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90% of traders lose money! True or False?

  • Post #1
  • Quote
  • First Post: Jul 21, 2007 1:15pm Jul 21, 2007 1:15pm
i wanna find out if the statistics is right about it, so let;s say for the last 3 months did you
1) lose money
2)make money

and in your opinion, do you agree that the only side who makes money on forex is FX companies themselfs, and of course Interbanks.
I wasn't trading the past three months, but I blew up my first account.
Trade what you see, not what you think.
false : 99% lose money.
What do you think is the biggest problem of beggining traders?
I am now first time funding my live account :-)
I believe the biggest problem is that for the most part they have no research skills. Inability or unwillingness to learn these skills is problem number 2.

Quoting doman
What do you think is the biggest problem of beggining traders?
I am now first time funding my live account :-)
In trading, there is no bullshit. You either make money or you don't.
i know people giving lectures on forex and they still lose money trading.knowledge is not everything

Quoting mrgreen
I believe the biggest problem is that for the most part they have no research skills. Inability or unwillingness to learn these skills is problem number 2.
Quoting rafaello
i know people giving lectures on forex and they still lose money trading.knowledge is not everything
Trading isn't for everybody.
i think the right word would be "GAMBLING"
Forex Trading is Gambling

Quoting kihl
Trading isn't for everybody.
Quoting rafaello
i think the right word would be "GAMBLING"
Forex Trading is Gambling
You are partly right but only for those who doesn't have the necessary skills and methodologies.
Anyway, life is a constant gambling
I would venture to say that 90% is probably an accurate figure.

I would have never thought what I am about to type here is true just 3 months ago, but here goes:

In general:

Brokers aren't screwing you over. There are too many impulsive traders out there losing money. They don't NEED to do it, you will do it for them. They know this. For every trader out there cleaning them out, there are more than enough to make up the difference. Remember, they might be giving one guy 125,000 this year, but the rest of you are losing MILLIONS. I am sure the broker doesn't really care too much about that guy winning all the time. Besides, I have read somewhere that a lot of them will actually float an order into the real market to cover what this guy is about to do to them. It makes sense, he is winning, why wouldn't they follow? (assuming his size is enough to worry about.) Worse case scenario is that they break even on him.....(ok, so they keep a couple of pips from spread, but whatever.) If he loses on a trade, they have the rest of you to fill in the gaps.

Psychology is key. When you started this, you thought about becoming rich. Probably quick too. A lot of people make this look easy, and few of those people actually trade. (In fact, an advertisement I am seeing a lot says "Trading the Euro is easy. It's only 2 pips." Well the rest of us know better.)

Your first few trades are based on a few things you read. One of my first trades was riding a trend line up, and it broke. It broke hard. My reaction was "Bullshit". I got mad. I tried to get even. I lost again. These kind of experiences stick with you.

As a new trader, your first goal should be to make that money last as long as possible. Set a goal. Maybe a year. Trade small enough lots that it is possible.

Also, read as much as you can. But I have to admit this: Reading about systems is a so-so proposition. I know you will read this a million times, but trade what is for you. Make it your own. I believe it's a matter of refining what you study. Remember you will see certain things differently than the writer of that system. Find one or two things you like about it, and build from there.

The safest, and yet least used play in Forex: NEVER, and I mean NEVER trade against the trend. New guys don't pay attention to this. (Too many of us are thinking...."The EURO is about to collapse, and I will be a millionaire in 2 days because of it.")

For example, I am not looking to short the EUR/USD for a long, long, time. Yes, while it is true that it will pullback a few hundred pips from time to time, in the big scheme of things, that's not much. Pull up a daily or weekly chart and you will see what I mean.

The other reason for only going long in that pair????

I can only explain it like this: There are a TON of people long in this thing. Some of these "people" are actually banks. Some are corporations. Some are even willing to throw millions at it to keep it up where they need/want it. And somewhere in there, you can even add in the Russian Central Bank. The Russians are heavy in it, and can throw a lot of money to keep it afloat. It's all psychology. They know if they can push it up 20-30 pips in a light session, (which Moscow happens to be.....and it's easier to push a pair around.) other traders will jump on board, thinking....this has to be the bottom. And therefore, it is self-fulfilling.

