Why 95% Of Traders Fail
There are many claims out there that 95 percent of retail traders fail at the craft. That is to say that they lose more money than they make through trading thus ultimately quitting. This probably came from the cliché that “a high number of traders lose money in the markets” and people ended up putting any number they want on the number of failures. One person woke up and just stated 70 percent then another 80 and in no time we were at 95 percent with no research to back it up. I am not disputing the fact that a high number of traders fail but I am just saying that 95 is an overstretch of the number.
Research On The Numbers
Most of the extensive and proper research on the matter has come up with numbers much less than that. The one done by Investopedia came up with the conclusion that 32% of retail traders make more than they lose in the financial markets. This implies that 68% still lose more than they make through trading.
Lack of Barriers To Entry
In trading, you basically have to just show that you are above a certain age, produce proof of identity and of residence and you are good to go. You can now trade all the instruments offered by your broker with the leverage you choose despite all your ignorance. Imagine if this same concept is applied to all other professions the disaster it could cause. Imagine if to become a neurosurgeon you just had to show up at the theatre without any education, a certain degree of intelligence, or experience. How many brain operations would be a success? My guess is none. That is 100% failure. Imagine if to become a lawyer or judge you just had to show up at court without going to law school. Would the justice system function? Definitely no. See how these two cases made you feel cringe for a second. The same should apply to trading. Trading to someone who does not have enough education on risk management and leverage can become just another form of gambling. For a professional trader though, who knows exactly what he/she is dealing with and wants to do and has an edge, it can become a consistent source of money to live off of.
Trading With Emotions
For one to be a successful trader one has to trade with no emotions attached to their trading. This is very counterintuitive. I mean who will be able to keep their emotions off the table when they are losing money or making it? This is high-key very hard to do. This is why fear and greed are labelled as the main reason why traders lose money. Fearful trading results in traders executing trades that are inconsistent with their trading plan if ever there was any. So does greed as well. In order for one to be profitable, they should try by all means to remove the different emotions they feel from their trading business which is very hard and thus results in a high number of failures.
The percentage of failures in trading are “high” for those with low-risk appetites but if we are being honest the same if not worse would apply to any other profession if there were no barriers to entry as the setup is in trading.