Great post, and I agree 100%
Entering market with expectations of becoming rich overnight is one of the factors why people lose trades, and end up with rage quit. Maybe that factor is the killer #1, together with high leverage and undercapitalized accounts.
1 Like
This number is actually a myth
you can check out traders profitability reports via forex magnates. Generally across the globe, 25% of traders make money or have profitable accounts. Some brokers have about 40% of their clients making money, which is on the high end.
But the 5% number is a complete myth not founded in stats, facts or reality.
Hope this helps
Kind Regards,
Chris
Same figure is thrown around the stockmarket as well.
It is indeed.
There’s an awful lot of “one and done” type accounts that get opened, and blown up, only to never reopen again.
Do you think those numbers of 25, and 40% would look different if the total of accounts that were profitable vs the losing or even closed accounts were tallied up at the end of the year?
My thoughts are, those accounts that gain are a consistent number monthly. And because of their viability, that total gaining accounts number likely stays somewhat static. But the turnover on the losers even if they were 30% quarterly would skew the total loss percentage to a much higher number than the 60 to 75%.
I agree with Master Tang that its likely these statistics only focus on active accounts, rather than total accounts established over the course of a certain period. So the statistics can’t be trusted, however I do believe that the 5% profitable figure is a myth for the very reason that every trade has a 50% chance of been right. There are both buyers and sellers in this market so somebody has to be getting it right… the trick is getting it right more than half the time and staying consistent.
Like 2 posters above me have stated. Figures skewed in favor of the business (brokers need to make money).
Yep, I’d agree with that (and also with what mastergunner said in reply to rhodytrader’s post.
A snapshot isn’t really expressive … what one would need are longer-term figures; obviously brokers aren’t too keen on releasing those, since in all probability they won’t look as favourable.
What interests me, rhody, is: how will you go about obtaining period-to-period figures?
Surely they, too, will only reflect a small segment of retail traders, i.e. those to whose statistics you have access?
And if you really get some meaningful numbers, will you post them here?
Lastly: personally I’d estimate the number of long-term profitable traders to be somewhere between 10% and 15%.
I think many manage to avoid losses, because they take money management seriously and have learned trading well enough (which is hard, granted, but not all that hard) to be profitable.
The catch here is that an ROI of 1% or 2% (ROI is always annual) may qualify as being ‘profitable’, but won’t do you much good, unless you’re running a 10m bucks account.
So, a trader can be profitable without actually making more money a month than he’ll need to buy his girlfriend a pizza and a coke (which is okay of course … free pizza is always fine :D).
The issue here, as with so many things, is ‘relation’.
Cheers,
P.
There are no secrets to success. It is the result of preparation, hard work, and learning from failure.
(Colin Powell)
I would have to dissagree with he 50/50 thing as you would nevere get 50 people right and 50 wrong due to" spike outs" maybe 20 right and 80 wrong but not 50/50 .
I think the 95% is about the number of account blown on their first 3 months. That’s a complete different thing since it only includes new account - and for most - beginer accounts.
Not sur about that though.
I’d be interested to see a statistic on profitable vs losing traders that is only from the demographic of educated traders (ie, complete baby pips school, continued further education through other means, traded demo for at least 6 months, had institutional training etc etc). I think taking any person who opens a 100 dollar account and blows it on two trades never to trade again and lumping them in with the actual traders who are properly capitalized and adhere to risk management strategies makes for a misleading figure. I don’t think anyone with the ability to open an account should necessarily be classified as a “trader” for the purpose of statistics. That’s probably an impossible figure to determine accurately though and part of the reason so many off the wall statistics are thrown around.
Nice post.
The bolded sentence quoted was good for a nice chuckle. 
P.
The ststistics are focused on the wrong set of criteria
You only have to spend a short amount of time casually browsing this & other likeminded boards to quickly realize that 95% of the numpties who regularly frequent them possess neither the emotional maturity/stability, the desired basic levels of intelligence/common sense or the financial capabilities necessary to make any kind of positive headway in this endeavour.
Lol harsh but true!
I already have access to 3 years of trading data for a set of traders and am working on getting hold of more. Obviously, you can never look at all traders or all of history. The best you can do is try to find representative data and draw meaningful conclusions from that. We’ll see how it goes.
My work will mainly be research done toward my PhD, but I do intend on writing some articles that are more “practitioner” oriented and will let the folks here know when and where they go up.
Its not 50 people right / 50 people wrong its a 50/50 chance. Price can only go one way or the other…
That is assuming every trader employs a risk to reward ratio of 1:1 then, yes, broadly speaking, the trader starts off with a 50/50 chance of randomly predicting the movement of price. When spread (and slippage) is entered into the equation, however, then chances of the coin flip outcome are actually reduced to 53/47 or 54/46 against the trader. It may not sound like much but casinos profit handsomely on far less an advantage than what the typical trader is up against since the vast majority of trading “systems” are nothing more than an extremely complicated means of flipping a coin.
Once a trader has developed a method that is consistently profitable 53 or 54 percent of the time then he can look forward to breaking even. Again, it doesn’t sound like much but the house edge in blackjack is only roughly half of what the trader is up against in forex. That small edge built the city of Las Vegas.
We can break down a simple message as much as we want but the key message is that you have 50/50 chance of choosing the right direction. Price can either go up or down. Not talking returns here.
I agree with you!. Randomly picking up or down gives a 50/50 chance of being right in the movement of price. I was adding what I thought to be a major reason why so few people are successful in trading. They can be “right” 50% of the time and still lose money.