97% Of Traders Are Failures?

[tech/a]

97% of Traders

Do the same thing day after day and EXPECT a DIFFERENT result.

 

[motorway]

97% of Traders

Do the same thing day after day and EXPECT a DIFFERENT result.

When are these studies done ?

When it is newsworthy and a lot of moths are attracted to the flames

What is the universe tested ?

Usually one that is not representative

How So ?

Usually, they look at discount broker accounts
Who's clients represent

novices starting,
Those Who have not progressed much over time,
Those about to give up,
Some who struggle along at break even
some with more or less success.

Who are missing are those who become successful in a significant way
And progress OUT of that universe to concentrate on
FX Commodities and various derivatives etc

ONE impressive study made these findings
Most studies are skewed by the particular snapshot of "traders"
those who succeed are are soon transitioning to different arrangements, trading vehicles and structures.

Only 97% of a particular type(s) of traders fail
The others move on to greener pastures and are then out of this frame of reference


motorway

 

[CanOz]

I just had to post this, from Floyd Upperman's COT report site...i think i'll print it out and post at home and the office.

10 Traits Shared by Successful Traders
Floyd's own success as a professional futures trader has enabled him to develop professional relationships with other successful traders. Through these relationships, he has been able to identify important key traits that are common among consistently successful traders.
As a commodity trading advisor, Floyd has discovered that there are many misconceptions among the general public regarding the traits and lifestyles of professional traders. Down through the years, and even today the professional trader remains somewhat of an unsolved mystery to the general public. Fueled by the lure of easy money, the public has portrayed futures trading as an easy way to get rich over night.
New traders look for a magic key or what is known as the "Holy Grail." This search for the Holy Grail is a major obstacle facing most new traders, and must be overcome before success can be realized. There is no holy grail in the sense of a trading formula. The key to lasting success in this business actually depends more upon a disciplined common sense approach where the focus is on minimizing risk.
Discipline is the key to maintaining a low risk trading strategy or approach. One of the most common and important traits Floyd has found among virtual all long-term successful futures traders, is that they put a strong emphasis on risk control and money management. Below are the 10-shared traits of successful traders.
1.Contrary to the stories and rumors, those who trade professionally for a living, trade well below their means. This is the same concept as living below your means, a trait shared by the majority of self-made multimillionaires in the U.S. and world as well.
2.While the inexperienced trader dreads taking losses, professional position traders do not mind taking losses at all. Floyd has been taking losses for years; this is precisely how he has stayed in this business for so long. Neophytes will hold onto losing positions because they do not want to take a loss. Their losing positions will grow and quite often wipe them out completely or place them on margin calls only after a few trades.
3.All successful traders are very persistent and determined to be successful. Most professionals spend long hours analyzing the markets and often may appear obsessive towards their work. The truth is they are very passionate towards their work. However, most professionals do take time out on a regular basis for family, hobbies and rest / recreation needed to recharge their batteries.

Successful traders have one very important trait in common during their learning stage; they never give up. To achieve success in this business, one must be willing to get back up when knocked down and try again and again in order to finally achieve success.

The analogy Floyd likes to use is a comparison between the new trader and novelist Skier. To learn how to ski one must first fall down and then get back up. A critical component of learning how to ski has to do with learning how to recover from a fall and get back up properly. All professional skiers go through this process while learning the skill and art of skiing. Successful traders go through the same process in the beginning as well. It is amazing how many new traders expect to start off skiing down the black-diamond mountains without any lessons or any experience. They quickly learn after a painful fall that this is not as easy as it may look. All successful traders had to start somewhere. They did not start out being successful right away. It takes time to develop the skills, accuracy, and discipline all successful traders have in common.

Many successful traders failed (lost all risk capital) several times before eventually becoming successful. One of the mistakes Floyd sees often as an advisor and mentor to new traders, is a lack of adequate risk capital at startup. Roughly 80% of all new startup businesses that fail in the U.S., do so because they are under-capitalized. Many inexperienced traders will come into this business under-capitalized as well. Greater than 80% of them will fail because of this same issue also. To avoid this pitfall, one should wait until they have saved up adequate risk capital to start their trading business.

In addition, do not "feed" your account. This is another mistake he sees regularly. New traders tend to be either fearless, or extremely fearful. The extremely fearful often limit their chances for success by not placing all their risk capital in their account at the startup. They do this because of an overwhelming fear of losing it all. Instead they gradually lose it all by starting off with too little and adding more, little by little, as they continue to lose money and become frustrated.

It takes money to make money and in order to trade properly using proper stop placements requires a certain amount of risk capital. If you are going to give this business a serious try, do it right and start off with a decent size account. If you don't have enough risk capital, save until you do. If you are too afraid of losing your risk capital, then perhaps this business is not for you.
4.Professional traders do not over trade. They do not trade for the sake of trading.
5.Professional traders do not trade on emotion. Professionals are aware of their own weakness concerning fear and greed. We realize this is something we must always be on guard for. Fear and greed is the catalyst that leads to destruction.

Professional traders have leaned about something called a "threshold". Everyone has a threshold for losses & rewards. This is relative to an individual's net-worth and the amount of risk capital they have. Professionals have learned that they are more likely to lose control of fear and greed if the equity in their account fluctuates wildly like a roller coaster.

In order to maintain a "steady-state" (i.e. smooth ups and downs), the professional will trade below the threshold that triggers extreme fear and greed. Included in our trading system we have developed special "equity" graphs that track the price fluctuations on a day-to-day basis. These help traders determine whether or not a particular trade or market is appropriate for their size account and threshold levels.

