90% of traders lose money?

Hi Lexys,

About the let winners run and cut losses short theory which you (and others) have regularly proponed: I have a question - how do you balance the letting of the winners run - with the need to not be greedy. Have found that a winning trade is running to about 25 - 30 profit, but decide to let it run rather than profit, and then it comes to 10 - 8 pips and close before it goes to zero. So how do we balance this ? Is this all about the find the correct exit point with technical validation : you know like when it has resistance and looking at the SMA etc ?

Thank you

I don’t believe in this over rated statement “let your winners run and cut your losses”, certainly not for an intraday trading approach. It’s an entirely subjective statement, counterintuitive and results in diminishing returns, overall.

At the end of the day, if you have a large enough sample size of historical trades, with subsequent data for each, you will already know the optimum risk to reward. Surely this is the end result all aspiring traders want to get to, eliminating all “guess work and gambling” of letting a trade run or cutting losses too early.

As with so many things, this is a concept which has been greatly simplified and presented in the wrong context very often. The foundation of the “let your winners run” recommendation comes from Prospect Theory and its idea of loss aversion. Basically what it boils down to is we tend to feel the pain of loss more than we enjoy winning. When I say losing, I don’t just mean in nominal terms. I mean in relative terms. This is where the cutting winners short thing comes from. We fear giving back what we’ve already made, so we book the profit and fail to let the trade run its course per the parameters of whatever system we employ.

You can see this whole thing come into play with so-called “hedging”. Traders don’t want to take a loss, so they irrationally put on an offsetting position because they think it prevents them losing.

This is ever so true - In fact I’d go as far to say that it’s certainly become the ‘statement of the year’ with regards to promotional material and courses.

I think you are right on the nail here. For example, if you apply a particular trading method to various timeframes it will give different optimum levels for targets and stops. When one analyses and arrives at an understanding of the appropriate levels for one’s own Trading style then there is no need for advice such as “let your winners run”.

I include in my journalling two additional columns: one for the [I]theoretical [/I]maximum profit the method [I]could [/I]have obtained from the particular trade and the other for how far the price reversed against my trade (whether it was stopped out or not). Over time this gives me data to determine what is the optimal profit level to look for and its percentage likelihood of being achieved - and the most sensible distance to place a stop to avoid accidents as well as unnecessarily excessive loss. It also indicates when there is a change in the overall volatility of the market and a need to tweak the limit/stop levels accordingly. I do this analysis for every trade opportunity in the sessions I watch even if I have not actually taken it.

In the same way as " let your winners run" becomes unnecessary, so your own risk and money management criteria also remove any relevance from another similar phrase: “it is never wrong to take a profit”.

However, unless one is runnng a totally mechanical system, one should never override pure commonsense on those occasions when an action is clearly correct and obvious! :slight_smile:

I think only 70-80% are failing in this business, loss is inevitable in forex trading but loss only comes when we trade blindly and without having knowledge, experience and skill, otherwise forex is lucrative business if we will do it with proper planning and strategy.

Losses are part of every business. But it is not necessary that all the traders lose a substantial amount of their money. Lack of knowledge, skill and experience are the cause of loss. One who understands the fact of learning from his own losses will eventually turn out to be a successful trader. Proper planning and understanding the concepts, strategies all can help prevent losses. Also, losing a certain amount professionally is not bad as it help build further gains.

Why do you think it’s just 70 – 80% of the traders that lose money? I’m just curious, because I have never seen any kind of statistical information about it. I think the number of people losing money is very large, but how large exactly no one can tell.

There’s some, collated from numbers of brokers’ anonymous customers’ accounts, but it doesn’t really prove very much, because it isn’t published frequently enough and doesn’t monitor the turnover of losing traders, which is what you’d really need to know, to interpret the figures.

(Via the site at leaprate.com, somewhere, you can find some statistics from a company that tracks accounts at various forex brokers. It’s not much use, really, for the reasons I mentioned above, among others, but it does consistently demonstrate that FXCM has the smallest proportion of profitable customer accounts and Oanda one of the highest. No surprise, there!).

See: Do 90%-95% of traders fail? Some actual data

FXCM’s SSI indicator is a perfect example how most traders buy the wrong side of a trend or move, Look at the S&P in this chart, 88% of FXCM’s traders are currently short the S&P, by the way the S&P hit a new all time high today


I don’t think that example is necessarily accurate. The S&P is moving up, so a trader entering a short is certainly in drawdown on that position - however where they close the trade determines if they register a loss. For example, said trader may exit the trade on a pullback, and in profit. (Often called contra-trend trading). Having said that I do agree with the premise of your statement, that most retail traders are on the wrong side of the market.

There was a study published on the results of the retail Forex market in France, where over a 4 year period, 89% of retail traders were “experiencing losses”. I do not have the link though I do remember the study was published in Forex Magnates.

I would guess the retail forex market in other jurisdictions would show similar results.

If you follow the SSI you will see as soon as the S&P starts turning down, most of those traders currently short, will start closing their shorts, and as price continues to move lower over several days, the shorts will continue to decline until long positions become the majority of traders.

What is happening is inexperienced traders tend to hang on to their losing positions, until they can no longer take the pain of seeing their account decline or worst they blowout their account. And when they have a winner they take quick profits, missing out on big moves.

if you would like to trade without losses you should have good knowladge about trading, i recoomend you to read some forex blogs, for example i have read interesting articles on liteforex broker site. about brokers you should choose by yourself

Right on :35:

Trading without loss I think impossible in forex, trend market very dynamic and sometime unpredictable, loss also as part in trading I think but as trader need also manage these risk and always make sharp trading skill analysis

The numbers tend to suggest your belief is wrong. See 301 Moved Permanently

It’s been proven - to a certain degree, and that’s as close as anyone of us will get to a real and honest answer. As linked by [I]rhodytrader[/I], have a look.

I would think that’s probably right, for most people, most of the time. That’s in [B]huge contrast[/B] to reading accredited textbooks, though.

What goes into forex “blogs and articles” mostly goes there for promotional/marketing purposes, and that’s exactly what you need to avoid, because it’s usually been published with no quality control, no editorial approval, no peer review, and for reasons more to do with promoting other people’s businesses than with helping you.

This is why you’re generally far, far safer and better off reading long-established, accredited, mainstream, orthodox textbooks (to which very few of the above problems generally apply!) instead. Bear in mind that you’re trying to be one of a small minority, who ever achieve what you’re trying to do, so you really can’t afford to stack the deck even further against yourself in a field in which overall success-rates are so low.

A rather widespread misunderstanding.

It sounds so superficially attractive, doesn’t it, to express the view that practical experience is needed to master a practical technique? Who could possibly argue with that?

The reality is that it’s a sentiment which leads [I]huge[/I] numbers of people astray.

Yes, it’s needed, too - but [B]later[/B].

One of the important and very significant differences between an aspiring trader with 3 years’ good experience and another with 3 months’ poor experience repeated twelve times over is typically that the latter believed what you’ve just said, above, and tried to put it into practice without [B][U]first[/U][/B] having mastered the essentials of the counterintuitive subjects of probability and statistics that all successful traders need to come to terms with not only to become successful but also [I][U]to benefit from their learning experience[/U][/I].

For this reason, what you’re saying above (and elsewhere) is actually misguided.

It is not a myth but actually a reality. But it is due to the fact that most of the traders aimlessly in order to just earn profits. The first and foremost reason that most of the traders don’t succeed is that they lack persistence and patience. Instead of this one should treat trading as a business and trade as dedicately as they do business to earn living. Even after suffering loss keep the spirit to go on.