I can’t put links in the heading to a post, so here is the heading, with link:
Now thats out of the way, on with the post.
I often read and hear that 90% of traders don’t make money trading. (Which is a bit of a glass “90% empty” viewpoint, I prefer to think of 10% of traders making money). I rarely see any figures to back up these statements.
Article from the always worth a read Barry Ritholtz (one day I’m going to spell his surname correctly without having to check and recheck):
How Hard is it to Become the Michael Jordan of Trading?
The article is incredibly useful. But I wonder if it is exploring the right question(s), making the right analogy? Ritholtz (how’d I do? … yep, did it) compares trading to becoming a professional athlete, noting the odds. I wont go into the stats here, read the (really interesting) article for the full picture, but suffice to say becoming a professional athlete is very, very unlikely:
A mere 0.03% of high school basketball players eventually get drafted by an NBA team.
Ritholtz does, though, say this:
Are the odds identical? Not precisely — there are many more people scratching out a decent living as semi-pro traders than there are semi-pro ball players earning enough to feed their families. And if you find you have a specific talent for it, and are willing to put in the long hours of work required, trading can be incredibly rewarding.
So, its not as hard as becoming a professional athlete.
Another article, this time from the excellent Dynamic Hedge blog (if this blog is not on your required reading list … why not?).
FROM THE ARCHIVES: This Would Be Hilarious If It Wasn’t So Sad — Forex Edition
In it, there is a table from a Forex broker, and again I’m not going to discuss the whole thing (read the article etc. – indeed there are questions raised by the table that I would like answers to before making definitive pronouncements), but, on the face of it it shows that about 30% of retail forex accounts are profitable. Lots of room for discussion here, but on first glance, these numbers don’t support the notion that only 10% of traders are profitable.
If you are the sort of person who eats averages for breakfast, the numbers are not relevant anyway. To reiterate Ritholtz:
And if you find you have a specific talent for it, and are willing to put in the long hours of work required, trading can be incredibly rewarding.
And, to finish, a word from a successful participant in another highly competitive, long-tailed world, popular music. This is John Mayer:
“Anybody who’s made it will tell you, you can make it. Anyone who hasn’t made it will tell you, you can’t”
John Mayer 2011 Clinic – “Manage the Temptation to Publish Yourself”. If you read and re-read nothing else today, and again and again, read this article.