How Do The 5% Of Retail Traders Make Money?

Hopefully a positive flip on an often asked topic. The 5% figure isn’t cast in stone. It can, and may be, higher.
The point is, instead of looking at all the negative reasons why traders lose, lets have a frank and honest discussion about how some win.

Please try to stay on-topic and positive. There is enough meaningless fluff in other threads already.

The floor is open…

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Just what I was thinking my friend.

So how do I win. Passion. I think now profits come because profit no longer matters to me. I simply trade because I love it. Like most (IMO), one is first attracted to the markets because of the allure of wealth, power, greed. This makes us do crazy irrational things. If you are trading for these objectives then I believe you need to quit. Your judgement is impaired.

But, if you figure out hey, this is fun, you get to enjoy the game in all it’s glory. Including profit participation. Don’t go chasing profits, let profits come chase you.

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I think the numbers are so abysmal due to the large amount of loss traders take in individual trades, which ties back to leverage. Think about it this way, if a trader is wrong on a 1% move and they are 1:1 levered then they lost 1%. If they are 100:1 then they are done for. Traders of course need a strategy and need to trade that strategy in a consistent and mechanical manner, but you also need occurrences to know at a statistical level how well your strategy fairs. Every successful strategy will have losses and it’s possible to lever so high that even a successful strategy loses, then you will never be in the game long enough to be successful. A good example we all know is that a buy and hold on the S&P500 over the last few decades was a good winning strategy. Taking that same simple buy and hold and apply 2x leverage and it would have blown up your account during the dot come bust or the banking crisis. I personally never take more than 0.5 to 1% risk on an individual trade. If I have a terrible string of luck and lose 10-15 trades in a row, i’m a little bruised but far from a blown up account. Whenever a friend/family member or someone on the internet starts asking me about making 10% returns per month or some other ridiculously unrealistic goal, I know before they even have started they are going to fail, guaranteed. A good goal for any newbie to start is “can I end the year flat”. If you make it through the year flat then congrats because you did better than about 3/4 of all retail traders, and you probably received a great education in the process.

Fx(and for that matter equities, futures, options) is a true 2 sided market which is as good as it gets. Developing a foundation of risk management and coupling that to a strategy that gives you a long term edge is part of success.

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As I said before, quantity does not equal quality.

Now I don’t want to start my forum life here re-writing the book on how to win friends and influence people. But honestly my friend, this is nothing but the gibberish ramblings a MLM plan calls for. What our good friend eddie is asking is what sets you aside from me. What is it they don’t teach that gives you the so called edge. Yes I believe in research and research I did. Somehow I don’t think you can answer honestly.

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If you are as good at trading as you are at arguing and picking fights then you are probably a very successful trader. As of this comment you have a total of 14 posts and half of them are critical, rude, argumentative. That in my book qualifies more as a troll than anything else. You remind me of someone on BP from about 5 years ago who use to always create new accounts because they would repeatedly get banned for picking fights in the forums.

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I think there are many points that can be added to this thread so I am not trying to make any kind of comprehensive reply here by any means, but I’ll start with a few thoughts…

The first point that I would suggest is more of a generalisation. I think it is crucial that any trader recognises that the path to success lies, in the final instance, within oneself. The solution is not in which product or which method or which risk/reward ratio we use or which You-tubes or websites or training videos we watch. These are only the tools that are at our disposal, and some are useful and some are not and some are even essential but they are just tools.

What the trader must become is a master craftsperson, identifying and understanding what kind of craftsperson they wish to be and are capable of being, what are their personal strengths and weaknesses, and what resources do they have available. I have seen newcomers here first “trying out” Price Action, then after a few days MA crossovers, then the next day scalping. It was apparently the methods that were not working…or was it actually something else, maybe not taking sufficient time and effort to understand what each approach actually requires from the driver, the button pusher, the trader?

Two more specific items that I think are essential for consistent success:

Take a deep pride in your trading skill! Concentrate on learning how to evaluate what is a quality set up and what is actually only a bet or even a thoughtless chasing after the market. There is no better feeling than planning the scenario you are waiting for, spotting it when it occurs and taking home the prize - not because it “worked” but because you deserve it as the reward for your professionalism - and as a bonus to your success, receive a confidence boost for good measure! :slight_smile:

And what goes with the above, I have found that one of the keys to consistency is more about when NOT to take a trade. I miss many trades that would have succeeded by being over-cautious - but I also have missed many, many more that would have ended up with a loss.

Patience and discipline go hand in hand with knowing what kind of quality set up you are prepared to act upon and ignore the rest. It does not matter how many trades you miss out on, there are always others ahead. But you can only enter those forthcoming trades if you still have your account…

So in a nutshell, do not seek profits as the objective of your trading, seek personal excellence as a trader. Take pride in what you do and constantly hone your skills and evaluate your performance - and the rest will take care of itself.

Just some thoughts…

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Hard work.
Like most things in life worth having, what you get out of trading is proportional to the effort you put in.
Learn the basics at least before you consider trading demo. Ask questions here-most members are only too happy to answer if they can see the asker is trying to figure things out.

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When we learn to drive, the first thing we do apart from learning the Highway Code, is to hire a Drivng Instructor, who teaches us how to pass a test.

Once passed , we get into a car and typically have a few accidents in the first few years as we learn the realities of risk management and our own capabilities. After a few years we become competent.

