Good Traders Bleed Slow…

[alufejuli]

(DISCLAIMER :This is my opinion. I am still learning.)

…Bad traders bleed quickly, and a very small number of traders make any money at all, substantially less than that make good money.

”90% of traders fail” is something everyone comes across at multiples while they’re learning about the markets, but obviously not something that most take too seriously. It is probably the same thing that makes people buy lottery tickets. The idea that “I know the odds are really against me, like super against me, but I am special. I am unique. My life’s story has to work out because hey, I’m the protagonist.” While nobody will usually readily admit it, we all secretively believe God/Fate holds us in just a little bit better favor than everyone else.

If you go back through all the old forum posts over the years here, basically every two to three years it is a completely different group of people. While it’s possible they just got bored with these forums, or made so much money that they moved to the Bahamas and retired, most likely they lost, or made so little when push-came-to -shove, that they just moved on to some other way of making their money work for them. Why is everyone selling trading ideas? Why does everyone have a book? If they were reeeaaalllyyyy doing well at trading, they would offer these things for free because they had that kind of time on their hands. Most likely, they know enough to make a little money, but they still need something to supplement their income and they know there is always a new group of people with a few thousand bucks coming up to the plate with dollar signs shining in their eyes.

I’m never usually the dumbest person in the room but I’m also never the smartest, which is what concerns me the most about trading. If it was about intelligence, those much smarter than me would have already figured out how to beat it, whether through mathematical probabilities or deep psychological comprehension, they would own the markets.
Somebody has to be buying high while everyone else is selling. This by itself implies that a new group of suckers is not only a logical conclusion to draw, but a necessity for markets to function. Everyone believes they will take advantage of the movements of the herd, when in reality, just by attempting to do this, they become the herd.

All this leads me to believe that the market is not at all in favor of retail-investors. In-fact, if it is in favor of anything, it is of taking retail investors money. If trading was your best bet, then why do brokers get into business. Obviously, they have decided that not through trading, but facilitating the trading of others is a more lucrative way to profit from exchanges.

Much like common pump-and-dumps of small-caps, larger-cap stocks must function in a similar way. While this is an oversimplification, my guess is; big institutional money moves the markets, retail follows, and institutional investors eventually leave retail holding the bag. Just like a casino, it doesn’t always work this way, but overall the numbers work in the favor of institutions. While it is guaranteed more complicated than this, overall this idea is what I think works against retail investors. Basically, we are the mark. No matter how smart or educated a sucker may be, he is still a sucker. We are all playing the hands we have been dealt, just the reality is; it’s a bad hand.

Without realizing this, rather than using our money as capital, we might as well write Wall Street a check.

Any opinion on this from some more experienced traders?

[aqueiluk]

I agree. It took me a couple of months of trading before I realized that there was something wrong with what most people were doing. I too saw that 90% number and thought...if I continue doing what the mainstream is doing I will simply fall into that random distribution with only a slight hope if falling into that 10% of success, what could I possibly know that someone else doesn't know better?

Early in 2014 I changed how I thought about the whole picture. I decided that if the herd was going to follow the trend, manage losers and let winners run then I would do the opposite. Also many people trade too big so I stay small. I don't use stops...ever. I manage winners early, I let losers run allowing duration and cyclicality work in my favor. I manage risk at order entry by defining risk with spreads and/or staying small. I fade big moves, sell high volatility and in general look to do the opposite of what everyone else is doing. I don't buy trading ideas, systems, snake oil or lucky charms....100% of what I have learned I have found on the internet...free. I still have a long way to go but the important thing is I have learned how to find the information I need and more importantly I am able to formulate the questions I need to answer.

Where I think the retail investor does have an advantage over the big firms is where we can really pick and choose what and when we trade, we can be far more nimble, we get priority fills with price improvement around 80% of the time. We have access to as good or better technology than many of the big firms. I may not have the same leverage they have access to but I can trade the same penny wide markets.

I find myself at a point where I care less and less about what big traders are doing or what other traders are doing. So many people think there is some secret edge that they, above everyone else, will see, or can buy or something that makes it easy money for them. It's not easy. It's damn hard. One has to be willing to put in the time and effort into understanding as much as possible.

The problem I'm facing at this point is just getting my account size to the point where I can trade more naked positions allowing me to go further Out Of The Money than a defined risk trade can. It's a long road but I already feel like it has changed my life for the better in more ways than just finance management.

sheesh that was a mouthful

[atabalulah]

The old saying "A sucker is born every minute" come to mind? Or the tulip bubble?

However, I would argue retail traders have a much greater advantage than institutional traders these days. With the advent of online brokerages we have the same access to the markets as hedge funds do. We can be much more nimble trading a $50,000-$100,000 account than a hedge fund trader with $1 million+ buying/selling power any given minute. Using daily charts for big picture ideas and then zooming in to shorter time frames, being able to see every trade price and size, along with how much size is trying to sell or buy can greater impact my decisions on the fly. If I see that big sell coming in, I can get out too or short it down with them. Or if we have bid supporter into a breakout, its go long time. We can use the herd as our friend if you know how to read the action. Because you are right, someone has to buy for the price to go up..... Which comes down to: I like to be in trades for 'the move' not buy and pray for a move. Thus I look for specific setups and action. I don't care why the action is there, only that it is. Then, play accordingly.

