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

Beginner Questions
1

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-island/39-90-traders-lose-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 didnā€™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. Hereā€™s a report I wrote up based on what I observed - Real Trading Returns.pdf (1.11 MB). Give it a read and feel free to share your thoughts, comments, etc. Iā€™m always interested in extending the research and making it more useful.

On a related note, because the folks in academia donā€™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 itā€™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.

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2

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

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Thanks for that, Rhody, it is a very informative read and should be on every new traderā€™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 oneā€™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 methodsā€¦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! :slight_smile:

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How did you obtained an access to the broker performance and what was the number of evaluated traders?

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Great and interesting read John, thanks for sharing

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

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When you say ā€œthe broker performanceā€ 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 Iā€™m misunderstanding your questions, let me know.

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Thatā€™s one reason, though not the only.

9

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, lolā€¦

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

Iā€™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 donā€™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 ā€œfailedā€ accounts"?

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Tuff crowd,

Let me tell you about the other reason people fail.

Zero support.

Because friends and family have no idea, or interest in what WE are doing, they lack to pat on the back, show excitement, get you fired up for tomorrow. Some might think your off your rocker, some might think your wasting time, throwing money away, gambling, whatever way they look at it, they just dont care.

I said above, very successfull people have a team, people they bounce ideas off of, brainstorming, or just general chit chat about their career. Keep the fire burning. Some people need this. Probably 80% need this actually.

Who is pushing YOU? Do you have the support system for this business? Do you have uplifting people in your life, that regardless what your working on, they have interest, for YOU to succeed?

You see, I have near none. My 4 yr old daughter is about the only one i talk to about it. She is the one that askā€™s me, " Daddy, did price hit the yellow line"? " Hows price doing today"? " Are we winning today"? She is by my side the entire day, so she knows alot about forex, lolā€¦

My wife doesnt really pay much attention to my intentions or possibilies. We dont talk about Forex, when i say anything about it, she says, " Oh yeah", We actually got into a fight about it all last week.

I told her, " You need to get behind me more with my career". " I need you to push me". " Get me fired up to succeed", ā€¦

She went to college for 4 years, I was there helping with homework, tests, pop quizs thru the day. I wanted her to succeed, although I knew nothing about it, i pushed her for 4 years. Like, im supposed to . Then recently, she had to take a civil service test, for her job. She had to come in the top 4 to get the position. She took it 5 times before she conquered the test. But I had to drive her, I had to go research tips on taking the test. I trained her to WIN the job.

She finally got it.

So, where is my support? COMMMMON MAN< My breaking point was when I told her, " I made 217% today", and she said, " Oh Yeah"ā€¦ WHAT? Woman, do you not understand math?! You know what Ive been working on, and I just made 217% REAL MONEY, and your response is, " O Yeah"??? So, later in the day, I told her, ii said, " Id like your to sign a nuptial agreement, that you get zero money from my fake business", lolā€¦ " i told her, when i get the house built, Im adding her own wing, lolā€¦

This thread has been up for 24 hours, about failure, I show I have a chance to break the barriers of Forex, and I got 1 like?

Carlos, my man, thanks brother.

Let me ask you this. Is it because, you think Im wasting my time? Is it because your jealous your making 1% a day? Is it because you cant trade like I can? Is it because you think im delusional? Do you despise me?

Let me tell you something. I began this journey, to make money, to make alot of it, and not in 20 years time. My understanding of Forex was, Get the pip. In most businessā€™s, when you double your investment, your doing good.

Whether its a candy bar you paid .30 cents for, and sold it for .60 cents, or a trade you spend $100 off and made $200.

The power of mathamatics tells me, if i can keep doing this over a short period of time, your profits add up fast.

I practiced to win every trade. I developed a fear of losing. I had to learn, a loss and a loss isnt the same thing in this business.

I worked hard, day in and day out, grinding the charts, Every day, i have to get better. I knew the rate of failure, so you must do what no one else is doing. Practice your a$$ off, for when the time comes, you prove what you worked for.

I always said, make the most of your opportunities. Your risking money, you should of already wrote off as a loss. If you cant trade with $10, you cant trade with $1000.

