90 Percent of Traders Lose; Why is This So?
By Bryce Gilmore, Bryce Gilmore & Associates Pty Ltd*
Posted: Aug 18, 2006
The statistical evidence backs up the headline for this article, so it is true. Most new traders will blow out a futures account within six months, and, these days, many do it within a month.
The basic reason for this is that people come into the trading arena believing it is simple, (it is if you know the ropes), but it is not that simple for the novice who does not understand the basics.
It has never been simple for anyone to come into the futures trading arena and become a consistent winner from day one, especially when most novices open a trading account before they have even inspected the trading arena from a distance and learned the ground rules.
Some people come along and open a small account hoping to parley it into a large account. More people come along and open gigantic accounts and run them down into small accounts.
Over the past 25 years, I have seen people try and fail, and I have some succeed. The losers all have two things in common.
1st. Losers will do almost no research, usually opting to grab onto some idea that has been shown to them at a seminar or through a newsletter service they’ve subscribed to. I don’t care what the quality of the advice is; by itself, it does not ever make you into a trader.
2nd. Also, when novices start to lose, they just keep betting more money in the same direction believing that things will have to get better. But, it never really happens for them because they are already just “cannon fodder” for the pros.
Hundreds of newsletters and seminars are promoted to the public (some for free and others expensive).
And, the broker fraternity hires phone blowers to get more people interested in trading, and all they are concerned with is getting new accounts. These guys will provide you with “free” seminars -- mostly very brief events -- and do nothing to help you in the long term. Once they have you, they just move on. Basically, the futures industry is full of opportunists working for a commission.
Some brokers even run ads to get unqualified people working for them as account executives just so they can introduce all their friends and family into the fray. Before you fall into that trap, you should check out your broker very closely.
It has seemed like a “churn ‘em and burn ‘em” industry for as long as I have been involved with it. Nevertheless…
The industry includes good brokers, advisors, money managers and seminar providers, albeit few and far between. The good ones are often the ones to charge a little more, yet the majority of people persist in going for the cheaper choice. That is just human nature.
However, even with the best advice and instruction, you can still end up a loser and in with that 90 percent I mentioned earlier. Why? From where I stand, it comes down to the fact that most people do not see trading for a living as a JOB.
Trading is a job, and to be successful at it, you need to treat it like one. I never knew of any occupation where you could walk in the front door and take over as the resident expert without having someone fully explain the ropes to you.
To be successful in trading, you need to set yourself up, so you can run your business of trading efficiently.
So, what does it take?
You need:
- A reliable data provider
- A reliable execution service at a rate that suits you
- An understanding of how your competition operates in the markets you wish to trade
- A methodology that allows you to approach trading from a winner’s perspective
- An understanding of the shortcomings of any method you are using (All methodologies have their specific pluses and minuses. You have to learn to work with them.)
These things are all mandatory to have in place before you risk any money.
Once you start to risk money, you have to have a contingency plan and a money management approach that controls your actions when you are wrong. And, if you think you are going to be right 365 days of the year…well, you might as well forget the whole thing.
The market will do exactly as your methodology says it should -- at times. But, then, there will be days when everything goes haywire. On those days, you need to know how to get out and retire for the day.
Not too many people will teach you these things, so, if you want it on the cheap, you will have to teach yourself.
The bottom line really comes down to having yourself set up correctly, having a plan with a proven approach, understanding that plan and being able to work it day in and day out without deviation.
Now, that’s work in anyone’s language; if you are not up to it, don’t attempt it.
If, on the other hand, you are in that 10 percent of people who are self-motivated and who consider making money actual work -- with a little bit of study and guidance, you may find that this is the right occupation for you. You’ve got the job; now, go do it!
*Reprinted (and modified) with permission from Bryce Gilmore of Bryce Gilmore & Associates Pty Ltd (www.wavetrader2004.com)
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