This should be a very interesting read but very likely 95% of traders will oppose it and put it down with a myriad of justifications. It would just be self denial but then of course it is their money after all and they have every right to lose it any way they please.
95% of traders approach the market by way of prediction. They trade a position after careful and detailed study using all their skill and knowledge and analysis of various indicators and charting and fundamental data.
They arrive at a determination that the market will go up…or go down whatever it may be.
They can only be 50% right. This is the mathematical reality no matter what arguments they present with all their analysis and all their studies, mathematically they can only be 50% right. Anyone who claims to have more than a 50% chance of getting it right is just pure conjecture.
What it means is that after all the work they put in…when they position into the market…there is only one of two possible results that will develop. They will be right or they will be wrong…so it is only a 50% chance of being right.
At this stage 50% will make money and 50% will lose money.
Of the 50% that got it right and the market is moving in their favour, half of them would have been gripped by fear and would have set up too close a stoploss or took a profit too early. That makes 75% of losers already.
Now if you are wondering how those that took too small a profit end up losers it is like this. Those that took a profit too quickly cannot handle a winning position and are very likely to hold on too soon to a winning position and hang on too long to a losing position. They will eventually end up losing money.
Of the 25% remaining, 50% of them will keep adjusting their stoploss when the market goes against them. The rationale they use is simply this… I have a profit of “x” that I was not willing to take…why should I take a loss of “y” now.
They will end up with an eventual loss. We are now at 87.5% of losers.
I could go on for another 2 times with another two scenarios but I am sure you can find another two of your own…and each time another 50% joins the losers.
You will end up with something like 96%… mostly people will just use 95% and often it gets around that 95% or traders will lose money.
Now you know why.
What do you think would be a good way to counter this ?