97% Of Traders Are Failures?

constable · 27 November 2006

tech/a said:
A common misconception by those who cannot trade the most difficult of timeframes. Not necessarily day trading but very short term.

All to often traders think that to be profitable you have to pick the right stock more often than not (right being profitable).
When the fact is that you need to have a higher Reward to Risk Ratio over time in your favour.
Not understanding the concept and indeed the application of this principal is the downfall of the majority of traders.

Even in Bear Markets there are stocks which out perform.

Even if you get 2 out of 8 you can be extremely profitable.
If you cant workout how then your in the 90%.

couldnt agree more my most profitable week so far contained 13 wins and 11 losses. As far the thread goes i wonder how many who fail at trading have really met the criteria of a trader. How many are plain mug punters who heard a special tip or had a couple of good wins and then tanked on the last few. With some commitment , discipline and sacrifice their is no difference to trading no special secret or skill that makes it different to any other business.
Being aware of your own weaknesses however is a handy prerequisite.

tech/a · 27 November 2006

How many are plain mug punters who heard a special tip or had a couple of good wins and then tanked on the last few. With some commitment , discipline and sacrifice their is no difference to trading no special secret or skill that makes it different to any other business.
Being aware of your own weaknesses however is a handy prerequisite.

Common Constable thats an easy one---95%.

Being able to run a successful business is another handy trait-- upto 90% fail at this too!!

trader · 27 November 2006

tech/a said:
A common misconception by those who cannot trade the most difficult of timeframes. Not necessarily day trading but very short term.

All to often traders think that to be profitable you have to pick the right stock more often than not (right being profitable).
When the fact is that you need to have a higher Reward to Risk Ratio over time in your favour.
Not understanding the concept and indeed the application of this principal is the downfall of the majority of traders.

Even in Bear Markets there are stocks which out perform.

Even if you get 2 out of 8 you can be extremely profitable.
If you cant workout how then your in the 90%.

I'am averaging 3 wins out of ever 10 in the last year but have been making
a return of 8 % a month and thats not counting AGS. I use very tight stop
loss, if it doesn't go up I'am out. I also spend a hell of alot of time researching.

matti_pacman · 27 November 2006

tech/a said:
All to often traders think that to be profitable you have to pick the right stock more often than not (right being profitable).
When the fact is that you need to have a higher Reward to Risk Ratio over time in your favour.

I couldnt agree more!! The trouble lies in HOW to achieve a higher reward to risk ratio over time.

I guess alot of day traders try to a achieve the above through predicting the action of human. (thus charting) However, I personally find it very unpredictable as market can behaviour very irrationally in the short term.

Thus for me, evaluating a business makes more sense. A good quality business, saling at a low price is not without its risk, however it does present a big mirgin of safety, in turn offer a higher reward to risk ratio.

I am not saying an indepth analysis can offer a sure-win formula, alot of things I realise cannot be 'priced'. How much premium are you willing for pay for quality management? how much discount should we give if the CEO depart?

I recently purchased RPC after its MASSIVE drop, because to me, it offers significant discount and its priced as if it is going to liquidate. I can see a further 50% drop downside, but potentially a 300% to 400% rise if it return to profit... which I am comfortable it will as it has a good history and strong cashflow too. But to other 'realist', no price can discount into the poor management, and the 'MAJOR' brokers all rated it as AVOID/SELL.

Oh well, thats the fun part of investing... if everyone have the same sentiment on buying/selling, there will be no trading!

Good luck all and many happy returns

It's Snake Pliskin · 27 November 2006

matti_pacman said:
I guess alot of day traders try to a achieve the above through predicting the action of human. (thus charting) However, I personally find it very unpredictable as market can behaviour very irrationally in the short term.

There are some grammar problems here.

Thus for me, evaluating a business makes more sense. A good quality business, saling at a low price is not without its risk, however it does present a big mirgin of safety, in turn offer a higher reward to risk ratio.

Does quality relate to profits for the investor/trader?

How much premium are you willing for pay for quality management? how much discount should we give if the CEO depart?

Does this relate to profits for the investor/trader?

I recently purchased RPC after its MASSIVE drop, because to me, it offers significant discount and its priced as if it is going to liquidate. I can see a further 50% drop downside, but potentially a 300% to 400% rise if it return to profit... which I am comfortable it will as it has a good history and strong cashflow too. But to other 'realist', no price can discount into the poor management, and the 'MAJOR' brokers all rated it as AVOID/SELL.

The key word here is "IF".