A pip is a pip, leverage is the same, no matter the amount in your account.

You see, its not just trading and failing. There are many factors that can make or break you. Its how you learn from your mistakes, its how you tackle the day, its how you interpret the business, and its about how much you can take, and keep moving forward.

At the end of the day folks, ITs YOU, and ONLY YOU.

Day 4 over, 27.9% gain today, 173% gain total, 109 trades, 13 losses, average loss 2.03 pips

And you know what, tomorrow, Im going to be better.

Failure is not an Option,

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My data aggregates all accounts for any given trader (some have quite a few). If someone stopped trading in one account but started with another and connected it to the social network in question, that it would be included in the figures from that point on.

Are closures for these types of reasons also included in the calculation of ā€œfailedā€ accounts"?

From what I understand of the broker indicated fail rates, I would say yes.

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We all know that you and I trade very differently, but you still always manage to scatter your longer posts with some quite profound comments that I strongly agree with. :cool:

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After this post, Im not posting again, till I hit $1M, Best of luck to all, I have work to do.
Pushed the envelope today, Longest win streak 92 trades profitable, 30 losses due to commissions > profit, 2 trades lost due to bad entry.


1 Like
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add myfxbook link to the thread please !

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I can relate to this man.

I too talk to my child about my trading as my wife is continually busy with her own things.
however, mine is only two years old and is actually more fascinated by the blinking colors of price change. :stuck_out_tongue:

But i understand where you are coming from and it looks like to me that you needed more of a venting about your situation. But maybe i can provide some insight.

It it like it is, most people lose at trading and become a statistic, but the fact that you are, im assuming, trading already for 20 years, means you have something that not many other people have. The game that we are playing called Forex is a very complicated one to play and one that can never be won but can only lost. Sure you can make profits but this is not winning, this is just 'ā€˜doing wellā€™'
And the game continues the next dayā€¦

I completely agree with you that traders need motivation, but the truth is, when you start to talk to your wife about Forex, and bring up indicators, percentages, moving averages and so on and so forth. Its like she is talking to you about her new Prada shoes made of authentic crocodile leather or her new lipstick that she got at 40% at Macyā€™s because there was a sale. Do you see where iā€™m going with this?

There for i think the best way to get this motivational push or pat on the back is by engaging in social contacts with other traders, of course you are already doing this on this forum as of right now, but you cant compare this to face to face communication with an actual person.

I think next to getting motivation it is important to find a vent to which you can tell your trading stories too, i tell my friends all the time about my trading, but i have to seriously ā€˜ā€˜dumb it downā€™ā€™ if you will and not use any jargon because they will just stop listening because they have no idea what you are talking about, so trust meā€¦ its not just your wife.

At least this is my experience with it, hope it helps :stuck_out_tongue:

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(RE: Tuff Crowd) Very profound piece of writing there MoneyNVRSleeps ā€¦ A stream of consciousness post which I agree with.

My family arenā€™t interestedā€¦ I donā€™t go in to any detail about trading with anyoneā€¦ no one has a clueā€¦ unless you are talking to another trader.

Trading is a lifestyleā€¦ far removed from 9-5 employment. Unfortunately most people will never understand both the financial and time freedom that trading permits.

To me being a Forex Trader is a parasitic ventureā€¦ we donā€™t produce anything, service anyone, we are only generating money from money.

If you are successful at Forex you should do something for the ā€œsoulā€ (not religious). I work with troubled youth as a volunteer. Gets me away from the screen and back into the real world for a while.

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There are several reasons due to which most of the people are losing in forex trading and I think beyond 80% are getting successive loss due to lack of knowledge, lack of money management, lack of patience and lack of planning.

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Yes I think success also will achieved for trader that get support from their family, but also main motivation is from own selves, every trader having same opportunity to become success, but indeed will different if get support from close friend or family, because they will become fire to burn motivation

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There are two flaws with this analysis, at least as presented. Iā€™d need to see the actual report to address it more specifically.

  1. I suspect a strong selection bias here. By that I mean thereā€™s inherently going to be more profitable traders in that group than in the general market because of the way that group is formed.

  2. Just because the strategies work in the long run it doesnā€™t mean people trade them profitably.