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The fact that a constant supply of new individuals decides to start trading is evident by the low renewal rate for the two major trading magazines in the United States. It is also obvious by the same ads being run in these magazines consistently targeting new traders. You can open any financial newspaper to find a plethora of ads that target new traders. Then there is the educational trading seminar industry, which generates millions of dollars every year: the more popular seminars targeting the new trader are always sold out. |
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The allure of trading is indeed very powerful. Where else can an individual investor turn $10,000 into $1 million within a year? Where else can an individual earn a 500 percent return? Everywhere new traders turn they see or hear about the fabulous returns earned by some traders. Every new trader can tell you how George Soros made over $1 billion within a few days when the British pound depreciated. Every new trader wants a piece of that action. |
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After all, everyone will tell the new trader that statistically 90 percent of all traders lose their trading capital within 12 months, but 10 percent increase their capital. The implication, to the beginning trader, is that 10 percent of the traders are wildly successful. Most new traders never suspect that the assumptions they are making from this statistic are flawed. Since most individuals who become new traders are already in the upper 10 percent of their chosen profession, they naturally assume that they will get into that upper 10 percent of successful traders. The fly in the ointment is that the 9-to-1 (lose-to-succeed) ratio often bandied about is based on the total universe of traders trading in a 12-month period. It is a ratio based not on new traders, but on all traders. The unfortunate truth is that it takes 100 new traders to produce one or two new traders who are net profitable after 12 months. The average life expectancy of a new trader before losing 65 to 95 percent of the money they opened their account with is four to six months! |
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When an individual makes the decision to start trading commodities, he or she is faced with a multitude of choices, similar to when the individual started his or her professional career. The huge difference is that most people build their professional careers in a structured learning environmenttypically in a university or business setting. Almost without exception they enter that ''10 percent winners' circle" in their respective careers slowly. In trading there is no structured learning environment, there are no professors or business clients to guide the trader in how to think, behave, and trade. Most beginning traders will attend a seminar or two, read a few books, buy a computer-based trading program, and get a data feed. They then open a trading account with $5000 to $20,000, fully expecting to earn triple-digit returns. |
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