Good luck all and many happy returns

You too.

matti_pacman · 28 November 2006

It's Snake Pliskin said:
Does quality relate to profits for the investor/trader?

Does this relate to profits for the investor/trader?

The key word here is "IF".

hehe... thats right, IF it does make profit... its a risky situation, but the risk/reward ratio looks good to me, so I am taking a punt... :

If you adapt a 'business owner' mentality (which i think most investors does or should) when investing, it is easy to see how quality and price of a business has a DIRECT relationship for the investor.

To me, I classify a quality company as one which can consistently generate high return(or profit) over their equity/asset.

The reason you start/own a business, ultimately, is to earn money. As a shareholder, every dollar the company make, you actually earn PART of it..The lower price you pay for the ownership, the less risk (loss less money if theres a fallout) and more profit you can generate (say every dollar give u 50c return instead of 40c) from your investment. Thats why to me, the quality and price of a business has a direct link to the profitability of an investor.

tech/a · 28 November 2006

matti_pacman said:
hehe... thats right, IF it does make profit... its a risky situation, but the risk/reward ratio looks good to me, so I am taking a punt... :

There is no place for punting in the markets. Having a percieved reward to a percieved risk is NOT a positive expectancy,its simply a hypothetical. Positive expectancy and R/R ratio's are KNOWNS that are related to the numbers which your trading methodology returns.You are simply gambling regardless of how you "think" you value a company.Note that "Your" opinion is not supported by others.Whay are you right and they wrong?

If you adapt a 'business owner' mentality (which i think most investors does or should) when investing, it is easy to see how quality and price of a business has a DIRECT relationship for the investor.

Its a percieved quality and price YET to be proven.Ducati has been attempting to prove your methodolgy of valuation on another thread.

Here is Ducati's thread https://www.aussiestockforums.com/forums/showthread.php?p=95603#post95603

To me, I classify a quality company as one which can consistently generate high return(or profit) over their equity/asset.

Pop a couple up here and we can see how they go.Not old ones new ones.

The reason you start/own a business, ultimately, is to earn money. As a shareholder, every dollar the company make, you actually earn PART of it..The lower price you pay for the ownership, the less risk (loss less money if theres a fallout) and more profit you can generate (say every dollar give u 50c return instead of 40c) from your investment. Thats why to me, the quality and price of a business has a direct link to the profitability of an investor.

Again your definition of value may not be mine or anyone elses.I'm yet to see this demonstrated as a sound investment strategy.

It's Snake Pliskin · 28 November 2006

matti_pacman

hehe... thats right, IF it does make profit... its a risky situation, but the risk/reward ratio looks good to me, so I am taking a punt... :

Punt away!

If you adopt a 'business owner' mentality (which i think most investors do or should) when investing, it is easy to see how quality and price of a business have a DIRECT relationship for the investor.

Does that business provide you with income? Do you realise a gain for the risk taken on? It is ok to romanticise the fact that you own part of the business as a shareholder, but don't fool yourself that you have any controlling share. It's foolish to think in such terms because it is your capital that you are putting at serious risk.

To me, I classify a quality company as one which can consistently generate high return(or profit) over their equity/asset.

Then why punt?

The reason you start/own a business, ultimately, is to earn money. As a shareholder, every dollar the company make, you actually earn PART of it..The lower price you pay for the ownership, the less risk (loss less money if theres a fallout) and more profit you can generate (say every dollar give u 50c return instead of 40c) from your investment. Thats why to me, the quality and price of a business has a direct link to the profitability of an investor

Share price determines your profitability.
You'll need very large dividends to erode the effect of a falling shareprice.

nizar · 28 November 2006

tech/a said:
A common misconception by those who cannot trade the most difficult of timeframes. Not necessarily day trading but very short term.

All to often traders think that to be profitable you have to pick the right stock more often than not (right being profitable).
When the fact is that you need to have a higher Reward to Risk Ratio over time in your favour.
Not understanding the concept and indeed the application of this principal is the downfall of the majority of traders.

Even in Bear Markets there are stocks which out perform.

Even if you get 2 out of 8 you can be extremely profitable.
If you cant workout how then your in the 90%.

Just to add a few points about trading:

Three ways to be profitable through trading a wise man once told me:
(1)Pick more winners than losers - to do with reliability of the entry
(2)Average win is greater than average loss - to do with exit
(3)A combination of (1) and (2)

Also note that the well known phrase:
"Cut your losers short and let your winners run"
is all about EXITS.

Just another point/topic to add, i think a hallmark of a really PRO trader, is not overtrading.

