Quant opinion: Why 95% of novice traders lose their money within 1 year

(Last Updated On: March 25, 2012)

Why 95% of novice traders lose their money within 1 year


It’s well known that 95% of novice traders lose their money within 1 year. But is this actually true and if it is, why is this happening? I believe it is true. And here’s why.More than 95% of



Trading is hard, really hard and that is why most novice traders lose money. The fact that there are pretty much no barriers to entry is another key factor. Most other professions, you don’t compete against experience professionals from day one.

Everybody thinks they will be different – that they can skip the learning curve (myself included when I started) but the market usually tells you otherwise.

Another big problem is that novices want to leverage up right at the start and we all know what



Why would anyone think it is easy to trade? In what other area of life can you spend a weekend training and then generate an income? People are far more lazy than they know, and want to be told what to do. I started as an options trader,and have done ok having enjoyed the learning and the trading journey.
I have offered many times to mentor other traders for free, but after one session they realize it is hard work. There is a small army of wannabe forex traders and I have yet to meet anyone who makes much out of directional trading, it is too hard to take the losses for most people. For us it’s



I believe the 95% failure rate is true. And the biggest reason why the rate is so high is that the new trader has no idea how to manage risk properly……and they do not understand probabilities.

And of course they are usually under capitalized!!!!

The typical newbie is taught to seek 2:1 reward to risk trades from the beginning and that by itself will make them a losing trader from the onset…..or at best….a break even trader. And perhaps that would work if their win to loss ratio was high……but it won’t be….it will be inconsistent and low in the beginning.

And as far as risk is concerned….they will be taught to risk 2 to 4% on EACH trade…..and even at that…..they will ignore it and trade themselves into a hole and blow up the account in no time.

From there they will seek the latest and greatest indicator or magic system. And instead of sticking with one system and one market….they will bounce around looking for the Holy Grail.

If they were taught how to manage risk properly from the beginning and they were funded properly, they would have a chance. And then if they understood how to use multiple time frames to manage risk on the smaller time frames….and capturing higher profit expectations from the higher time frames…..well then they would have a chance to mature and become profitable.

The best advice for a newbie is to keep their daily risk down very low….like 2% per day maximum……and trade Forex with one market and use micro lots to keep the risk low and don’t think about the money. Just concentrate on proper execution, trade management and pips gained.

From there it will always be the same trades over and over again……except as the risk management allows….the lot size would increase over time….and the profits will grow at a very nice pace.

And the final word of advice for a newbie would be……use an exit system. Every trader concentrates on entry systems and hardly ever think of the exit.

Using a Parabolic SAR set at .02, .20 is very fast trailing stop and all by itself would show a newbie how to protect profits and remain disciplined on managing the trade. I use that setting on three time frames and manage my trades in 1/3rd’s…..except I stay 1 or 2 bars back from the current PSAR to prevent getting tagged by accident. I watch it real close when the price is approaching it……but will stay back a little just in case.

But by using a stop that is based on math…..you are not relying on emotions…..which is our biggest enemy.

And after all of that being said….it is pretty remarkable that something simple like a 50/50 game…..buy or sell…..win or lose……can yield a 95% failure rate.

It is if nothing else, a very humbling vocation 🙂



Sorry…a correction for the settings on the PSAR above…..it should have been .05, .20. This step is faster but for a newbie they have a better chance of less whip saws and more profits.

I use it on three time frames so it works real well for me. (5 min, 15 min and 60 min) I enter with 3…..1/3rd positions and get to break even on the low time frame. Then 1/3rd uses the 5 min PSAR, 1/3rd uses the 15 min PSAR and the last 1/3rd uses the 60 min PSAR.

That allows the trade to run and grab higher reward trades……but the 5 min will put funds back into the account on a regular basis to finance the risk and the break even trades.

Sorry about the stting mistake above 🙂


NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Subscribe For Latest Updates

Sign up to best of business news, informed analysis and opinions on what matters to you.
Invalid email address
We promise not to spam you. You can unsubscribe at any time.


Check NEW site on stock forex and ETF analysis and automation

Scroll to Top