Why 99% of Retail Day Traders Lose?

We have been told that 95% of retail day traders lose, but that number might be closer to 99% and I tend to agree. To be clear we are talking about Retail Traders, the guys in suits working for banks and hedge funds are doing an entirely different kind of trading that is not accessible to the retail trader. The article below looks at 24 factors leading to the 99% failure rate.

Have a read and look forward to your comments

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Full article here

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Most traders fail because they haven’t learned, or taught themselves, how to trade. So a figure like 99% should not be argued with. How many people would be able to pick up 3 tennis balls and instantly start juggling without learning and practicing how to juggle?

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How often do we see people here saying they want to make a living trading but have never traded, That is as crazy as I wanting to make a living as a pro golfer but have never hit a golf ball

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Greed is the most dangerous thing in forex trading. You can lose all your investment because of your greedy nature.

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Whether the real figure is 70-80% as declared by most European brokers, as required by ESMA, or 95% or even 99%, the figure is so astronomically high that all newcomers should consider very seriously before starting.

But there seems to be a Grand Canyon divide between these facts and the awareness of these facts if one reads all the newcomer intros that appear here. The enthusiasm and ambitions are a million dollars away from the reality. The general expectation is to earn big money and trade full-time, not even just to earn as much as the various funds, etc.

But this article also brings something new to the table. Most newcomers are told to expect several years of hard work before they might reach a state of consistency with their trading. Maybe even 5-8 years. But this research also reports that some 80% of traders quit within two years!

So the outlook for any newcomer is extremely bleak and they should really be asking themselves what they need to do to beat the odds.

But the sad thing is that these statistics suggest that it is the markets and trading itself that is so difficult. But i am sure the reality is that the vast majority of these losing traders are just not equipped to take on such a project. They lack capital, experience, know-how, methodology, psychological strengths, understanding of risk, and ignorance of capital protection principles.

Also, mainly as a result of capital insufficiency and/or a lust for action, and a misconception that it is easier, they dwell in the landscapes of short term timeframes, where they hope to consistently ride the erratic and irrational noise of 10-30 pip moves in markets that are going nowhere in those particular time fractions. And to trade them with big enough positions against their small capital (i.e. abusing leverage to the limit) anticipating earning enough to change their entire lifestyle.

The downside of this is that it results in increased regulation for other traders as well. The upside of this is that it helps fund the broker network and retail infrastructure and keep trading costs low for those that are more successful.

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Most of time unregulated brokers are scam brokers. If you are investing in unregulated one, it would be up to you. Regulator will not help you if something goes wrong.

Excellent post.

Extract from article: What traders always forget is that trading is a profession and requires skills that need to be developed over years.

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@HunterSolander

I get your point but it’s not strictly too.

Knowing when to be greedy and when to not be greedy is one separates the pros from the amateurs

Be greedy at the right time leads to excess alpha, being greedy at the wrong time can get you killed

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well that is still 1 in 100 earn money. Better than playing the lottery.

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This is booming industry, and I am new to this game trading for almost a year. I bought the dream of easy money and promise of big profits with little effort. This topic brings me back to the book written by A.Elder ‘Trading For A Living’ where the author explains that this industry needs fresh supply of loosers on daily basis. To supply so many online brokers and to make the machine fuelled they need lots of new people depositing, coming and going. Little bit like the fastfoods, sell the dream like looking burger, charge the money, make new burger, some will throw up and never comeback but there always will be a demand. On the other side profitable and break even traders who know how to stay in the game and experienced the losses are people who know the reality. There is always a lot less people who know the truth than newbie dreamers.

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so true, I see it like a poker game where you need fresh people to feed the pot, and I was one on them early on,

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Nice analogy

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I think it’s very attractive to people in the beginning. yes, that’s true. Making Money could be really EASY in the market. especially with high leverage, you could make a profit in a minute which is greater than your weekly salary!!
But on the flip side of the coin, you can also lose money so quickly!!. then you feel for an act of revenge. you blame bad luck, news website, analysis you read in the morning before start trading, but have really no idea what caused your loss. What pushes the market up or down. You get back again to the market and same story. sounds like a casino night? roulette machine?.. yeah!
The point is trading is a profession it’s not gambling. could you do an operation as a surgeon by just watching some youtube. could you design a bridge as an engineer by just attending some weekend workshop? then how do you expect to be able to make the same money as a surgeon or engineer by just using some indicators or just signal websites subscriptionYou?!

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In my opinion the problem is that the first rule a trader/investor should have is to preserve the capital not to earn money. Everything follows.

  1. Preserve capital
  2. Study trading/investing psychology (psychology is 80% of trading)
  3. Study and experience (in demo mode) technicals and fundamentals
  4. Backtest
  5. Use correct stop losses and take profits (study risk/reward ratio)
  6. Don’t chase the market
  7. Don’t overtrade
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IG’s training document shows that “ Traders were correct nearly two-thirds of the time, but they lost more than twice as much on their losing trades as they earned on winning trades.” This makes me wonder that when IG states that “XX% of all traders lose money”, does this mean that they lose money on XX% of their trades, or does it mean that XX% are financially worse off over a given period of trading? The two statistics could be very different.

Any views, anybody?

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Well, I will be Damn!!
I’M STILL around after close to 3,000 days in a Stormy sea!

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False expectation is why most fail. Most have this weird perception of trading that anyone can do it well and so ignore taking the time to learn and blow it. It is a profession and unless treated that way just eats up traders. My anaolgy is starting med school and expecting to be able to perform brain surgery in the first week and not kill the patient. Never going to happen.

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Stats show retail traders are quick to take profits but slow to close their losers, but will finally take that loss only to see the price move higher shortly after selling. I can tell you 9 out of 10 of my losing trades would have been winners had a held longer.

Note; both Apple and Amazon have seen +30% price drops over the last few years, how many sold during these price corrections.

Kenny Rogers was right, “you have to know when to hold them, know when to fold them”

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Interesting quote, thank you.

I had assumed that when a broker say, “78% of retail investor accounts lose money when trading CFDs with this provider.” that they simply totalled up their live accounts, perhaps every month-end, and calculated how many were up and how many were down. But I’ve no evidence for that.

This is a very logical explanation.