In a bearmarket, not many stocks going up means you trade less. It doesnt mean you enter into a less than ideal entry.

In fact, the more pro you become, the less you trade, and the more profitable you are.

As a beginner, the tendancy, and im speaking for myself here, is to overtrade. You have a big win, you get over confident, and you take on more risk, thinking you have a "buffer" that you can lose, and shortly after, you lose it all.

OR - You have a string of losses, you are keen for "revenge" on the market, and you tend to be in a hurry to re-enter the market, entering on stocks with a less than ideal entry ie. not following your trading plan or "blueprint". And then you lose more.

And thats without considering the cost of brokerage.

You just have to kick back, take it easy, take a few days off if you feel you might do something irrational, and be disciplined enough to stay out if the entry is not ideal.

Trading teaches you alot about yourself. Patience, yes, but most of all, discipline.

professor_frink · 28 November 2006

nizar said:
Just another point/topic to add, i think a hallmark of a really PRO trader, is not overtrading.

In a bearmarket, not many stocks going up means you trade less. It doesnt mean you enter into a less than ideal entry.

In fact, the more pro you become, the less you trade, and the more profitable you are.

I don't necessarily agree with that Nizar. Trading frequency doesn't really have much to do with how 'pro' someone is. A good, long only position trader will more than likely trade less in a bearmarket.
Someone who has shorting strategies that they employ will probably still be trading as often as they get a signal to do so. Which could be quite often.

nizar · 28 November 2006

professor_frink said:
I don't necessarily agree with that Nizar. Trading frequency doesn't really have much to do with how 'pro' someone is. A good, long only position trader will more than likely trade less in a bearmarket.
Someone who has shorting strategies that they employ will probably still be trading as often as they get a signal to do so. Which could be quite often.

Yeh exactly.
As often as they get a signal to do so.
Shorting strategies i could imagine would get less entry signals in a bullmarket. The inverse of those that go long.

If you get many entry signals that meet your criteria then by all means trade them. This is not what i meant by overtrading. Overtrading is when emotions take control and you enter even on less than ideal trades.

professor_frink · 28 November 2006

nizar said:
Yeh exactly.
As often as they get a signal to do so.
Shorting strategies i could imagine would get less entry signals in a bullmarket. The inverse of those that go long.

Depends on the timeframe. My intraday trades work out at roughly 50/50, with shorts being more profitable than longs-that's only based on a few months of trading though, so could change down the track). End of day is obviously a different story given conditions over the last few years.

nizar said:
If you get many entry signals that meet your criteria then by all means trade them. This is not what i meant by overtrading. Overtrading is when emotions take control and you enter even on less than ideal trades.

Under those situations you wouldn't be a trader, you'd be a punter
But I do see your point.

matti_pacman · 28 November 2006

Yes, I agree value investing is not a fool-proof investing method. Its just personally I feel more comfortable trading via that route.

I appreciate the feedback and I am sure when I gain more experiences in trading, I can incorporate some of the advice.

Hope I dont end up in the 97%! :

CanOz · 28 June 2007

Well I'm in the 97% now. The first part of the year was good to me. But this last half has killed me. I've gone from no structure to my trading to having a structured disciplined plan. I've read 7 books & took 2 courses. It seems i just cannot pick a winner at the moment. Is this a timing issue?

Any of the more experienced want to give some advice on how best to recover from large drawdowns? What should i do? I have been reducing my risk gradually by using position size related to my dwindling available capital.

Perhaps i should take even less risk, and risk 1% of my available capital? Do i change my scans and try to look for higher probability trades?

Appreciate some general advice from those experienced technical traders among us that have been through this before.

Cheers,

prawn_86 · 28 June 2007

im not very experienced and im not a technical trader,

but about 3 months in to my investing career i lost a hell of a lot on one share, and due to my small portfolio size it equated to 16% of my entire portfolio. I know i should have had stops etc etc thats what i have learnt from that and wont make that mistake again.

but in order to claw my way back i stuck to more bluechip stocks staying mainly in the top 200 and it took 6 months to get myself back to even but i preffered doing it that way than on riskier spec stocks. i know that tech trading may be different however.

just a thought for you.

CanOz · 28 June 2007

prawn_86 said:
im not very experienced and im not a technical trader,

but about 3 months in to my investing career i lost a hell of a lot on one share, and due to my small portfolio size it equated to 16% of my entire portfolio. I know i should have had stops etc etc thats what i have learnt from that and wont make that mistake again.

but in order to claw my way back i stuck to more bluechip stocks staying mainly in the top 200 and it took 6 months to get myself back to even but i preffered doing it that way than on riskier spec stocks. i know that tech trading may be different however.

just a thought for you.

thanks prawn!

