This has been a real interesting thread. To be perfectly honest, we require that there are a significant amount of losers or uninformed traders. Without them no one would be able to profit, in general trading is a zero sum game (negative sum if you include transaction costs). Yes no one likes to be a loser and sure there are a lot of things you can do to educate yourself here on baby pips as well as other areas to make yourself more informed. But it is NECESSARY it have a high percentage of losers in the capital markets. Sure no one wants to be a loser, but when you are winning you want more of them to come to the slaughter. As a trader I don’t really care if its a multimillion dollar corporation hedging and taking a loss or an average Joe making an uninformed trade, who fills my winners. Sure its callus and jaded but its all part of the game. The only thing you can truly do is to make sure you build a system that has an edge in the market PERIOD, without that no Risk reward or money management can save you. It will only make your account slowly bleed instead of just tank instantly.
To quote Larry Harris “Adverse selection helps us understand why uninformed traders lose whether they submit limit orders or market orders. (…) Uninformed traders thus lose however they trade. [B]If they want to avoid losing, they must avoid trading.”[/B]
Yes, of course, a valid system is the foundation … without that, there is no point in trading, as a 20% or so win rate won’t be enough, even with a 1:2 or better ratio and with never risking more than 1-2% of your account.
This is a great thread. I think the 95% stat might have come from a study of somebody made in some point. Maybe somebody should conduct a study to see it is realy acurate. However, hoe do we define who gains or loses, is it relative gain? absolute gain? Kinda complicated. I think, the real stat is 95% are disciplined, they make journal, they handle with emotions, they follow some rules, the have a 1:1.5 or higher ratio. Maybe this 95% comes from this, the people who doesn´t follow the proven and tested methods to win in forex.
I dont think R:R should matter really. One of my 2 core trades is a 1:1 R:R and is constantly profitable because it has a 70% winrate, i dont think you can put a barrier like that on it to determine if someone is successful. Because every traders style is different. I think the only thing that should matter is results, are they constantly ending the month with more money then they started, or any time period really, depending on trading styles. Longer term position traders may use a quarterly or yearly measurement. But for all the shorter term guys they should also be profitable during that period.
I see Forex as being similar to a casino. Over time, most people lose. It may take a while to get to that point and a person may have some good runs, but in the end, it will collect most of the money.
And if we get 2 brand new traders and give them money to trade - 1st trader with RR 1:2 and second trader with 2:1, then the first one will be more profitable for sure?
I don’t understand why would it become a 70% lose rate? With back testing/demo and live trading results show that I have a long term net profitable system, that is to say it has a positive expected value for each and every trade. Now I supposed you are saying that there could be a market that would not be suitable for this strategy. But I just avoid those conditions because they are detrimental to my win rate and over all profitability. Actually avoiding less than optimal set ups is a significant piece to the puzzle. But even if at the extremes of bad luck i did sustain very little chance of going broke due to good capitalization and position sizing. I don’t think the trade itself I have that makes it sustainable beyond 100+ consecutive losses. Its the trading plan, and good capitalization.
Precisely, that is my point. Sometines you must get out sometimes. Your system will not work properly under certain conditions, as i can read i asume you backtested and learned when you must stay away.
Me for example i have a quote of loss, two loses in a row in the same week and i am out for the rest of the week. Next system revision i will change it for two loses in a month because of my style of trading i rarely make more than two or thre trades per month, i am a swing/position trader.
No, risk ratio is dependent on trading methodology. when i scalp, i will implement an inverse ratio congruent to my trading strategy, but if i swing or position trade, i won’t. Sometimes my scalp will turn into a swing trade as well. It’s all part of the plan))))))
That’s what I want to say, Risk-to-Reward ratio depends on the plan and can be 1:2, 2:1, 10:1, 3:4 or 16:9 with the same success in different type strategies.
By the way, for the topic I want to say also that I don’t believe that winners can be more than 50%. Losers between 75% and 95% sounds good to me… but we can ask brokers for actual numbers :39:
I can’t find my source (possibly GFT), but a few months ago I read that the % of losers is more like 66% rather than 95%. Around 33% are winners. It goes to show how influential your spread is.
I asked a futures broker the question a couple weeks ago. She didn’t have hard numbers, but based on what she’d seen and heard from other brokers her estimate was that 90% of traders lose money in their first year. Of those who survived into year 2, it moved to about 70%. That number is pretty close to the average we see in the quarterly figures the US brokers report to the CFTC, and I’ve heard a similar figure in other places.
Maybe at the begining was a big number but today succesful trders are a little more because we have no choice, we must be good traders because labor markets sucks and is uncertain.
True the labour market isn’t what it used to be.
But your statement sounds a bit like saying ‘You gotta be able to swim if you went overboard, because it’s too deep to stand’, hehe.
Either you know how to swim and you’ll live (if the sharks don’t get you :D) or you don’t know, and you’ll die. Once you fell in, there’s no more time to learn it.
Luckily, that’s a bit different with forex trading … surely one can (and does continuously, if one’s smart) learn after one has started; but mostly that comes at a price: blowing an account or two, if not having been smart to learn at least the basics first, and demo-trade for some time.
That’s why places like this one, where new traders can profit from seasoned ones and where they can see other people’s earlier mistakes and learn from them, are so valuable.
If one is willing to accept advice (and criticism), and listens to guys like dpaterson, Buckscoder, eremarket, InnerCircleTrader, petefader, Nikitafx, purplepatchforex, Clint, Master Tang, TalonD and rhodytrader (to name just those that came to mind first because I have posted in threads they are active in, too), it’s nearly as good as having a mentor … which is still the fastest and most effective way to learn a complex new task.
Dunno the answer to it Danny. But I did read an article recently saying that 83.5% of statistics are probably made up on the spot, or was it 85.3% ???
I suppose in the end it all depends how seriously you take it. Treat it like a game and it will take your money. Treat it seriously, you stand a better chance of making it, just like ANY OTHER venture in life.
Anyway, bottom line is who cares? Concentrate on making it work for YOU, that’s all you can do. Don’t rush, don’t reach for the finish line before the starting gun has sounded and you’ll no doubt do just fine.