The problem is, the 90% don't take the time to learn. Many new 'traders' end up 'investors' because they buy at the 'right' wrong time and then just tell themselves they'll hold for awhile. I'll take their money any day....

Acstudio and I may disagree on some things, but I give him props for sticking with his plan. At least he was willing to learn a strategy and put it to use over the past year. I hope he has many more years to go.

As for market opinion and trade idea sites; I have ran a 'free' site and a 'paid' site. My paid site was exponentially more successful than my free site. I found those who put skin in the game upfront are more likely to stick with it and try to learn a few things. I also had/continue to have much more professional relationships through the paid site compared to the trolls who came to the free site trying to get rich quick. I know a few traders who have made over a million dollars a year trading who offer their trade ideas and educational materials to the public for a premium. The idea that they should offer free advice is like saying because Apple makes a lot of money on iPhones they should just give away their patents and contact info for Foxconn so we can all go make our own iPhones....

[Albertgax]

Yeah, I suppose I should have also said "Either spend their time making lots of their own money trading, or do those things for free as a hobby." It's not that I think those things don't offer a legit service to a certain demographic, I'm absolutely sure they do. But, most of the stuff you see out there doesn't just exist, but is being actively promoted by whoever created it, implying that they need the money. You don't really do this at all Blaine, and if I was going to put money up to join a site and learn, it really would most likely be yours.

I am an animal lover, and there is this idea that you should never give an animal away for free. The idea being that if someone won't put money up front, then they won't take good care of the animal. In my experience, this is true more often than not. So, it makes sense that it could transfer over into caring for something like an account, or a trading career.


The problem is, the 90% don't take the time to learn.
This is what I was mostly trying to draw into question with my post. It might be just that most don't invest enough time learning, considering the only requirement to trading is having a little bit of money, and that delusions and false hope abound within it much like gambling. Even then though, 90% is a big number.

The number seems too big for lack of effort to be the only problem. I wonder if it isn't more like 70% fail due to not learning basics such as money management and risk-control. The first group is the ones that buy high when everyone else is selling, they bleed quick and there is always a new group of them. Then maybe about another 20% learn all they may need to know and just for whatever reason can't get it together. I wonder about that 20% mostly.
I wonder about them because I fear I can become one of them if I don't understand why they don't succeed.

This is somewhat relevant I suppose. It is something I read from a real estate investment book years ago that I always liked:
If you want to beat 80% of the people all you have to do is show up.
If you want to beat 85% of the people, show up on time.
If you want to beat 90% of the people show up on time with a plan.
If you want to beat 95% of the people show up on time with a plan and enough balls to go through with the plan.
If you want to beat 100% of the people show up on time with a plan, enough balls to go through with the plan, and then see it through till the end.

Also many people trade too big so I stay small. I don't use stops...ever. I manage winners early, I let losers run allowing duration and cyclicality work in my favor. I manage risk at order entry by defining risk with spreads and/or staying small. I fade big moves, sell high volatility and in general look to do the opposite of what everyone else is doing.
That is basically where my head is at, AC. My only problem is getting enough capital to stay small enough per trade that I'll be able to make any money while still preserving my account. I'll be saving for some time yet though, so it might be different once I put real money up.

[AntonioVem]

HungryWallet said: ↑
1. While nobody will usually readily admit it, we all secretively believe God/Fate holds us in just a little bit better favor than everyone else.

2. All this leads me to believe that the market is not at all in favor of retail-investors. In-fact, if it is in favor of anything, it is of taking retail investors money. ... While this is an oversimplification, my guess is; big institutional money moves the markets, retail follows, and institutional investors eventually leave retail holding the bag. Just like a casino, it doesn’t always work this way, but overall the numbers work in the favor of institutions.
Yep. Those two statements pretty much sum it up. Damn good observations, Hungry.


I agree with Arch (a.k.a. AcStudio) on many fronts. I rarely rarely use a stop. I do like to buy volume, but that's why I buy the cheap stocks, so that I can afford the volume. I stay small in that I don't risk more money on one stock than I feel I can afford to lose. I used to often try to do the opposite of what I think the herd is going to do, but like Arch I have, over time, come to care less about what other traders are doing and what the "experts" are saying/selling, and now just try to keep focused on what I'm doing. If you want to learn options, then Arch is a good guy to learn from.


HungryWallet said: ↑
...but is being actively promoted by whoever created it, implying that they need the money. You don't really do this at all Blaine...
Blaine doesn't have to promote himself by screaming at the top of his lungs cause he's not selling you snake oil. He makes his views crystal clear, and every now and then posts a "freebie" on these forums. If you want to learn to trade by charting and drawing lines, then Blaine is a good guy to learn from.


HungryWallet said: ↑
This is somewhat relevant I suppose. It is something I read from a real estate investment book years ago that I always liked...
An early thing I learned when I became a Realtor, in reference to the total number of deals each agent does per year, was the mantra "Only 20% of the agents do 80% of the work."