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How long does a typical trader survive trading?

  #7 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

First, I do not think futures are good fit for your someone with your attitude which is a fine attitude to have but trading futures is one of the most difficult and riskiest types of trading there is. It is really for serious traders only. I think what might be more important is to understand what the relevant factors are. The relevant factors are (1) account size, (2) leverage, (3) risk aggressiveness/return, (4) skill/"edge", (5) experience and (6) luck. It is probably pessimistic but because academics do tell us markets are basically random to assume that as your default. For something like the ES, you might assume you give up on average 2 ticks plus costs or ~$30 per trade. Let's just imagine that you lose only $10 per trade. If you take a $5,000 account/10= 500 trades/4 trades per day = 125 trade days/3 days per week= about a year but you may have other costs which will run your balance down faster. One thing that is worth understanding is the the spread in futures is much larger then stocks. For example, you can place a lot more random trades in stocks then you can in futures. On the other hand, if you can manage to capture a tick, you can see how your profits can skew to the other side.

The other thing that really causes futures traders to blow out is that they are fixed contract size. The only way to take less leverage is to trade a larger account or a shorter time frame. During very volatile times, a futures contract might move several hundred dollars over even seconds. So, futures are for really serious traders. They aren't really for average traders.

But, the other aspect that is relevant to understand is that the average retail trader is seeking a higher return then the average professional trader. I would assume that neither the average professional or retail trader is very good. However, the average professional is probably more aware of their limitations. So, if you are going to trade futures on a small account, you can compare it to performance race car driving.

There is another insidious aspect that gets good futures traders. Many traders probably never get really good. But, the better you get then the more likely you are to lose serious money. In order to understand this, we have to understand aspects about both human nature and the market. Human nature is to be risk averse unless there are strong rational reasons to take risk. As a trader gains more competency either through discretionary trading, especially, or system trading also they become more confident with success. This causes the rational trader to be willing to take more risk. However, markets are inherently difficult. One way to think about it is that the better you get then the more risk checks, accountability, structure, etc. that is needed because trading at a great level often requires making decisions involving hundreds if not thousands of dollars quickly on intuition or very rapidly for the scalper/day trader. I describe it as "chaos within limits". Think about the very nature of trading: it is risk seeking. In other words, think about trading as a difficult game where you typically lose. The greater your skill then the more likely you are to fall into the thinking the game is easy but the game is and always will be a difficult game. Great trading requires ability to effortlessly take on risk in the markets but at the same time you have to be disciplined enough to avoid trading when the conditions are not just right. But, your trading plan determines that. And, who determines that, you do. I think if you were just allowed to trade your account in specific time when you know you trade well-- like a job-- that would probably boost traders probability of success by at least 50%.

There is another problem. In order to obtain the kind of performance required to make the super normal returns desired by retail/independent traders requires a high level of specialization. Specialization introduces fragility. Markets change over time. If a trader doesn't have an understanding of the changes and how to adapt then it can be very difficult. Changing markets is risky too though because of the large contract sizes and specific characteristics affecting each market.

I think you can also just look around. You can easily find millionaires who made their money investing in the stock market (over a long time) or those who became millionaires by investing in real estate. But, I suspect the number of independent traders who managed to turn a small stake such as 25k or even 50k into a million and keep it are very, very few.

In order to obtain returns in the 50% to 100% plus range which is basically what you need to do to avoid blowing out a small account, it requires a lot of work. So, that's basically what you do with futures. Does it have to be that hard? No. If you're able to trade a larger account and reduce leverage then you can trade with lower performance requirements and make a lower return at higher probability.

If you're starting from scratch then you have to build a structure, a plan, but you don't know if the plan is sensible. So, you need a lot of training. But, you also need specialized tools. You have to build all of that. It is a lot of work for a single trader on their own. If you can find another trader or a group your chances might be a bit better especially if those traders are experienced, trade in a similar way, and have made serious money.

But, if you're going to try it then it requires,

(1) Capital. Don't bother trying to become a great trader without this. Try to come up with at least 25k.
(2) Skills and strengths. You need ability to develop your own systems or a strong intuition for markets.
(3) A fluid and realistic plan that makes best use of your strengths aligned with realities of markets.
(4) Strategy. This is the meta-strategy. How will you find opportunity when markets change? Will you specialize in only a couple futures markets or trade many?
(5) Tactics. This is the day to day strategy. How will you execute on that? Will you use trading systems? Discretionary/intuition trading? Systems?
(6) Training/simulation/etc.
(7) Risk control
(8) Process for growth/development.

Last edited by tpredictor; March 23rd, 2018 at 08:58 PM.
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