Do 80 Percent of Traders Really Lose Money?
Apr 18, 2021
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Have you ever heard the claim that 80 percent of online traders lose money? It's a scary thought until you begin to examine it more closely and unpack the intricacies behind it. What do those 20 percents do that makes them successful, and what do the 80 percent do that makes them the opposite? Do the two groups lose and gain equal amounts of money? Do they have different backgrounds, spend varying amounts of time learning the essential skills? The point is that there are lots of key pieces of information left out of the blanket statement about four-fifths doing poorly and one-fifth doing well. It's easy to mislead with statistics. For example, are you aware that approximately 99 percent of all people who take violin lessons fail to learn how to play the instrument?A Better Example
Are violin lessons worthless? Are music teachers not doing their jobs? Are the students lacking in basic intelligence? Of course, it's a big "No" to all three of those questions. But the situation is similar to the trading query. The reason is that both violin playing and online trading have very high drop-out rates. People start out with skewed assumptions about how quickly they'll get rich or become a famous musician and then say goodbye after a few weeks. Those who stick around and keep at it, soon gain the required experience to excel. If you want to be a success as an online trader/investor, and have realistic expectations about the training, perseverance, and patience it takes to eventually turn a profit, it's important to know the basics before you begin your life as an active trader.
For instance, it's helpful to know that you'll need to do at least several hours of study as a first step. Additionally, not all markets present the same level of difficulty. Many newcomers find that CFD trading is an ideal way to get involved and learn the ropes. CFDs are contracts for difference, and they represent a simple, low-cost way for beginners to not only take part in all the major markets but to earn a profit at the same time. Here's a short roundup of the key areas of knowledge, experience, and skills it takes to stick it out and be in that 20 percent who end up being successful.
Knowledge
What are the securities markets, and how do they work? You might already know some of the core pieces of knowledge required to become a successful trader/investor. One of the most important things to do early in your career is to study price charts and see how various factors outside the market play a role in moving prices up and down. For example, it's often helpful to look at a five-year chart of some of the largest corporations' share prices. Identify the high and low points and compare them to what was happening in the general economy at the time. Events like recessions, wars, pandemics, oil shortages, political crises, and others can have a major impact on what happens with securities prices.
Experience
Expect to spend at least a couple of weeks learning how to place orders, spot good opportunities, and exit successful trades. Whether you end up specializing in CFDs, corporate stock shares, options, futures, or EFTs (exchange-traded funds), you'll need to have the hours on the clock, doing real trades or working on a simulator. Most platforms offer you the chance to practice with a fictitious account, using fake money of course, just so you can get the hang of buying, selling, setting stops, and knowing when to get out of a very good or very bad position. The sims are sort of like the flight simulators pilots use to become acquainted with all the controls and get a feel for what it's like to fly a real jet. The big difference is that there's no danger involved. You can't lose money while trading on a simulator.
Skills
Some of the skills you'll need to acquire include knowing how to use technical indicators. There are dozens of them available, but one of the most essential of all is the moving average. It takes practice to master the skill of reading moving average charts, but the effort pays off. For example, is a security's 50-day moving average price is relatively stable, say at $50, then any breakout above or below that line can mean the shares are ready to make a fast move in the direction of the break. This is just one of the many skills you'll add to your arsenal with regular study and practice.
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