Why, seriously, do most traders lose?

[JuneAdkins 0]

 

I get that most traders do not stick to a particular strategy consistently. Or manage risk correctly. And that brokers take money through swaps, commissions, and other fees so that even if each trade was 50/50 they’d lose in the long run. But none of this seems to explain my results through three years of trying to find a profitable edge.

It seems no matter which strategy I pick, with risk managed correctly, I lose far more trades than I win. To the degree that my net returns are negative even with my fewer wins being greater. The loss/win ratio is significant. In love trading in backtesting.

 

[falkor 256]

Hi June,

It really depends on the strategy you pick. The Kelly Criterion provides a nice framework for thinking about things - in this model your edge is a combination of win rate (the ratio of winning to losing trades) and risk/reward ratio (the ratio of how much you win for every winning trade, vs how much you lose for every losing trade). The product of both of these had better be more than 1, or you will not have a profitable strategy. Said another way, if you don't have that many winning trades, then those trades you win had better knock it out of the ballpark. It is certainly possible to build such a "tail risk" strategy, eg relying on convexity from being positive gamma / long options. On the other hand, you could also build a high win rate strategy, earning from small wins most of the time.

Without knowing the specifics of the strategies you've tried though, it's hard to be more specific.

Hope these vague generalities help!

[Kim 8,065]

90% if success of failure in trading/investing is related to psychology, human emotions and discipline. 

Even investors who simply buy an index fund or a mutual fund will have very different results, depending on how they do it.

 

Here are some articles that might help:

 

• Probability Vs. Certainty Trap
• Are You EMOTIONALLY Ready To Lose?
• Are You Ready For The Learning Curve?
• Why Retail Investors Lose Money In The Stock Market
• Why Simple Isn’t Easy
• Thinking In Terms Of Decades
• Can you double your account every six months?
• Is Timeframe Your Biggest Mistake?
• Are You Following "Tharp Think" Rules?
• Top 10 Mistakes New Option Traders Make
• Price Of Options Trading Education
• How To Become A More Profitable Trader
• 5 Stages Traders Go Through
• 10 Fatal Mistakes Traders Make
• Learning To Win By Learning To Lose
• How To Avoid Emotional Mistakes In Trading
• 10,000 Hours Of Trading
• Bitcoin: The Greater Fool Theory?
• Investor Discipline Is The Key To Success
• Buy High, Sell Low: Why Investors Fail
• How To Control Losses And Protect Profits
• 10 Tips: Trade Options Like A Pro And Keep Your Day Job

 

[allinadayswork 67]

1 hour ago, Kim said:

90% if success of failure in trading/investing is related to psychology, human emotions and discipline. 

Even investors who simply buy an index fund or a mutual fund will have very different results, depending on how they do it.

 

Here are some articles that might help:

 

• Probability Vs. Certainty Trap
• Are You EMOTIONALLY Ready To Lose?
• Are You Ready For The Learning Curve?
• Why Retail Investors Lose Money In The Stock Market
• Why Simple Isn’t Easy
• Thinking In Terms Of Decades
• Can you double your account every six months?
• Is Timeframe Your Biggest Mistake?
• Are You Following "Tharp Think" Rules?
• Top 10 Mistakes New Option Traders Make
• Price Of Options Trading Education
• How To Become A More Profitable Trader
• 5 Stages Traders Go Through
• 10 Fatal Mistakes Traders Make
• Learning To Win By Learning To Lose
• How To Avoid Emotional Mistakes In Trading
• 10,000 Hours Of Trading
• Bitcoin: The Greater Fool Theory?
• Investor Discipline Is The Key To Success
• Buy High, Sell Low: Why Investors Fail
• How To Control Losses And Protect Profits
• 10 Tips: Trade Options Like A Pro And Keep Your Day Job

 

no one is destined to succeed or fail at trading.

you may have a winning strategy but it doesnt suit your personal  emotional makeup. you will be miserable, like having a 9 to 5.

if you like fast-moving-action trading, you arent suitable for slower strats, no matter how profitable.

you will always want more action. and vice versa. you can use the slower strat as a secondary style. i do.

find a profitable  strategy that matches your psychology and emotional makeup, and the rest is simple; just follow the strat.

[Kim 8,065]

59 minutes ago, allinadayswork said:

no one is destined to succeed or fail at trading.

you may have a winning strategy but it doesnt suit your personal  emotional makeup. you will be miserable, like having a 9 to 5.

if you like fast-moving-action trading, you arent suitable for slower strats, no matter how profitable.

you will always want more action. and vice versa. you can use the slower strat as a secondary style. i do.

find a profitable  strategy that matches your psychology and emotional makeup, and the rest is simple; just follow the strat.

And this is exactly the key - Why Simple Isn’t Easy

[ItsNoahTime 16]

Non-directional, volatility-based trades will not drive you crazy.  In retrospect on my trading journey, I should have just done what I knew would bring profit from square one as opposed to chasing larger gains.  Then just watch the markets until you fully grasp how they move and wait for opportunities.  

If you can't afford to lose, don't trade it.  More conservative trading is better, and take profits when you can.  There's so much noise out there with trading that if you find something that works, stick with it because often those are few and far between.      

I have some 59-day SPY spreads right now and am using SteadyOptions trades as a hedge.  I will tell you that it is downright uncomfortable holding through this volatility and uncertainty.  It will make you just not want to trade independently.  

