One of the things thrown around a lot in trading forums and the like is the idea that the vast majority of traders fail. Oftentimes the number is said to be 90% or 95%. I like to follow these discussions. They provide some really interesting insights into how different categories of traders think.
New traders seem not to want to believe the failure rate is so high. If you think about it, that makes total sense. They are full of optimism, sure they will succeed. They don’t want to consider a high probability that they will not.
Then you have the more experienced traders. They’ve seen people come and go in the markets. They’ve probably been through the wars themselves, and maybe blew up an account or two already. In other words, they know from first-hand experience that being successful in the markets isn’t easy.
Brokers and the like are never going to willingly report trader failure rates. It’s not in their best interests to do so, even if the numbers aren’t as high as 95%. So from that perspective we are unlikely to see any legitimate, verifiable numbers. Fortunately, though, as part of my PhD research into trader performance, I was finally able to look at some usable data.
The bottom line is that the success rate in trading is pretty small. My own research is based on retail forex traders, who people think have an especially high failure rate. My understanding, though, is the failure rates floated around originally came from the futures market, and well before retail forex really got going. Also, I’ve seen research into stock market traders that supports the low success rate. I think the bottom line is that active trading is hard and very few people achieve long-term success.
So is the failure rate 95%. I think that’s a pretty close approximation, though it depends how you choose to define “failure”. The evidence leading me to this conclusion is more than will reasonably fit in a blog post, though.
So I decided to create a report.
It has all sorts of real data on how traders perform. I’m talking about actual returns, not hypothetical stuff. This is info you won’t get from the brokers.
I don’t present this info to scare people. I offer it up to give people a realistic expectation of how challenging trading will be. You don’t just open an account and start making money. It doesn’t work that way.
My hope is the information in this report leads to a deeper conversation about why the failure rate among traders is so high. That’s where we can start figuring out how to make improvements.
Fill out the form below to get a copy for yourself. It will give you some stuff to think about for your own trading.