This article on futures trading success rates is the opinion of Optimus Futures.
The odds are hopelessly not in your favor, taken at face value
Statistics may not provide anecdotal evidence, but consistency over time makes it clear.
90% of all day traders lose money!
There are many variations in this figure as there are also many sources.
For example, Forbes states that 10% of day traders actually make money. Most of us already know this. tradecity Provides clearer and more time-specific futures trading statistics – that is, 40% of all futures day traders quit within 4 months, 80% quit within a year, and only 7% in 5 years or more able to last for a long time.
Keep in mind that of the more than 20% that last more than a year, not all of them are profitable, just persistent.
The illusion of 10% stat points for economic mobility
Of course, no day trader wants to be a “casualty”. Nobody wants to be among 90% of the people who fail. But have you ever thought about this rumored figure and what it could mean?
10% is a “fixed” category. Categories are fixed, but people are mobile.
This points to a common misconception in economics.
In the wealthiest 20% of society, those in the upper echelons change over time. A family that was once poor becomes rich. Some families that are considered wealthy may, over time, find themselves in the less-wealthy categories; Some have become poor.
This is called “economic mobility”.
So, before we discuss how to prevent ourselves from becoming a casualty stat, let’s first talk about this concept of statistics and mobility itself. Don’t be fooled by fixed statistical categories. There is a lot more dynamics in the markets (and in life) than you think.
Question Day Trading Stats
How long Do people fall into the top 10% category?
Are we talking weeks, months or years? If you are able to make money for two months straight – that is, not lose money to the extent of being forced out of the game, you capture that 10%. Maybe you end up with a winning year. Maybe you’ve had a few wins and a few losing years, but overall, you turned out to be a winner.
Read that last sentence again. This is an important sentence.
You will experience a period of loss. it is inevitable. The difference is that those who become winners are able to continue trading. And to continue trading, you need 1) a well-suited trading system; and 2) the ability to trade below your means.
Let’s do some thought experiments spread over a 10-year period.
Would you consider yourself a successful trader if…
- You lost or broke for eight consecutive years but made a good fortune on your losses in the last two years?
- You made a fortune for nine straight years but lost more than what you gained in the previous year (say, due to over leverage from naked short options positions)?
- You made and lost money every other year for only a good amount of profit – a small fortune once you’ve deducted your losses and trading costs?
- Or, are you thinking of a scenario in which every year, you earn more and more while accumulating huge compound returns like a successful hedge fund?
Let’s tackle each scenario one by one.
If you consider A) to be a favorable scenario, what accounts for the first eight years when you were losing fists? If you have captured the top 10%, it will have to do with time. Either you came out on top with your luck or you developed the skills to become more profitable.
How you did it: You traded well below your means (enough to continue) and eventually found a way to multiply your positive payouts over your negative payouts.
If you chose B), you were among the top 10% who only ended up losing it all. futures trading system can work for a long time. But if every other trader realizes this, the system may not perform as well as if you were one of the few who took advantage of the opportunities it presented.
How you did it: You found a system that worked and you traded it consistently. Unfortunately, when it stopped working, you didn’t adapt to the markets and lost everything (think Richard Dennis of the famous Turtle Traders).
If c) there’s a favorable “winning” scenario, you’ve done well for yourself, more or less. But you didn’t get the kind of winning that most traders dream of. Still, there are some caveats to consider:
- WARNING 1: This depends on the size of your account. If you made 15% of your initial capital of $25,000 in ten years, you would have made only $3,750. have gained Don’t count capital tax-loss harvesting that would have earned you a profit during your losing years. But if your starting capital was $2 million, a 15% return of $300,000—not bad, that averages out to about $30K a year. But that’s a lot of effort for 15%
- Caveat 2: The money lost and won could have been better spent elsewhere for a cumulative 15% gain, and you probably did, such as investing in long-term assets, buying real estate, starting a small business, or investing , etc. If you did, you could call yourself a successful speculator, not just a good day trader.
How did you do it: with examples [A]You traded consistently and below your means. Because rewards and losses come more often, you were able to stick to your system and stomp on losses.. Beyond day trading, you have successfully diversified your investments, or rather, your “other trades”.
If d) is your ideal scenario, then we have news for you. If you want to trade like a hedge fund, understand that day trading may be only a fraction of what they do, if at all. Hedge funds take a lot of capital to trade, many strategies and approaches across a vast range of financial instruments and asset classes, and many traders to execute each strategy.
How You Can (Not) Do It: Try System Diversification, Instrument and Market Diversification, Asset Class Diversification, and Strategy Diversification. And you need a lot of capital, loads of research, state-of-the-art technology and a substantial workforce to fulfill all those dreams. In short, don’t try to become a hedge fund if you are a sole trader.
How not to fail as a day trader
According to a recent Arbor Research & Trading report on Google Search, the keyword “day trading” is on the rise. Unlike what we saw online in the late 1990s, day trading activity is on the rise retail business hit the scene.
to be honest with you, if you want to grow as a successful trader In general, you can consider the following:
1 – As Warren Buffett famously said, the number one rule is “don’t lose money”, which means money that cannot be recovered and capitalized.
The last part of that sentence is important. Money lost or spent is no longer “capital”. Capital is money that makes money. If you are consistently losing money, try to determine if the source of that loss is an expected part of your trading approach or if it is beyond your outlook’s loss expectations.
2 – Look beyond the “day” when it comes to trading.
Many successful day traders do more than just day trade. They look at longer time frames. They look at the actual “investment”. And most importantly, they hedge their day trading activity by looking at different markets and opportunities beyond equities and futures (real estate, personal loans, small business, arts, etc.).
3 – Trade below your means.
Because of your counterparty, your clearing firm, or your broker can often be the death knell for your trading career. This is when you go into a debit position in excess of your capital. just do not. Trade below your required capital. That way, you can survive to trade another day.
4 – Look beyond “technical”.
A bullish technical breakout in Nasdaq Futures (NQ) could present a strong case for a long trade, but it may not bode well if the upcoming CPI report shows higher-than-expected inflation, or yields on 10% spikes. or if technical earnings fail to meet consensus expectations.
You can trade a good portion of intraday noise as a day trader, but if you don’t pay attention to them the fundamental reports end up t-boning your trading. So, stay safe, and look ahead – technically and fundamentally.
5 – Stay tight in the markets – Know when to stay still and when to change course.
Paradoxically, markets can change and remain the same simultaneously. Knowing when to stay steady – such as sticking to your system – and when to completely change course, is a nuanced skill that cannot be easily taught. It takes experience. Therefore, Rule #3 mentioned above is the key to this effort.
Not every proven approach will do. Take Warren Buffett – an investor and certainly not a day trader by any means. Their proven system includes “never betting against America”, which means its strongest business. Will that approach still work? It certainly has been for decades.
But given the changes in the post-COVID monetary environment, with China issuing the first central bank digital currency, among other factors threatening the US dollar’s reserve currency status, is it still to “bet the US” Or is it now time for the “global bet”?
The myth of the top 10% as a futures trading success rate is partly true and partly misleading. There is considerable economic dynamics in the markets. All you have to do is determine what you are trying to achieve relative to your preferred time frame and your available means.
The most important thing, if you take anything away from this piece, is this: blow all your money so that you can turn that money into “capital” as quickly or steadily as possible, regardless of the day. Be it through business or day. Trading plus other “smart” activities in the markets.
Disclaimer: There is a significant risk of loss in futures trading. Past performance is not indicative of future results.
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