If you have that many people under you, your fall will always be softer if nothing else. There are a lot of stops that need to be taken out before it gets to you.

Also, most new guys aren't comfortable with a 50 pip stop-loss. The first reason for this is that probably means you aren't getting much per pip. (As most new accounts are small, and really SHOULD BE.)

Most new guys aren't thinking what could be done with just 10% a month compounded for a few years for example. They are thinking how to turn 2000 into 1,000,000.

Just a few thoughts.....
Quoting clockwork71
I would venture to say that 90% is probably an accurate figure.
[
]
Just a few thoughts.....
Wow, that was an amazing post! Giving this thread a 5 stars in order for this post to be noticed!
Nice Post Clockwork. I'm going to have to pay attention to your posts.

To the OP:

two months ago: did not trade
Last month: Profit
This month: Profit (so far)

Also trading is not gambling. If you are gambling in the forex markets then you are not applying knowledge. Stop trading if that happens until you know, and have sound reason, for why your putting on/modifying a trade.
Everybody likes to throw around numbers on the '90% of traders fail' subject, but in reality, none of them know, I doubt if anybody has accurate statistics on the subject. Your only guide in this business is logic, it either works or it doesn't, you need a away of measuring the effectiveness of any given idea.
The breaking of a wave cannot explain the whole sea.
Yes, 90% of traders fail while 10% succeed. However that same ratio is applicable to college graduates, for 90% of them will fail while 10% will succeed. It can also be applied to actors: 90% fail while 10% make it.

The truth is that the 90/10 ratio is essentially everywhere. Whatever dreams or aspirations you have, you need to work smart to be one of the 10% that succeeds.
should those 90% really be called traders?
Quoting rafaello
i think the right word would be "GAMBLING"
Forex Trading is Gambling
There you have your answer........Gambling and trading are VASTLY different....most new traders think it is gambling and just place "BETS" without any thought to an outcome ..... such as a spin of the wheel or toss of the dice.....most traders live on HOPE, and many posts start with the same two lines....... "I HOPE...such and such pair goes up/down etc, etc.....(just fill in the blanks) Though for those that will still think it is gambling, STOP bitching about your brokers, chart spikes, poor swap rates, sweating over the latest "system", etc....and close your account and go to your nearest CASINO....and make your living there.....hell at least you'll get free drinks!
Proper Prior Planning Prevents Piss Poor Performance
Quoting clockwork71
I would venture to say that 90% is probably an accurate figure.

I would have never thought what I am about to type here is true just 3 months ago, but here goes:

In general:

Brokers aren't screwing you over. There are too many impulsive traders out there losing money. They don't NEED to do it, you will do it for them. They know this. For every trader out there cleaning them out, there are more than enough to make up the difference. Remember, they might be giving one guy 125,000 this year, but the rest of you are losing MILLIONS. I am sure the broker doesn't really care too much about that guy winning all the time. Besides, I have read somewhere that a lot of them will actually float an order into the real market to cover what this guy is about to do to them. It makes sense, he is winning, why wouldn't they follow? (assuming his size is enough to worry about.) Worse case scenario is that they break even on him.....(ok, so they keep a couple of pips from spread, but whatever.) If he loses on a trade, they have the rest of you to fill in the gaps.

Psychology is key. When you started this, you thought about becoming rich. Probably quick too. A lot of people make this look easy, and few of those people actually trade. (In fact, an advertisement I am seeing a lot says "Trading the Euro is easy. It's only 2 pips." Well the rest of us know better.)

Your first few trades are based on a few things you read. One of my first trades was riding a trend line up, and it broke. It broke hard. My reaction was "Bullshit". I got mad. I tried to get even. I lost again. These kind of experiences stick with you.

As a new trader, your first goal should be to make that money last as long as possible. Set a goal. Maybe a year. Trade small enough lots that it is possible.