I’m wondering how we would regard someone who watched a number of You-Tube videos, then bought himself one of last years Merecedes Works cars and entered a Grand - Prix to compete against Louis Hamlton, Vettel and Max Verstappen ?

A good many of those who profess themselves profitable, in a believeable sort of way seem to have been trained by, or to be ex-institution, so many of them have had formal training at someone else’s expense .

I’m not sure how many are “self-made” but having read the books written by several of those interviewed in Schwagers “Market Wizard books” - The only one who springs to mind is “Buzzy SChwartz” (Pit Bull) - who stayed up trading all night when the first Gulf War broke out and made $1,000,000 in a single night. AFter having Blown his entire net worth “Trading” - Several times.

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I am sure there is a lot of truth in this. Naturally, if one receives professional training from being employed in an institution that is a big advantage - but it does not, by any means, guarantee that the person will become a good trader.

During my time in the trading room of an international commercial bank I saw many new entrants that, having gone through their induction and various training courses, decided that forex and, in particular, trading was not for them. It did not suit their personal make-up nor their career objectives. Often, the sheer stress of carrying a risk position was too much, sometimes it was just the “futility” of just trying to make profits for profits sake.

There are many personal traits that make up a trader that do not exist in everyone. For some people there is a negative stress factor even in carrying a profitable position, let alone a losing one! It is important that any trader searches their inner self and decides is this really for me. The psychological and personality aspects of trading are greatly undervalued, even though they are the key factors underlying such famous truisms as “run your profits, cut your losses”.

But the point you raise about being trained by an institution does highlight one other major difference:

When you work for someone else, you are trading someone else’s money. But that does not make it entirely easier because you need to earn a salary. And especially because you are also trading in the full view of your colleagues and bosses. Your performance is constantly under the spotlight and you are constantly aware of it. This pressure does wonders for sharpening one’s focus on the job.

As a retail trader one is effectively self-employed and, as anyone who has run their own business will surely agree, only being accountable to oneself makes it difficult to always maintain the discipline and dedication that success requires. It is so easy to take risks and unplanned positions when you don’t have to explain them to anyone else.

But one should remember that a business cannot survive based on just a product idea. A normal company will have a team of experts covering product development, marketing, sales, finance and many other fields of expertise. As a self-employed retail trader you will need to cover all the required fields of expertise yourself.

I was reading @MikeWolski’s thread where he talks about his plans for starting out trading from home and it was interesting to see that he has even planned to dress for the part. That might sound a little naive, but it is precisely the right mental attitude needed to survive as a home-based self-employed person. What makes this mental approach even more crucial in trading from home is that for most of the time we are not physically or visibly doing anything. It is difficult to convince family that we are “working” and just as difficult to keep our own concentration and focus alive as though we were in a dealing room in an institution with many others.

Whilst a financial institution will (normally) survive, not all its traders will. But as a retail trader you are your own “financial institution”, and if you fail as a trader so does your “institution” . and if that thought does not boost your intentions to take your trading extremely seriously and professionally, as well as create a sense of pride and ambition to build your “institution”, then your chances of long-term success are probably quite fragile.

As you suggest @Falstaff, good driving is not about foot pedals, it is about eyes, ears, brains and limbs coordination and a good dose of practice and experience…

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The people who are successful not go to this level instantly . They have to work hard had spend hard times too when they were beginners. It is a lesson for other majority of looser that success is not impossible . When one contact market with good analysis and fit plan he can get success.

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Personally I know few pro traders, I see they also maintain their daily life so carefully! They carry their daily routine according to their plan, so guess how much dedicated they are in their trading! I think, Forex is all about discipline and pro traders maintain this part so sincerely.

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Consistency and ‘going for the jugular’.

Consistency means they trade an intimately familiar system exactly as it was designed, as closely as possible either through practice or automation.
The jugular comment (direct quote from George Soros) means that when big (unusually rewarding) opportunities present themselves, they take big risks.

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I guess by trading the right pairs at the right time, few % people are earning money.

You guess wrong.

It’s not really about which pairs they trade: it’s about whether they have a genuine, proven edge.

The minority of retail forex traders who have the sense, education and experience to understand that tend to be the same ones who trade whichever pairs happen at the time to provide entry signals that in accordance with whatever genuine, proven edge they’ve studied and identified - otherwise they stay out of the markets.

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Forex is a zero sum game here we all have the equal chances to become winner. Though I am not so expert, somehow I am managing my accounts well and moderate profit. I personally think successful traders can implement their trading skills and knowledge efficiently. And they are able to make the best of their trading strategies.

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They don’t Day Trade, Day Trading is by far the riskiest kind of trading you can do, this applies to all markets, yet newbies are loured into the trading world with promises of huge profits day trading, all they have to do is buy someone’s book or attend an overprice training seminar and the world will be theirs. If you want to be among the 5%, then prove yourself on the daily charts first

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You say that (and I completely understand why you want to say it, Dennis) but you know, really, that most of the world’s most successful traders, who are regularly earning very large salaries and even larger bonuses from their trading, ARE actually daytrading - most of them, in fact, never do anything other than daytrading.

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Perhaps we should qualify this by changing the thread title to “How do the 5% of RETAIL traders make money”?

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That’s certainly a very different question.

(My own answer to that one would be “they don’t”.)

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Some of us do :frowning: but the figure of 5% might be optimistic

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