 

[CanOz]

Con't.....

6.Successful traders do a great deal of waiting for the right conditions. Contrary to what you might think, there is NOT always an opportunity. The inexperienced traders will often trade when there is no real opportunity.
7.Established veteran traders have a trading system that they use and follow. They make their own trading decisions rather than waiting for someone to tell them what trade they should get into.
8.Professional successful traders are more concerned about risks than they are the rewards. The public tends to be preoccupied about the potential profits. The professional on the other hand is more concerned with assessing, controlling, and managing risk and exposure to risk. Professional traders always use stops.
9.A simple trait that exists among the majority of off-floor professional position traders is careful record keeping. They keep track of all trades along with a detailed journal of notes and observations on market conditions, psychological reactions to gains and losses and so forth. Floyd updates a journal daily with his trades, entries, exits, stops, crowd reactions to reports, market tone at specific price levels and other meaningful observations.

He also logs observations much in the way an engineer would do when conducting an experiment. This is important, especially with the markets the way they are now. Many times certain conditions will exist which lead to a certain out-come. You'll notice this more and more as you log your observations routinely.
10.Professional position traders have and follow strategies that enable them to GROW profits on successful positions while liquidating losing positions at predetermined (stop) levels. Floyd's position management methods adhere to this discipline.

Floyd's position management methodology provides traders with the means to manage successful positions so they can grow into extremely large winning positions if and when a market begins to trend. Some trending markets can make a trader tens of thousands of dollars on a single futures contract! Now imagine if an inexperienced trader holds onto a losing position that has begun to trend against the trader. This is what frequently happens with new traders. They won't let go of a losing position and the market continues to go against them until they are finally forced out on a margin call.

Most of the time when a new trader has experienced a large loss it is due to one or both of the following mistakes. (A) Over-trading or; (B) Holding a losing position far to long.

Generally when a new or unsuccessful trader latches onto a winning position, they often exit out of it quickly in order to take a profit and to feel "good". This is the opposite of what they should be doing. Professionals manage successful positions so the profits can grow. For example, imagine earning 20% interest on your bank account on a weekly basis. Would you want to exit and pull all your money out of that bank after the first week? Of course not. The same is true with profits earned on trending markets. Under the right conditions a market can trend for months and in some cases years. While that process is occurring there is no reason to pull the plug on it! However, it is always in your best interest (as a trader) to manage your exposure so that your profits are protected while at the same time you are positioned to benefit while the trend continues. This is maximizing your market exposure. This is why many professionals use trailing stops more often than targets. The trailing stop allows the professional to manage profitable positions with the trend so profits continue to grow for the full duration of the move. This methodology is taught in Floyd's manuals and covered in the charts and proprietary data.




NO TRADING SYSTEM CAN GUARANTEE PROFITS
HYPOTHETICAL TRADING RESULTS CAN BE UNRELIABLE
FUTURES CONTRACTS ARE VOLATILE AND RISKY


Futures trading involves risk and may not be suitable for all types of investors. Trading is a very risky business, and people do lose money trading futures contracts and options on futures. There are NO implied guarantees or promises of success made on this web site anywhere.
Floyd makes no guarantees for success. Past performance is not a guarantee of future profits or future success. The markets are volatile and constantly changing. To survive in this business, you must learn to respect risk and learn to contain it! We do this using specific rules and methods for handling risk. First however risk must be recognized and acknowledged! All types of futures trading is risky! No trade is risk free and trading is not Floyd's only means of income!
Floyd Upperman is a registered commodity trading advisor, successful businessman, private investor and futures trader. He is recognized throughout the world by a growing audience of professionals for his work with the U.S. government Commitments of Traders (COT) report. Floyd is a registered Commodity trading advisor (CTA) and president of Floyd Upperman & Associates, a professional Commodity Trading Advisory Service. NFA# 0281183

 

[nizar]

Great great post Can.
Thanks for sharing

 

[nizar]

Some great advice here guys.
Interesting how the champion clean up traders focus on risk management and preventing losses as opposed to having price targets and focussing on profits.

Paul Tudor Jones
That cotton trade was almost the deal breaker for me. It was at that point that I said, "Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?"

I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading.

I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them.

I am always thinking about losing money as opposed to making money.

Risk control is the most important thing in trading.

I keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.

If I have positions going against me, I get right out; if they are going for me, I keep them... Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start.

The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.

Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead.

I know that to be successful, I have to be frightened.

Don't focus on making money; focus on protecting what you have.

http://members.aon.at/tips/citation.html

 

[nizar]

Gotta love Jesse Livermore:
Investors are the big gamblers. They make a bet, stay with it, and if it goes the wrong way, they lose it all.

And Ed Seykota:
One evening, while having dinner with a fundamentalist, I accidentally knocked a sharp knife off the edge of the table. He watched the knife twirl through the air, as it came to rest with the pointed end sticking into his shoe. "Why didn't you move your foot?" I exclaimed. "I was waiting for it to come back up," he replied.

 

[nomore4s]

Gotta love Jesse Livermore:
Investors are the big gamblers. They make a bet, stay with it, and if it goes the wrong way, they lose it all.

And Ed Seykota:
One evening, while having dinner with a fundamentalist, I accidentally knocked a sharp knife off the edge of the table. He watched the knife twirl through the air, as it came to rest with the pointed end sticking into his shoe. "Why didn't you move your foot?" I exclaimed. "I was waiting for it to come back up," he replied.

lol, thats gold.

Good posts Can, Nizar. Thanks