The reason why 95% of traders lose money - actually it is more like 96%

[fxstarter]

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 ?

[rahan]

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 ?

Beeing more than 50% right is not conjecture : i you think the price is purely ranom, and you make pure random trades, then the success rate is 50%.

Now just add a very little piece of fundamental ideas and you will be above 50%.

You can also take some funamental price action patterns like a simple converging triangle. You will be above 50% of success.

At 1mn timeframe it is really more random than considering a timeframe where every tick is a big news…

[stj]

Yah true more than 90% of traders loose money, but I don’t believe is because of the reason you gave. I see it this way; a group of unqualified unprofessional traders with small market capitalization vrs a group of small overly qualified professionals who don’t call(phone call) each other but can read the charts well to know what’s happening or about to happen, plus they’ve got lots and lots of mullahs to trade with…just my two cents mate :-)

[shadowline]

If you had conducted a search before initiating this one you’d already see there are at least 2 recent discussions concerning this topic.
Could you not simply have contributed to the most recent thread instead of kicking yet another one off?

Not only does it fragment the subject matter but discourages original members from participating because they’re sick of repeating themselves time after time.

Be a smarter contributor & use the [B]search feature[/B] before initiating new threads…

http://forums.babypips.com/forextown/59516-95-traders-loosers-myth.html
http://forums.babypips.com/newbie-island/49292-95-forex-traders-lose-money-myth-fact.html

[adnan]

@fxstarter

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 ?

well i am doing trading as part time but i hardly end up any trade in loss …
i found forex trading in quite simple but u should have some sense of logic to do it…
One of the Simplest and most important thing is to Control Emotions while trading AND
as far as strategy is concerned u can trade on extreme ends with good wisk reward ratio…

[peterma]

Thanks Fxstarter, this is an extremely important point, one so important that there could never be too many threads started on the subject.

As Shadow says the phenomenon of the very high ratio of retail losers in the market has been well documented, back in 1910 Richard Wyckoff lamented of the statistic, it seems little has changed.

Many ‘pros’ in the market have commented that there is one single reason, a reason that I know I encounter every day that I enter the market.

That reason is this - we, as retailers, like to sell strength, somehow we see price rise and want to sell (or vice versa).

Take a look at Oanda’s positions - Fibre … almost 74% Short - selling strength, USD/CHF 73% Long - buying weakness.

On Friday a new trader was short Fibre at 3750 - he sat ‘hoping’ that price would come back, 130 pips later it was too much.

He sold strength as evident by the higher lows on the daily.

The ‘pros’ like to say that they never marry their bias, market tells them they are wrong and they’ll dump their bias and/or switch sides.
Not my phrase - A dope will hope, winners are spinners.

Foreign Exchange Positions | Forex Open Position Ratios | OANDA fxTrade Europe

[fxstarter]

See…I was right. Hahaha

The justifications and opposition came fast and furious.

I even did not think that they would be so fast to counter.

Well… to each his own