[james]

Hi There

A thought provoking article.


It has been estimated that 8 out of 10 individuals who attempt to trade make no money. A recent survey of daytraders in the US found that 75% had lost everything within two years. This is an astonishing rate of failure in any endevour, what is even more amazing is that this rate of failure has stayed remarkably constant for approximately 150 years. This is as long as records of speculation on futures exchanges have been kept. I would theorize that as long as there has been speculation that the rate of failure has been about the same.

The remarkable thing about this rate of failure among traders is that it has stayed constant. Yet consider the advances that have been made in that time. Traders have access to sophisticated computer systems with complex technical analysis packages, data can be relayed around the world in seconds, every home computer now receives information that was once the preserve of sophisticated dealing rooms. Despite these advances the majority of individuals who actively seek to trade markets fail and fail dismally. Therefore the problem must be so intrinsic to the people involved in trading as to be immune from advances in technology.

To answer the question as to why the majority of traders fail would seem to open up a Pandora’s Box of reasons yet the reasons for failure are often quite simple.
When people begin to trade they follow one of two courses. The first group merely guess about the direction of whatever they are trading or they take tips from a variety of sources. As you can imagine this group do not last very long. The second group is a little more sophisticated, they embark on the quest for the Holy Grail, that one tool or indicator that will allow them never ending success in the market. Unfortunately this magic indicator does not exist and the majority of traders engage in a fruitless search for it. Such traders constantly buy new packages, spend hours scouring the internet for the latest indicator, even believing that if they change the colour of their computer screens that this will enhance their chance of success.

In reality the search for the Holy Grail or system design as it is more formally known should occupy only approximately 10% of a traders time. But for most traders they focus all their energy on system design and in particular they focus upon entry signals. Entry signals are but a small part of your trading system, in fact they are almost irrelevant. A true trading system is composed of a variety of features only one of which is entry signals. Many of you will object to my saying entry signals are irrelevant but consider the following. If you were to trade markets completely randomly that is your chance of success was only 50% and you had a 2 to 1 expectancy. That is for every dollar you lost you made two dollars you can still make a fortune trading. In fact it is reputed that the legendary group of traders known as The Turtles do almost this in fact it is reputed that their trading system is only right 30% of the time yet they are among the most successful traders in the world. If you do not believe me perform this simple exercise start will $10,000 make your first trade a 10% loss and your second trade a 20% gain repeat this exercise over and over and watch how quickly your account grows.

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