the amount of people don't make enough money to do it full time, so it would include break even traders, and those that make tiny profits.

I will dig up where I read that at some stage.
You can quit and they won't care, but you will always know.
Quoting Akuma99
The 90-95% statistic actually has suffered from Chinese whispers somewhat. I believe I read originally that this stat referred to the amount of people don't make enough money to do it full time, so it would include break even traders, and those that make tiny profits.

I will dig up where I read that at some stage.

Even then though, how could they possibly reach that conclusion given how fragmented the data is and how different costs of living are across the planet?

Totally impossible to even get close to being sure of your ground I'd say.
Quoting Trotty
Even then though, how could they possibly reach that conclusion given how fragmented the data is and how different costs of living are across the planet?

Totally impossible to even get close to being sure of your ground I'd say.
If you are talking about the FX markets, then you are 100% correct. That saying though comes from the regulated markets, with brokers who are obligated to report regularly. It also comes from a long time ago, although I doubt things have changed too substantially.
You can quit and they won't care, but you will always know.
Here is some more relevant data:

http://forexmagnates.com/forex-broke...profitability/
You can quit and they won't care, but you will always know.
Quoting Akuma99
If you are talking about the FX markets, then you are 100% correct. That saying though comes from the regulated markets, with brokers who are obligated to report regularly. It also comes from a long time ago, although I doubt things have changed too substantially.
Sure mate, yeah I was talking about FX, that's all I trade and the reason we are all on here I guess
Overtrading and greed paves the way for the loss most of the time for me .

mixter
Quoting Trotty
Sure mate, yeah I was talking about FX, that's all I trade and the reason we are all on here I guess

Good knowledge of technicals and some better control over emotions is the best way ''''''''' perhaps to avoid being a looser in trading
finding A M S
According to me, the most common reason behind loosing money by traders in forex market are :

Low start up capital
Failure to manage risk
Greed
Indecisive Trading
Trying to pick tops or bottoms
Refusing to be wrong
  • Post #12
  • Quote
  • Edited at 7:03am Jan 30, 2012 6:40am | Edited at 7:03am
It boils down to education. How many traders do you know understand basic concepts of Economics? Not many!

Capital market investing should be looked upon as the same as the Medical or Legal field. It takes years of study and practice to hone in one's skill set.

Put me in a the middle of a surgery, uneducated nor skilled, and I'm bound to kill the person on the table. Place me in the middle of a courtroom, to defend someone's innocence, they're going to jail because of my ignorance for general law practice and/or procedural knowledge.

Same goes with investments. Fund me with enough capital to make a trade and I'm bound to lose that money, if not properly educated on how the capital market works.

There's more to the market than adequate equity and technical's. There's basic knowledge and skill-set that must be learned before jumping into trading. Without it, one is bound to lose money in the market.
Quoting Jhig
It boils done to education. How many traders do you know understand basic concepts of Economics? Not many!

Capital market investing should be looked upon as the same as the Medical or Legal field. It takes years of study and practice to hone in one's skill set.

Put me in a the middle of a surgery, uneducated nor skilled, and I'm bound to kill the person on the table. Place me in the middle of a courtroom, to defend someone's innocence, they're going to jail because of my ignorance for general law practice and/or procedural knowledge.

Same...

point to be noted
finding A M S
Quoting henryduncan1
According to me, the most common reason behind loosing money by traders in forex market are :

Low start up capital
Failure to manage risk
Greed
Indecisive Trading
Trying to pick tops or bottoms
Refusing to be wrong
Can't really agree with that. Once you know what you're doing, picking tops and bottoms is around about as easy as taking trades back into the prevelant trend.
Quoting Trotty
Can't really agree with that. Once you know what you're doing, picking tops and bottoms is around about as easy as taking trades back into the prevelant trend.
I'll second that. I pick tops and bottoms every day and make it work. I wouldn't call it easy but it can be done.
Not that I am wildly successful ... but at first I struggled with discipline . following my own rules ...

As soon as my trades saw a few pips I would close the trade to lock in the profits ... its hard at first to cope with greed and anxiety.

Several years later after spending all my free time studying and practicing i still have a hard time with it.
I realy like your illustration you are right it takes time and study before you go into the capital market....
Quoting henryduncan1
According to me, the most common reason behind loosing money by traders in forex market are :

Low start up capital
Failure to manage risk
Greed
Indecisive Trading
Trying to pick tops or bottoms
Refusing to be wrong
Quoting Jhig
It boils down to education. How many traders do you know understand basic concepts of Economics? Not many!

Capital market investing should be looked upon as the same as the Medical or Legal field. It takes years of study and practice to hone in one's skill set.

Put me in a the middle of a surgery, uneducated nor skilled, and I'm bound to kill the person on the table. Place me in the middle of a courtroom, to defend someone's innocence, they're going to jail because of my ignorance for general law practice and/or procedural knowledge....
I couldn't agree more. nice post
Twitter: @forexpokerpro
From a previous post of mine . . .

The fact that between 90-95% of traders lose money is more than adequate evidence that trading is not easy. My strategy is to see what these 90-95% are doing and do the opposite.

A mechanical system is simply a set of rules to build a case for entering the market. The biggest hurdle facing traders is what to do after a trade is placed. Therein lies the greatest psychological challenge.

A complete trading plan will have entries, risk and profits defined. Once a trade is place with these defined parameters, one should simply do nothing. A complete trader will follow these directions repeatedly and without hesitation; but only if there is a belief in the plan. Formulating and reinforcing this belief is the number one challenge toward achieving the discipline required for consistent results.

The most common flaw in the 90-95% is that they have unrealistic expectations and are therefore unprepared and untrained for the rigid behaviors required to be a successful trader. Why are they unprepared? Because our society today has given people a false sense of entitlement that makes them believe that just showing up entitles them to some type of return or reward. As I have said before, how can we expect them to do the hard work when the easy work begins with really hard work? It is not going to happen. I count on this every day when I enter the market.

So psychology, emotion, hard work . . . or whatever. If you cannot follow directions and sit on your hands, good luck on your roller coaster ride. After all - this is easy right?

What remains the greatest misperception is that trading is somehow unlike any other profession and does not require the same level of education and commitment. It requires more education and commitment - evidenced by the fact that so few do it successfully; or achieve a level whereby they can perform it for a living.
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