Is Independent Trading Success Possible? (Part 2)
Posted by Mark on May 14, 2013 at 04:33 | Last modified: July 25, 2013 12:27This 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.
Comments (2)
[…] returns over a lengthy period of time to establish consistent profitability. As discussed in my last post, I would also need to see them from a large number of […]
[…] oft-quoted statistic suggests 80-90% of all traders lose money. I have talked with a lot of traders over the years and only a couple have claimed to be trading […]