Also, read as much as you can. But I have to admit this: Reading about systems is a so-so proposition. I know you will read this a million times, but trade what is for you. Make it your own. I believe it's a matter of refining what you study. Remember you will see certain things differently than the writer of that system. Find one or two things you like about it, and build from there.

The safest, and yet least used play in Forex: NEVER, and I mean NEVER trade against the trend. New guys don't pay attention to this. (Too many of us are thinking...."The EURO is about to collapse, and I will be a millionaire in 2 days because of it.")

For example, I am not looking to short the EUR/USD for a long, long, time. Yes, while it is true that it will pullback a few hundred pips from time to time, in the big scheme of things, that's not much. Pull up a daily or weekly chart and you will see what I mean.

The other reason for only going long in that pair????

I can only explain it like this: There are a TON of people long in this thing. Some of these "people" are actually banks. Some are corporations. Some are even willing to throw millions at it to keep it up where they need/want it. And somewhere in there, you can even add in the Russian Central Bank. The Russians are heavy in it, and can throw a lot of money to keep it afloat. It's all psychology. They know if they can push it up 20-30 pips in a light session, (which Moscow happens to be.....and it's easier to push a pair around.) other traders will jump on board, thinking....this has to be the bottom. And therefore, it is self-fulfilling.

If you have that many people under you, your fall will always be softer if nothing else. There are a lot of stops that need to be taken out before it gets to you.

Also, most new guys aren't comfortable with a 50 pip stop-loss. The first reason for this is that probably means you aren't getting much per pip. (As most new accounts are small, and really SHOULD BE.)

Most new guys aren't thinking what could be done with just 10% a month compounded for a few years for example. They are thinking how to turn 2000 into 1,000,000.

Just a few thoughts.....
This is a very well thought out description on trading.......and never was Gambling mentioned.
Proper Prior Planning Prevents Piss Poor Performance
  • Post #18
  • Quote
  • Edited 5:16pm Jul 23, 2007 5:02pm | Edited 5:16pm
Clockwork, another excellent post, IMHO.

So why do more than 90% of traders fail?

Apart from poor money management (e.g. oversizing positions), and psychological elements (e.g. overtrading, revenge trading), there may be other reasons. Here are two more possibilities:

1. Nobody quits while they're ahead. Therefore broker records will inevitably show that virtually all those who closed their accounts did so with a negative balance.

2. Traders underestimate the effect of the spread cost. "The Euro costs only 2 pips". Well, if we're trying to catch 50 pip moves, then 2 pips is 2.5%. Casinos make a fortune out of a that kind of edge. Moreover, even though our target might be 50 pips, our average result (tallying up both wins and losses) might be +5 pips. In that context, a 2 pip spread is huge.

Here's a simple idea to overcome costs. Look to trade moves that are 200 pips upward (move to the daily and weekly charts). Now the negative edge becomes significantly less. Then offset it by trading only the the direction of positive carry. There will be a point, in terms of trade length, where the carry overcomes the spread cost, leaving one net positive.

All of this means that, at least mathematically, it should be possible to break even, and even profit, from random entries and exits.

Here's the fivefold benefit of a longer term trade:
i) Lower randomness in price movement
ii) News announcement spikes get "absorbed" more easily into daily/weekly price bars
iii) Lower relative costs
iv) More positive carry gathered
v) Less opportunity for broker manipulation

Let's build upon this platform further:

  1. Trade the pair(s) where the average daily range is greatest, relative to the spread cost.
  2. Trade the pair that pits the strongest currency against the weakest currency, fundamentally and/or technically.
  3. Trade only in the direction of the longer term trends (NZDUSD is a good current example, where the uptrend aligns itself nicely with both rising NZ interest rates and also positive carry).
  4. Trade only the strongest (long, steep and/or consistent) long term trends.
  5. In a longer term uptrend, enter when the shorter term trend is oversold, and take some profit when it's overbought. Vice versa for a downtrend.
  6. Exploit the trend further by allowing profit on the remainder of the position to ride as long as possible.

Granted, it might not be possible to accommodate all of these points simultaneously. But applying them judiciously, and often, should shift the probabilities significantly further in our favor.

