95% of traders lose

This is one of the most famous phrases in the trading and investing world and it is cited quite often as an irrefutable truth.

The phrase is true and a lie at the same time. It all depends from where we see it.

The world of trading and investing is composed, so to speak, by several specialities and countless niches among them.

The key variable here is “time” and how long the “investment” lasts.

On one hand we have long-term investment that last many years or decades and on the other hand we have operations that last seconds, some of them very popular lately.

Losing traders

Stock market losers

This typical phrase of “95% of traders lose” is referred to those who do short-term trading and it is not valid for long-term investment.

For instance, the next table can gives us a reference of how things are more or less.

Duration (trades)Seconds/minutesHours/daysWeeks/MonthsYearOver 10 years
Survival (%)01107098

Basically, those who try to success doing bets that last seconds will lose 100% of them after a sufficient number of trades, which could be 200, 500 or 1,000. If there is some case out of this is just an exception but not very common.

Those who do trading and close the operations after hours or days will end up losing by a rate of 95% after x trades.

Those who do medium-term trading that lasts weeks of months can survive at a rate of 70% after certain number of traders.

Those who approach what is long-term investing will survive at a rate of more than 50% probably.

And those who do long-term investing can survive at a rate of more than 90% easily.

In other words, when we lengthen the investment time horizon and we use the classical investment options, stocks or bonds, we will have more probabilities of winning.

I put 95% of investors winning after 10 years because from time to time there are periods of 10, 15 or 20 years when stocks do not perform well, although those times are an anomaly, at least in the modern era.

For instance, from 1929 to 1940, the majority of investments in the stock market in the United States were loses. Although, those who had the patience to wait with their original stocks could get back all their initial investment.

Other typical cases are those of the Japanese stock market after 1989 and Greece or Portugal after 2007.

However, generally, those periods are not recurrent and even though after some years we could get back our money if we have enough patience to wait until the market recovers.

The normal behaviour is that when we invest we should win money if we keep our investment in stocks for 10 years in, I would say, 95% of cases.

So, as a conclusion, 95% of long-term investors win money.

95% of short-term traders lose money

When we are talking about short-term compulsive trading we had better look at studies like those of Taiwan, Korea or the United States.

The result is quite clear: the great majority of traders end up losing in the long run, having actually catastrophic losses in the way.

Somehow there is a widespread myth that you can win money doing short-term trading and that there are lots of scalpers winning in the day trading business quite regularly. The myth also says that if you study hard enough you can join the club.

Unfortunately, that is not the case.

In first place, those “supposed scalpers” that do operations that last seconds and minutes are not the typical home-trader who does so from home with the typical retail platform.

Those “legendary” scalpers are nothing more than the market maker, in other words: those who “create the market”.

They are the ones who “organize” the liquidity.

In this case, CFD and Forex brokers are those “scalpers”.

Lose money in the stock market

We buy the “ask” and they sell us.

It is easy to comprehend who are the real winners in this business of second and “minute trading”, being the most glaring example that of the binary options market.

Once we run away from this dumpy terrain and start approaching longer time frames, the amount of winners improves dramatically, especially those who use the market with the better historical trend: stocks.

Although the number of losers here is quite high, especially at the beginning, when the lack of experience is evident.

Hence, those who approach the world of trading and investing should know very clearly what they will face.

When experience is lacking the chances of losing are quite high.

Besides, experience is much related to this issue.

As a general rule, those with limited or no experience will try the short-term trading world.

Those with more experience tend to stay away from it.

That is why the majority of day traders are those with less experience.

Speculation and short-term trading is a very difficult terrain here the possibilities of a particular traders are very reduced, not to say they are almost impossible.

When we get away from those short-term timeframes our possibility of survival and profit will increase dramatically.

Eventually most of you will end up doing long-term investing, where the winners in this side of the trade are.