Do 90%-95% of traders fail? Some actual data
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  1. #1
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    Default Do 90%-95% of traders fail? Some actual data

    The question of trader failure rates is one that gets talked about pretty regularly here, and in many other places. You need look no further than the http://forums.babypips.com/newbie-is...ose-money.html thread, which started back in 2006 and continues to generate discussion!

    As some members know, about a year ago I finished up my PhD. My research focus was on the performance of retail traders, particularly those in the forex market. For my work I was able to use a data set of actual trading and returns. Obviously, it didn't cover every trader, but I do think it is probably pretty representative of the broad trading community.

    I used that data to do some digging into trader success rates, especially with respect to persistence of winning over time. Here's a report I wrote up based on what I observed - Real Trading Returns.pdf. Give it a read and feel free to share your thoughts, comments, etc. I'm always interested in extending the research and making it more useful.

    On a related note, because the folks in academia don't really know much about the structure of retail forex, I had to dedicate a whole chapter of my dissertation to explaining it. Some of you - especially newer traders - may find it informative. I should warn you that it's an academic piece, and the writing style reflects that. You can download a copy of it here. I mention this because the structure of the market does very much play a part in trader success rates.

  2. #2
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    Good stuff rhodytrader, Hit my goal today, so I have the afternoon to read this up, and congrates on your accomplishments bud,

  3. #3
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    Manxx is offline Superior Master Contributor and Member
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    Thanks for that, Rhody, it is a very informative read and should be on every new trader's list and very near top of the list.

    There is a lot of concrete reasoning there and it is easy to realise just how big the challenge is for anyone looking to trade for a living.

    It confirms very stongly the reasoning behind my own decision, even after many years of trading, never to attempt trading as a sole source of income. The pressure to produce a regular, tangible income, is too great to be sustainable over a prolonged period of time (at least it would be for me). On the other hand, if one's aim is capital accumulation then the performance pressure becomes more of a personal ambition than a concrete necessity. This leaves far more scope for trade selectivity and far more flexibility regarding trading times and methods....not to mention trading from pleasure rather than necessity! - I can recall occasions when I have ended the day with a whole 10 cents profit and laughed about it instead of worrying about how I can make up the shortfall the next day!

    Apart from the basic percentages of traders who fail or quit, I would also find it interesting to know what were the ambitions and objectives of those that drop out. Were they predominently those looking for big wins and saw the writing on the wall? hoping for financial independence? trading big risks in the hope of a lucky break? Who succeeded most and longest - these? or others who traded for pleasure and a reasonable reward, who studied seriously and analytically and were industrious about their trading business?

    Thanks again, and I will look at those other articles on your site!
    Last edited by Manxx; 02-06-2017 at 04:40 PM.

  4. #4
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    Quote Originally Posted by rhodytrader View Post
    The question of trader failure rates is one that gets talked about pretty regularly here, and in many other places. You need look no further than the http://forums.babypips.com/newbie-is...ose-money.html thread, which started back in 2006 and continues to generate discussion!

    As some members know, about a year ago I finished up my PhD. My research focus was on the performance of retail traders, particularly those in the forex market. For my work I was able to use a data set of actual trading and returns. Obviously, it didn't cover every trader, but I do think it is probably pretty representative of the broad trading community.

    I used that data to do some digging into trader success rates, especially with respect to persistence of winning over time. Here's a report I wrote up based on what I observed - Real Trading Returns.pdf. Give it a read and feel free to share your thoughts, comments, etc. I'm always interested in extending the research and making it more useful.

    On a related note, because the folks in academia don't really know much about the structure of retail forex, I had to dedicate a whole chapter of my dissertation to explaining it. Some of you - especially newer traders - may find it informative. I should warn you that it's an academic piece, and the writing style reflects that. You can download a copy of it here. I mention this because the structure of the market does very much play a part in trader success rates.
    How did you obtained an access to the broker performance and what was the number of evaluated traders?

  5. #5
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    Great and interesting read John, thanks for sharing

  6. #6
    Thanks for the pdf . I read somewhere that 90% retail traders lose due to not having a proper money-management.

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    Quote Originally Posted by profitbaby View Post
    How did you obtained an access to the broker performance and what was the number of evaluated traders?
    When you say "the broker performance" I assume you mean the data in the first table. As noted in the document, that was collected by Forex Magnates (now Finance Magnates) from the quarterly figures produced by the brokers as mandated by the CFTC.

    As for the number of traders, that too is in the report. Second paragraph - more than 5000.

    If I'm misunderstanding your questions, let me know.

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    Quote Originally Posted by agnes35 View Post
    Thanks for the pdf . I read somewhere that 90% retail traders lose due to not having a proper money-management.
    That's one reason, though not the only.

  9. #9
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    Good read,

    I think it boils down to mindset, and self discipline, that is needed to follow the plan exact, every time.

    Then the tilt factor, trying to recover losses, chasing price, squeezing trades, savings gone, wife beat your a$$, kicked you out, suicide, greed, lost ambitions, lazy, unmotivated, scammed, and internet connection to think of some that might happen, lol..

    When a system has a win/loss ratio, it means every single signal the price puts out. If you miss even 3 calls, the ratio stat is garbage. What people fail to realize is, the numbers, the ratios, they are all scewwed.

    I know why I was failing, thats all that matters, right?

    I average 26% a day gain, going strong, hitting 92% of my trades, an absolute strategy. Its now up to me, to be a machine. If It fails, its because of me.

    Is it sustainable? The question is, am I sustainable. Im doubling my money every 3 days.
    The extent of my preparation is accumulate. I have a routine, Im geared to succeed, I cant be stopped, I wont be stopped.

    Im that 0.01%,,,,,, And Im about to get mine.

  10. #10
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    Manxx is offline Superior Master Contributor and Member
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    I'll have to check if this is handled in the doc, but it occured to me:

    How did the database used take notice of accounts closed and re-opened when a trader changed brokers? I don't know how often this occurs in practice but one could imagine there are a number of traders who, in their early times, change accounts for numerous reasons such as spread, charges, deposit/withdrawal requirements, regulatory issues, etc.

    Are closures for these types of reasons also included in the calculation of "failed" accounts"?
    Last edited by Manxx; 02-07-2017 at 12:31 PM.

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