subterfuge 

I have no ego in this regard, so happy to admit it. I also know (from private convos with traders on another trading forum) that there's many more of us than people think! (very long term losers despite their best efforts)

One really has to wonder how a hobby that has such a high failure rate can still attract so many willing participants. To sort this out I tried making a survey to which about 75 traders responded. In that survey 50% of them claimed they were profitable. What's more is that 30 of them claimed profits after trading for 5 years. Which simply does not match up with the data we get from brokers and other empirical data.

I think it comes down to three things.

1) Traders don't really know what good performance looks like.
2) Traders lie about their performance.
3) We only focus on the top performers.

Which is why I was bringing up 5 year sharpe ratio earlier. It's so common for someone to make money for a summer, and think they've made it as a profitable trader. Then when they blow the account they don't say anything. Not that anyone pays attention if they do post about it.

When you start asking for 5 year sharpe ratios like you do for a hedge fund then all the sudden it's a different world. Then you realize hardly anyone is truly being successful with it even at the professional level.

We also know why it's so hard. Markets are very inelastic meaning that supply and demand don't really change when price changes. New orders have a significant effect on prices in this scenario. This makes it easy to arbitrage out statistical inefficiencies, but it also means big orders with no informational content behind them move markets away from fundamental value. In other words: markets are very statistically efficient, but not very informationally efficient. It's really the opposite of what most people are operating from, and hence why our initial intuitions about markets always fail. I wish there was an answer to profitability in all of that, but really what it suggests is that it's just an inherently hard thing to accomplish.

In order to come up with solutions you have to understand what the problem is in the first place. That's why its so important to understand that there are systemic reasons why the majority of traders fail. So that you know what you're even trying to overcome. No amounts of intelligence or dedication helps if we don't understand the problem, and thus look for edge in the wrong places.

TWDsje 

One really has to wonder how a hobby that has such a high failure rate can still attract so many willing participants.

It must have something to do with human nature because as inefficient as it is, there is no shortage of individuals traveling at great expense to Las Vegas to throw away their money. At least I can stay home and do it in my bath robe. It's my contribution to reduce my carbon footprint for the planet.

TWDsje 

Which is why I was bringing up 5 year sharpe ratio earlier. It's so common for someone to make money for a summer, and think they've made it as a profitable trader. Then when they blow the account they don't say anything. Not that anyone pays attention if they do post about it. When you start asking for 5 year sharpe ratios like you do for a hedge fund then all the sudden it's a different world. Then you realize hardly anyone is truly being successful with it even at the professional level.

Okay, I've got to ask. You're a trading educator and indicator seller. What's your five year sharpe ratio, your definition of a successful trader, when using your methodology and tools?

TWDsje 

One really has to wonder how a hobby that has such a high failure rate can still attract so many willing participants. To sort this out I tried making a survey to which about 75 traders responded. In that survey 50% of them claimed they were profitable. What's more is that 30 of them claimed profits after trading for 5 years. Which simply does not match up with the data we get from brokers and other empirical data. ... Which is why I was bringing up 5 year sharpe ratio earlier. It's so common for someone to make money for a summer, and think they've made it as a profitable trader. Then when they blow the account they don't say anything. Not that anyone pays attention if they do post about it. When you start asking for 5 year sharpe ratios like you do for a hedge fund then all the sudden it's a different world. Then you realize hardly anyone is truly being successful with it even at the professional level.

This is an extremely strong post, worth serious thought.

I am not someone who thinks it is impossible to succeed in markets, but everyone should be aware that it is damn hard, and that anyone's impressions to the contrary simply are not correct.

We do concentrate on the few who succeed, believing that we will be among them. We also see a potential and let ourselves dream about it. This is why some people (initially, probably most people, actually) will believe that huge profits are available to them with minimal time and effort. It looks so easy! How could I not succeed? You need to get knocked down a few times to know that this is not the reality.

Then the work starts.

It comes down to, everyone in the market wants to eat your lunch, and you want to eat theirs. You do not have good odds there.

