[24] Eye-Popping Trading Stats and The Reason Most Traders Lose

I came across this great article from Tradeciety.com titled "Scientist Discovered Why Most Traders Lose Money" and it grabbed my attention.  The conclusion of the article is not surprising and I've spent a lot of time over the years teaching students how to manage this one major area that drives the most loss.  

But, before I share more about, here are some eye-opening stats from the article:

1. 80% of all day traders quit within the first two years. 
2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain. 
3. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.
4. The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually. 
5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees. 
6. Traders with up to a 10 years negative track record continue to trade. This suggests that day traders even continue to trade when they receive a negative signal regarding their ability. 
7. Profitable day traders make up a small proportion of all traders – 1.6% in the average year. However, these day traders are very active – accounting for 12% of all day trading activity. 
8. Among all traders, profitable traders increase their trading more than unprofitable day traders. 
9. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income. 
10. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios. 
11. Men trade more than women. And unmarried men trade more than married men. 
12. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features. 
13. Within each income group, gamblers underperform non-gamblers. 
14. Investors tend to sell winning investments while holding on to their losing investments. 
15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002. 
16. During periods with unusually large lottery jackpot, individual investor trading declines. 
17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss. 
18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks. 
19. Individual investors trade more actively when their most recent trades were successful.
20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.
21. The average day trader loses money by a considerable margin after adjusting for transaction costs.
22. [In Taiwan] the losses of individual investors are about 2% of GDP.
23. Investors overweight stocks in the industry in which they are employed.
24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.

Just understanding the pitfalls above and avoiding them can make a huge difference in your trading. 
But the biggest reason traders lose money is not any of the above.  It is because they trade on emotion and do not have a solid ruleset and trading plan to keep them grounded.  As I stated at the beginning of this article, I have spent years teaching students that the biggest obstacle to trading success lies between their ears.  You must separate emotion and logic and have a tried, tested, and solid ruleset/process for you trading - and then you must be disciplined to follow it.  That is how you keep emotions in check.  And that is how you become a profitable trader and investor.  

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