There’s a few fascinating quotations of ‘trader folklore’ that have stood the most testing of times, one of the most prevalent is that only 5-10% of self employed traders are profitable. This supposed firm ‘fact’ is one of the most common misconceptions within the trading community, yet it’s held steadfast as a convicted belief for a considerable length of time, eventually becoming ingrained as accepted wisdom amongst the forex trading community.
However, the zeitgeist flies directly in the face of the evidence reported by USA based forex firms (when reporting to the tax authorities) and the leading spread betting firms in the UK. Indeed, the last Investment Trends survey commissioned for 2010-2011 supports the counter theory that circa 20% of forex traders were and are both successful and profitable. This figure is also the headline percentage most UK based spread bet firms refer to as the average success rate amongst their clients.
There is an underlying trend in the investment trends survey specifically relating to traders; profitability is obtained by trading full time but by taking less trades, in short the less trades traders execute by having the discipline to wait for their high probability set ups to appear, then the more likely they are to experience success. The less ‘aggressive’ more systematic traders eventually win through.
So how can the trading community be so negative with regards to the industry and success rates of individual traders? Perhaps personal projections of losses travel much further and quicker than success on message boards and forums where negative experiences often dominate. How do you increase your chances of being part of the ‘twenty percenters’, is it a strategy, mind or money management issue? As always it’s a combination of all three with the emphasis being on money management.
One of the most obvious amendments we can make to our trading discipline is risk, if we risk no more than 2% per trade then in simple terms we’d have to experience fifty losses to be wiped out, it’s actually more than that if we reduced that risk versus the diminishing capital, but for ease of comparison let’s base it on the initial funding. Now to experience fifty straight losses on the one single security would be a very rare event, particularly if you continued to play the edge you believed in, using the same level of risk and the same entry and exit rules each time. Even a 2:1 loss ratio would be very unusual.
Staying longer in the game means you are quite simply still in the game and by using effective money management techniques you can ensure that the life of your trading account is given the best possible chance to survive and thrive. By always using stops, (never moving them based on a hunch), by having set take profit objectives and by ensuring that your plan is executed as per your objectives you are giving yourself the best possible chance of success and that’s before we begin to experiment and tailor our chosen strategy to suit our personal life style and psyche.
We all have the hidden trader inside us, the one we’re determined to one day evolve into. This trader never over trades, doesn’t risk too much on one trade, plans the trade and trades the plan, is neither overjoyed or depressed with regards to the profit or loss on any particular day or trade. This trader ‘flies low’, trades within themselves and remains calm throughout all the various tests and curve balls the market throws at them on a regular basis.
Reading that last paragraph does it read like you, or more likely as the description of the trader you’d like to eventually evolve into? Well here’s the good news, you can begin the process of evolution into that trader immediately by making the positive decision that your trading persona will reflect the necessary changes, ensuring that your metamorphosis into the twenty percent group is that much quicker and more importantly, permanent.