Hence, the title question of this thread, which I still think is a very good one. Yes, some do it. No, it is not easy.

Bob.

People's brains are just not wired for this. It takes a lot of knowledge, experience and a strong will to do what is necessary but feels very uncomfortable (and extremely hard to do).

I am surprised (or maybe not) no one mentioned the Prospect theory, a theory of behavioral economics and behavioral finance.

Edit: Prospect theory

Mich62 

People's brains are just not wired for this. It takes a lot of knowledge, experience and a strong will to do what is necessary but feels very uncomfortable (and hard to do). I am surprised (or maybe not) no one mentioned the Prospect theory, a theory of behavioral economics and behavioral finance.

Thanks for this reference. I didn't mention it because I didn't know anything about it.

The Wikipedia article you reference is pretty dense, and I may need to go back to it to try to figure it out.

But in keeping with my normal preference of skimming hard things to see if I can get something from them ( ), I did like this:

"Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people."

Without getting into it too far, I am struck by the idea that people are not necessarily simply "perfectly rational agents."

I don't think that they (we) are, generally speaking, and that does explain a few things.

Bob.

matthew28 

Okay, I've got to ask. You're a trading educator and indicator seller. What's your five year sharpe ratio, your definition of a successful trader, when using your methodology and tools?

Oh it's not even close. I don't take much risk on the futures, but I tend to lose overall with day trades. I've done pretty ok with micro treasuries, but it's still largely break even before the data fees. My longer term stock portfolio has a sharpe of .3 over the past year. I have some backtested strategies based on order flow that get sharpe ratios around .6, but I only have two years of data and tick replay data is questionable. I'm still unhappy with their performance, and I'm hoping machine learning helps there.

I originally started my channel for a video journal contest here on f.io where hardly anyone else entered. I kept going because there was so much interest. I have never made any performance claims, and I don't think I ever will. I only teach things that I believe are empirically backed, and I believe that's a better approach than trust a guru who may or may not be lying / lucky.

But it does put me in a unique position to discuss this particular issue because I end up interacting with so many people. I'm all about being accessible for questions, and that gives me a lot of visibility into how people perform. That includes working with some of my regulars who have shown me impressive results. I've never seen 5 years, but there are definitely some traders in my chat that are more successful at this than myself. But it also includes countless scores of failed traders.

Which is why I always try to inform people of the reality they're up against first. The most common thing I'll see is overly excited young hotshots that simply don't understand the nature of the challenge, and burn out quickly as a result. I might have some advanced knowledge that will save you 5 years of learning it on your own, but the nature of the game is such that nothing I can teach will will take you over the finish line on its own. The longer you can last the more chance you have of making something work. You still have to find edge, and that generally tends to be more than just something anyone can learn from a YouTube video.

@TWDsje
Thanks for your comprehensive answer. I was just curious as you have been around for awhile (the question wasn't meant as critically).
Access to a trading community must be very informative, especially when it is your own community and the majority of people who come to it are presumably going to have a similar trading style/methodology/outlook to yourself.

matthew28 

@TWDsje Thanks for your comprehensive answer. I was just curious as you have been around for awhile (the question wasn't meant as critically). Access to a trading community must be very informative, especially when it is your own community and the majority of people who come to it are presumably going to have a similar trading style/methodology/outlook to yourself.

I really find the types of strategies I come across to be all over the place. You'd think that most of the traders that come into my room would be mostly order flow, but it seems to match the larger trading community. Price action support and resistance is particularly popular these days. So like half the stream is usually me arguing about that.

Well, I will put it to everyone like this and this will sum it ALL up .

My daughter (16 yrs old) comes in the room a few months ago and says "Daddy, you always looking at these charts and trading, can you teach me how to get rich and make some money trading".

I said "No, I can not".

She says "Why not Daddy, help me, I want to make money".

I said "Daughter, I refuse to help you make money trading, because I do NOT know how to make money trading, and I do not make money trading".

I seriously wish people stop BS and making this subject so hard.

Traders struggle to make money trading because there are no teachers to teach and show/prove to traders how to make money trading.