Is Independent Trading Success Possible? (Part 2)

This series of posts asks whether independent trader success even exists.  I concluded last time with mention of hundreds to thousands as a requisite sample size and today I will discuss why so many.

I begin with the notorious claim that 80-90% of all new traders fail within the first 1-3 years.  Due to concerns over sampling methodology, I question the veracity of this claim just like I question the existence of independent trader success.  For current purposes, I will conservatively assume that 80% of all new traders fail within the first three years.  A sample of 100 may therefore generate 20 successful traders.

To not fail during the first three years is a far cry from achieving consistent profits over time, though.  The latter may hint at a decade or two of activity.  Out of the 20 successful traders found, how many of them have been trading for a decade or two?  I would guess not many, which would significantly increase the requisite sample size.

Furthermore, I believe years of trading experience are required before consistent profitability is really possible.  Losses, after all, are the trader’s best teacher:  especially the bigger ones.  Perhaps I need to find people who have traded 15-25 years rather than 10-20.

Can you see how each step of increased selectivity requires a larger sample size to find a reasonable number of hits?

Another issue to address is why just a handful of successful traders does not necessarily establish the existence of independent trading success.  I want to know from a statistical perspective to avoid the possibility of fluke.  Is it one out of 10 who is successful or one out of 100,000?  The latter would be 0.001%, which is much more likely to be fluke.  Another complication?  If it is only one out of 100,000 then my chances of even finding them are much less likely.

I will continue in the next post.