I'm just barely profitable at this point, but much more competent than most, well educated, and exceptionally aware of macroeconomic conditions... most of my losses are attributable to not watching the market for long enough and following bad alerts.  Just follow SteadyOptions from square one is the best advice I have for you, and then continue learning from there.  

[Optrader 148]

Hi June

I see you joined yesterday.

You have plenty of posts to learn. There is wealth of knowledge here.

Three years is not enough to be profitable trader.

It takes 10+ years to be a really profitable trader in most market conditions.

Take your time and be prepared for long haul.

I have been through 3-4 liquidation events in my career and still trading and going strong even in todays challenging times.

You need passion . With passion and perseverance and guidance and hope and discipline and hard work and courage and tiny amount of luck , you can join the elite club of consistently profitable traders who depend on trading for their day to day living.

[allinadayswork 67]

9 hours ago, Kim said:

And this is exactly the key - Why Simple Isn’t Easy

couldnt agree more, simple is the most difficult of all

[Sunshine25 64]

On 4/21/2025 at 10:54 AM, JuneAdkins said:

 

I get that most traders do not stick to a particular strategy consistently. Or manage risk correctly. And that brokers take money through swaps, commissions, and other fees so that even if each trade was 50/50 they’d lose in the long run. But none of this seems to explain my results through three years of trying to find a profitable edge.

It seems no matter which strategy I pick, with risk managed correctly, I lose far more trades than I win. To the degree that my net returns are negative even with my fewer wins being greater. The loss/win ratio is significant. In love trading in backtesting.

 

I would advocate this board as a winning strategy. 

I have traded various strategies for quite some time.  Here is my humble thoughts to being profitable...

Your win/loss ratio has to be obviously greater than 50%.  I would arbitrarily say 2/3 winning minimum.   

The system you trade must be very transparent about the average and MAX loss.  I have seen systems advertised (and tried) the have 85% win ratios.  The 15% of the trades that loose can wipe out your gains.  

I haven't always won.  I have become more conservative over the years. 

This board has an excellent amount of historical data, which is broken down very well into trade type.  The posters are excellent in terms of posting trades.  

Just my 2 cents.

 

 

[InvestTrader 42]

 

For me, finding the appropriate trade size was one of the things that had the most impact on my trading. 
When the trades are too large for our account or for our ability to handle a loss, the probability of panicking and making wrong decisions is enormous. 
For me, it is comforting to enter a trade and calmly face the worst possible scenario as something I can take or accept. 
This gives me the necessary tranquility to make rational and calm decisions regarding trade management.
It’s often the difference between winning or losing 

 

[Ringandpinion 1,704]

In addition to @InvestTrader, something else that dovetails into position size.  Don't "day trade" your positions, and if you are, then ask the nice nurse for another shot and go back to your computer.  Seriously, what I mean is, if I have a position open that is getting beat up, I try not to focus on the chart constantly, watching it's every move, this very often leads to me closing or altering the position, in other words, over trading.  Sure, there are times I must focus on as specific trade/ticker, but I don't have the temperament to watch the screen, filled with angst like a day trader, finger hovering over the send button.  And yet, I still often do it, so I have to constantly control that tendency.  I think that one thing has cost me more money than any other.

[Kim 8,065]

If I had to select one thing that causes most traders to fail, it would be wrong expectations.

I know I sound like a broken record, but consider this: when someone wants to become and engineer or an accountant, do they expect to achieve this in a few months? No, they fully expect spending at least 4 years and tends of thousands of dollars in University (not to mention becoming a doctor or a lawyer). And yet, many people read all the hype and expect becoming experts after a few months.

 

When I just started SO, I got an email from one of my Seeking Alpha readers. He told me that he is a big fan of my articles and asked how he can learn more. He wanted to make it his new career. He asked me if I can recommend any books or internet sites to learn/practice the options strategies. Then he said that he is new to trading options, he set aside a small amount of money in hopes of doubling it at least yearly. Don't you find it amazing? The guy admits he is new to options, but wants to double the account "at least yearly".

My reply was:

 

"There is a lot of hype surrounding options trading. Some "gurus" out there will make you to believe that doubling your account every 6-12 months is an easy task. If it was, we all would be millionaires by now. My advice to you: if you just start options trading, preserving your capital during your first year of trading would be a great achievement"

 

I didn't hear from him since then. He probably went to one of those charlatans who promise to double your account in one month and charge you few thousand dollars for a week of “one on one consulting”. Many people will tell you what you want to hear to get your hard earned money.

 

Here is another email from one of our former members:

 

"I'm new to options trading. I'm retired and am hoping to make $1.25 million per year by trading"

 

This member cancelled after just 2 weeks. Why I'm not surprised? And honestly, I would be very interested to know the psychology behind people thinking they can have no experience with something, probably not even know how to place an order, and start making money with options right away. A 7 figure income in this case. But maybe it's the same psychology that makes people to believe that they can lose 50 pounds in 2 months without any effort..

 

[allinadayswork 67]

3 hours ago, Kim said:

 

"I'm new to options trading. I'm retired and am hoping to make $1.25 million per year by trading"

 

think my response would have been, "i know a guaranteed way to have an account balance of 1.25 million your first year of trading.. start with 2.5 million and quit when you reach 1.25. many have done it, so can you." HA!