I trade mainly CFD's with a universe that does not have many specs if any. I do trade a few specs through my share portfolio, but again, very few.

Cheers,

CanOz · 28 June 2007

CanOz said:
Well I'm in the 97% now. The first part of the year was good to me. But this last half has killed me. I've gone from no structure to my trading to having a structured disciplined plan. I've read 7 books & took 2 courses. It seems i just cannot pick a winner at the moment. Is this a timing issue?

Any of the more experienced want to give some advice on how best to recover from large drawdowns? What should i do? I have been reducing my risk gradually by using position size related to my dwindling available capital.

Perhaps i should take even less risk, and risk 1% of my available capital? Do i change my scans and try to look for higher probability trades?

Appreciate some general advice from those experienced technical traders among us that have been through this before.

Cheers,

Actually now that i'm reviewing all of my previous positions i'm seeing that my stops were too tight givven the recent volitility. Should i take this into consideration when taking trades in more volitile markets? Go for stops below/above areas of major support, and only where i get really good bang for the buck?

Cheers,

professor_frink · 28 June 2007

CanOz said:
Well I'm in the 97% now. The first part of the year was good to me. But this last half has killed me. I've gone from no structure to my trading to having a structured disciplined plan. I've read 7 books & took 2 courses. It seems i just cannot pick a winner at the moment. Is this a timing issue?

Any of the more experienced want to give some advice on how best to recover from large drawdowns? What should i do? I have been reducing my risk gradually by using position size related to my dwindling available capital.

Perhaps i should take even less risk, and risk 1% of my available capital? Do i change my scans and try to look for higher probability trades?

Appreciate some general advice from those experienced technical traders among us that have been through this before.

Cheers,

G'day canuck,

Sorry to hear you aren't going well at the moment

All I can say is this-Stop trading. Come back when you've had a bit of time to reflect on what's happened, and are in a better mental state. Then figure out what's gone wrong(if anything), fix it, and start very small until you get your confidence back

tech/a · 28 June 2007

CanOz said:
Well I'm in the 97% now. The first part of the year was good to me. But this last half has killed me. I've gone from no structure to my trading to having a structured disciplined plan. I've read 7 books & took 2 courses. It seems i just cannot pick a winner at the moment. Is this a timing issue?

Can
I would say probably not.

Any of the more experienced want to give some advice on how best to recover from large drawdowns? What should i do? I have been reducing my risk gradually by using position size related to my dwindling available capital.

As stupid as it sounds dont have a large drawdown to start with!
But seeing you have one,you must start with what you have---clean slate.

Perhaps i should take even less risk, and risk 1% of my available capital? Do i change my scans and try to look for higher probability trades?

Firstly be ruthless in identifying WHY you have such a large drawdown.
Examples.
(1) Picked 55 losers?
(2) Let trades fall far to far before pulling the pin---(ignore stops.)
(3) Didnt stick to your risk plan.
(4) Traded Too often
(5) Traded parcel sizes to large for capital account.
(6) Have no trading strategy NUMBERS.

I reckon you'll find the reason/s there!

CanOz · 28 June 2007

tech/a said:
Can
I would say probably not.

As stupid as it sounds dont have a large drawdown to start with!
But seeing you have one,you must start with what you have---clean slate.

Firstly be ruthless in identifying WHY you have such a large drawdown.
Examples.
(1) Picked 55 losers?
(2) Let trades fall far to far before pulling the pin---(ignore stops.)
(3) Didnt stick to your risk plan.
(4) Traded Too often
(5) Traded parcel sizes to large for capital account.
(6) Have no trading strategy NUMBERS.

I reckon you'll find the reason/s there!

Thanks Prof and T/A,

I'm not putting on any new positions until i can get a my trading capital back up to above 30k. Might be a couple of months.

During this time i'll go over all my records and try to see where i went wrong. I suspect already that i've over traded, having 20 losing trades out of 25 since May 30th.

I haven't actually got to MaxDD yet, but i've had enough to know somethings wrong.

For sometime i've been thinking about putting all my effort into systems work, but its the old 'scared of missing out' that gets me.

I really appreciate your kinds words and advice.

Cheers,

97% Of Traders Are Failures?

constable

tech/a

No Ordinary Duck

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matti_pacman

It's Snake Pliskin

matti_pacman

tech/a

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CanOz

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CanOz

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CanOz

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CanOz

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