Trade for a Living

​Trade for a Living

​Can you trade for a living? You know there's a lot of false statics out there. Some people say that only 10% of traders make a profit; some say it's more like one to two percent. So, what's the reality? Well here's the actual numbers from actual audited reports from the Brokers.

It showed that 35% of retail traders made a profit in quarter four, whereas 65% of retail traders, lost money in quarter four.

That's a lot better than the 10% and certainly better than the 1% - 2% numbers we mentioned earlier. It's still the minority, it's not a great number, 35% versus 65% but it's a lot bigger than just that basic 10%. So, what we want to do is we want to talk about what it's going to take to move from that 65% over to that 35%.

You want to be in the top 35%, so you're consistently making money in the market. First, to dig into this statistic. I think the question has to be asked, is this number that bad? I'm going to present some very interesting evidence to you over the next few slides that maybe will shift your perspective just a little bit.

​Basic Market Odds

​First of all, understand that 35% and 65% is basic market odds. I don't think it's a problem to say that most retail traders are trading at basic market odds. There are three directions a stock price can go. A stock can go up, it can go down, and of course, it can go sideways.

Now out of these three directions, what are the odds, if you go out and buy a stock that it's going to go up? Or if you go out and short a stock, what are the odds that the trade is going to go down? In both cases, the odds are 33%, so that means you have a 33% chance of success. What that's telling us, is that by a margin of 2%, average retail traders are beating basic market odds.

Now we want to move that number higher. Before we get all upset and say, "my goodness everyone is losing money," let's remember that retail traders are trading at basic market odds. If we keep that premise in mind, we can build a trading plan around that and a risk management plan. Both of those are going to be your key to staying in the game and consistently performing.

You might be wondering if this 35% also applies to professional traders, so let's take a look at the statics of professional traders.

​Professional Traders

​60% of large-cap managers missed their benchmarks. 58% of mid-cap managers missed their benchmarks, and 73% of small-cap managers missed their benchmarks. So, it's pretty close to being in line with what retail traders are seeing, in terms of success.

The average between the three, large-cap, mid-cap, and small-cap managers is 36%. As you know is right in line with the 35% success rate for retail traders.

You may look at this and think well I can go out and do just as good as the professional traders and in some cases may be better. What you have to understand about the average retail trader is, operating under that mentality usually causes the retail traders to blow out their trading account and then they're out of the game, while professional traders stay in year after year.

So, what is it that makes a trader the best of the best, puts them in that top 35%? What does it take?

​​Top 35%, The Best of The Best

Here are the basics of what it takes and in the rest of the series, we'll go into more detail on each of these.

  • You have to have the ability to do great analysis, every great trader can do great analysis, and they use that analysis to determine the directions of a trade.
  • You have to have the ability to determine the direction of the trade, then based on that determination, you have to pick the right strategy.
  • You have to have the ability to pick the right strategy, it's ok to buy stock long or buy a call option, but you have to do it at the right time.
  • You have to understand risk management; this is how some of those professional traders can stay in the game year after year. Without exception, risk management is the key!!
  • Finally, you have to have extreme discipline, really great traders have a trading plan and have the extreme discipline to follow that plan.

If you will adopt these key components, then you can get into that top 35% of successful retail traders. Even when you slip out of the top 35%, you'll be able to stay in and live to trade another day.