Mathematically, then, profitable trading shouldn't be too difficult. Given the 90%+ failure rate, there must be factors that I haven't considered. I wonder what they are?

David

Quoting hanover
Clockwork, another excellent post, IMHO.

So why do more than 90% of traders fail?

Apart from poor money management (e.g. oversizing positions), and psychological elements (e.g. overtrading, revenge trading), there may be other reasons. Here are two more possibilities:

1. Nobody quits while they're ahead. Therefore broker records will inevitably show that virtually all those who closed their accounts did so with a negative balance.

2. Traders underestimate the effect of the spread cost. "The Euro costs only 2 pips". Well, if we're trying to catch 50 pip moves, then 2 pips is 2.5%. Casinos make a fortune out of a that kind of edge. Moreover, even though our target might be 50 pips, our average result (tallying up both wins and losses) might be +5 pips. In that context, a 2 pip spread is huge.

Here's a simple idea to overcome costs. Look to trade moves that are 200 pips upward (move to the daily and weekly charts). Now the negative edge becomes significantly less. Then offset it by trading only the the direction of positive carry. There will be a point, in terms of trade length, where the carry overcomes the spread cost, leaving one net positive.

All of this means that, at least mathematically, it should be possible to break even, and even profit, from random entries and exits.

Here's the fourfold benefit of a longer term trade = lower randomness (news announcement spikes get "absorbed" more easily into daily/weekly price bars) + lower relative costs + more carry gathered + less opportunity for broker manipulation.

Let's build upon this platform further:

  1. Trade the pair(s) where the average daily range is greatest, relative to the spread cost.
  2. Trade the pair that pits the strongest currency against the weakest currency, fundamentally and/or technically.
  3. Trade only in the direction of the longer term trends (NZDUSD is a good current example, where the uptrend aligns itself nicely with both rising NZ interest rates and also positive carry).
  4. Trade only the strongest (long, steep and/or consistent) long term trends.
  5. In a longer term uptrend, enter when the shorter term trend is oversold, and take some profit when it's overbought. Vice versa for a downtrend.
  6. Exploit the trend further by allowing profit on the remainder of the position to ride as long as possible.

Granted, it might not be possible to accommodate all of these points simultaneously. But applying them judiciously, and often, should shift the probabilities significantly further in our favor.

Mathematically, then, profitable trading shouldn't be too difficult. Given the 90%+ failure rate, there must be factors that I haven't considered. I wonder what they are?

David


Well, one thing for sure is taking profits way too early. A common example is the following:

You have had two losing trades in a row. They cost you 20 pips each....So far this week you are down 40 pips. Then, as you short the USD/JPY pair, you see it stalling ever so slightly when you are up 10. This is when it gets hard for most of us.

You take your 10 pips, mainly because you want to make SOMETHING this week. You then feel ill as it drops another 50 pips before your very eyes.....sound familiar?
Nice post clockwork.

Quote
Psychology is key. When you started this, you thought about becoming rich. Probably quick too. A lot of people make this look easy, and few of those people actually trade. (In fact, an advertisement I am seeing a lot says "Trading the Euro is easy. It's only 2 pips." Well the rest of us know better.)

Quote
Most new guys aren't thinking what could be done with just 10% a month compounded for a few years for example. They are thinking how to turn 2000 into 1,000,000.

Clockwork, this is what i call the sucker card.People see this and start thinking 'coconut umbrella drinks in the bahamas in notime'....think again.You MAY be able to enjoy life like this, but that will depend on how you address trading.Its a business.I don't know of too many heart surgeons who finished training in 6months and went straight into the op room and began to wave the knife around.These skills take time,trading is a skill that takes time to master.

Quote
As a new trader, your first goal should be to make that money last as long as possible. Set a goal. Maybe a year. Trade small enough lots that it is possible.

From memory i think the first two rules Warren Buffet have are:
1.Preserve Capital
2.DON'T FORGET RULE NO.1

Don't trade to see how quickly you can accumulate money, trade to see how long you can last.

Great post clockwork.

Cheers
SK
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