Do 90% (Or More) Of Traders Really Fail?
We have all heard the statistics put forth in articles, forums, and industry gatherings .
90% of traders fail…
80% fail after 6 months…
Of those who make money, 70% are broke after 3 years..
What’s real?
And most important….what can you learn from those who succeed so that you can increase you chance at avoiding being just another statistic?
A fascinating study was published in 2004 which studied more than 130,000 traders on the Taiwanese stock exchange, over a 5 year period.
You can read the entire report if you like, but my eye was drawn to the following tidbit…
This data shows that for those individuals trading the equivalent of $500,000 USD in monthly volume, 15%-20% were profitable over a 6 month period. This suggests that the failure rate is a lot less than 90%, especially when you factor in the rest of the sample. Note the largest accounts (which probably got that big for a reason!) had a 39% rate of profitability.
Having spent years beating statistics like these, I know myself that trading is a skill that can be taught to just about anybody with the focus to learn and the discipline to execute a consistent analysis methodology.
I have taken on neophytes and have guided them on their way to consistency…
I have taken on long term losers, and have turned their accounts around.
I have had a number of students over the year who had their FIRST PROFITABLE MONTH EVER while we worked together.
It is these losing traders that I want to focus on, because clear patterns begin to emerge after that glorious first profitable month...
100% of the time, the transformation to profitability was the result of changes in behavior.
Most didn’t have any consistent way to analyze and objectively measure their markets.
They would flit from strategy to strategy, never staying stable long enough to really know what their odds were in any market.
If they lost in stocks, they switched to futures.
When they lost in futures they switched to currencies.
We would reign in the chaos of conflicting analysis styles and focus in on one simple proven strategy that works.
Not until they had a sample of 50 CORRECT trades with that strategy did we begin to add new setups or indicators.
Roger and I both share a strong opinion that such a layered approach is the fastest and most effective way to teach a technical skill like trading.
This philosophy is similar to coaching and developing any athletic skill…
You begin with simple drills, and only when the fundamentals are mastered, do you branch out into additional complexities or strategies.
I know from my experience seeing the training programs on Wall Street that a slow and steady approach guided by coaches and mentors who have already proven a strategies success is critical.
BUT!
I don’t believe this gets to the root truth about why this business of trading has such a high rate of failure for individual entrepreneurs.
My experience in this business over the past two decades has led me to believe that the reason why I am successful, while so many are not is that I SURVIVED MY LEARNING CURVE.
It took me almost 2 years and a lot of floundering around with different trading styles and analysis structures for me to find my “voice”.
A lot of people would not have had the tenacity and pigheadedness that I had, and THAT IS THE KEY.
The reason trading has such a high failure rate is because people quit this business before they achieve competency.
I am going to say this again…
People lose money, feel negative emotions and then quit this business before they achieve competency.
They never gave themselves the time and were not properly supported and guided during their time of learning to get through their sticking points and really see what they could achieve.
They felt fear and uncertainty because they didn’t have a comprehensive analysis methodology.
They hoped and guessed rather than knew where the market was in its price cycles, and that lack of understanding and knowledge made them feel like they were just gambling.
In their pain, they looked for information or any input that could relieve their pain and get them on the right track...
When each new idea didn’t provide an instant fix, they tossed it and moved on to the next.
This vicious circle degenerates into info hording…Gathering trading information without correct implementation
This is learning for learning’s sake without the business like approach or plan that would turn these potentially profitable ideas into repeatable, RELIABLE cash flow.
Would a trainee on a big firm trading desk be indulged to bomb around trying different things?
HELL NO!
This behavior would quickly generate a “my way or the highway” moment, (usually with a blue streak of profane “encouragement” to stop thinking outside the box) and the trainee would be re-oriented back to the firms proven and tested analysis and trade filtration methodology.
This is why Wall Street has produced so many top producing traders, and why so many individuals fail.
So, PICK SOMETHING….
COMMIT TO IT…
Than, master it before adding new setups or strategies to the mix.
I had a cocktail with a crusty old futures trader at Hugo’s Frog Bar (get the Chocolate mousse) who had built a career with a 7 figure yearly income off a simple opening range breakout strategy that took about 23 seconds to share with me.
Then he summed up a 20+ year trading career and I can’t improve on his words, so I’ll offer them to you verbatim…
“The secret is in the doing it, not the thinking about it”
Words to live by…
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