The trading world is littered with the accounts of traders who have gone before. I think it’s pretty self-evident that trading is really hard, and that most people who attempt it, don’t manage to survive for long. But what’s the actual statistic around failure as a trader? It’s usually said to be somewhere around 95% to 99%, but is that true?

First of all, we can’t even know what we’re talking about if we don’t define failure. Or for that matter, define success, too! It’s not enough to just say that “failure” is not getting rich. In fact that’s really the first big problem with exploring the idea behind this statistic in the first place.

What does it mean to fail as a trader? Do all 99% of those that supposedly fail, have the same expectation of themselves? I think we can safely say no, to that. People’s reasons for trading are as varied as the people themselves. Some just want what they think will be easy money. Some want fame, or recognition by their peers. Some want to get out of a deep financial hole they’ve found themselves in. Some just want the excitement of gambling in the biggest casino on Earth!

So unless we compare those who have the same expectations from trading, we can’t reasonably say that any specific percentage of people, will fail. But even that’s not enough. We have to look at the actual motivation, determination, and pure dedication to the craft of trading as well.

Does everyone who wants to trade, have the same level of commitment to acquiring the skills needed? I can say without hesitation – absolutely not. Most will “fail” due to this if anything, in my experience. They won’t be willing to put in the hard work it takes to not only acquire knowledge, but experience earned only through hours, and days, and months and years, of actually trading. This is an experiential thing. You can read about and study it all you want, but you will never actually learn how to trade without trading, and making mistakes.

OK so if we were able to take that 99% of people and filter them out to only those who have the same expectation from trading and the same level of commitment and dedication, could we then figure out what % are likely to fail? Nope! Because we also still have to define success.

What does success look like? You might think “Oh that’s easy, it’s whatever isn’t failure!” but in trading, it’s not so clear cut. Losses are a part of doing business in this world, so you can’t judge failure by the usual and obvious metric of “loss”. If someone puts $5k in an account to test an idea and work out an edge with it, and they ultimately burn through the whole $5k but at the end of it, are most of the way towards refining and proving that edge… did they fail? If someone gets caught in a “black swan” event they never could have seen coming and suffers an extreme loss, but comes back from that with an even stronger process than they had before… did they fail? You see what I mean.

Success is going to be highly individualized. To some it would mean reaching a particular financial target, like earning $1million or buying their dream house or something like that. To someone else it could mean sustaining their lifestyle. To someone else it could mean paying to help a loved one out of a bad situation, and the list could go on pretty much forever. There is no single benchmark for success any more than there is for failure!

So with all that said… I think the only reasonable way to ascribe a specific number to failure in an endeavor like trading, is to quantify the exact type of person we’re talking about, what exactly constitutes failure, and what exactly would constitute success. Say we decide that we’re going to include in our sample all those who have the appropriate mental attitude and expectations for how long it’s going to take, have the willingness to do the work required and stick with that work even when it gets really difficult, and who refuse to accept the various “common wisdom” about risk and finances. And we then add to it a definition of failure as being unwilling or unable to continue to do all that I just listed as the personal traits of our sample set. And finally we define success as meeting one’s near-term financial objectives in a measured and sustainable way that can grow over time as the trader grows.

If I do all that and apply it to the circle I currently travel in (namely, the TRG Community), I would have to say that the odds of success are a whole lot better than 1%. So the next time you hear or read about how “95% of traders will fail” or whatever number gets assigned to it, I hope you can confidently recognize that you’re in a completely different sample.

Until next time, good trading!

Jonathan van Clute
Community Manager, Trading Research Group