What They Don't Tell You About That 95% Loser Rate

I wonder if anyone told Jeff that selling books online was impossible...


One of the most common truisms around the trading industry is the failure rate of new day traders. Ask almost anyone and they'll cite the 95% failure rate more quickly than a stop that’s too tight gets elected.

There are a number of reasons for this, but I think two drive the bus…
  • the “true” failure rate and
  • the prevailing narrative aka the difference in willingness to talk between those who find success in the markets and those who don’t

The First Leg Of The 95% Failure Rate Of New Day Traders 

First, make no mistake, there actually is a high failure rate among the large group of folks who wade into the financial markets each year:
  • Some blow out their accounts fairly quickly using an exceedingly complex approach of which they have little to no understanding.
  • Others bleed their accounts more slowly using a robust strategy, but combining it with tremendously flawed execution.
  • Still others pack it in and simply give up with their accounts intact more or less, but their trading psyches [I call trading psyche Emotional Capital™] damaged beyond recognition.
  • Finally, you have those who come to trading looking for some action only to find that when done correctly, trading is often… boring. This particular group usually finds ways to make trading a little more interesting… and a lot less profitable. As you can imagine, such groups (and those like them) do little to learn about and/or prepare for trading (and more specifically, day trading) prior to jumping in. They generally operate under the “it looks easy, so let’s get it…” mantra.
Taking the time to investigate, read, receive teaching/mentorship, practice and really develop a “trader’s mindset” are not high on these folks' list of priorities. As a result they fall victim to the dreaded high failure rate of new traders.

Contrast these ill-prepared folks with the young man [we'll call him Roscoe] who decides to learn and use short-term trading in his spare time [side hustle anyone?], but takes it seriously.

Roscoe jumps in by devouring every book he can find on the subject.

He attends trading webinars and live seminars and develops a network of friends in the trading world.

He goes through a number of mentors until he finds one to his liking and begins to work with him/her extensively.

Above all else, Roscoe begins to watch the market and immerse himself in it. He practices and begins to identify and systematically eliminate his own bad trading beliefs and habits.

As you might guess, while still no guarantee of success, Roscoe’s path puts him in a much better position to succeed.

Now suppose for the sake of supposing that new traders like those in the first group [the ill informed] make up 90 of a group of 100 new traders (90%)... while Roscoe and his kind make up the remaining 10 (obviously the remaining 10%).

Suppose further that of the first group [the group of 90] exactly 0 (read zero) survive the first 6 months. And only 5 of the Roscoes [remaining 10] survive the first 6 months. This outcome of course yields the commonly cited 95% failure rate, so everyone can congratulate the 5 survivors (while secretly wondering if they have inside information) and head home right?


Think of it this way… The 90 from the first group were "lucky" to get involved with the securities markets in the first place. With no preparation, no mentor, no practice, and no belief, a 100% failure rate was virtually guaranteed. The only variance? How long it would take them to destroy their accounts.

Now the remaining 10%…

Once again, there is certainly no guarantee that doing all the “right things” will lead to fabulous profits. Doing everything correctly, but failing to make the proper mental transition will lead to modest (if any) returns. It's also possible that Roscoe will "run bad" [his process will have a string of losses] at the outset and thus drain his account before there's time for his process to build the additional profit cushion that helps traders weather losing periods. As a result, I assign a 50% chance of success to this group (5 of the 10).

Combining the ill-prepared with the Roscoes still adds up to 95% losers even with my assumptions, so why all the fuss right? 95% failure is 95% failure correct?

Not quite...

Here’s the thing… again, the original 90 should never have been part of the sample under consideration… They should never have taken those initial wobbly steps into the financial markets in the first place. If they weren't willing to put in the work (both before and during) why wouldn't [shouldn't?] they have a 100% rate of failure?

It’s kind of like the failure rate of new businesses. 

When looked at in the aggregate, the quick demise of most new businesses might lead one to conclude that the chances of succeeding with a new enterprise are exceedingly slim.

However, when you reduce those under consideration to the well prepared, disciplined entrepreneurs who have identified and investigated a potentially profitable niche, tested demand, put into place a well-developed, thoughtful plan and proceeded to focus on flawless execution of said plan, then the chances of success rise significantly.

So too with trading.

If you only consider the 10 Roscoes of the original 100 would-be traders who prepared and worked on developing the proper trading skill set, you get the much more reasonable 50% success rate which is as good a chance as flipping a coin... and far more worthwhile to at least try.

The Second Leg Of The 95% Failure Rate Of New Traders 

Another contributor to the supposed 95% failure rate of new traders is the volume difference between those who succeed and those who fail.

More simply, those who find success tend to forge ahead quietly generating superior returns via their hard won process… while many of those who fail go on to deride trading as an impossible pipe dream… as so much fool’s gold…

Surely you’ve seen the articles. They usually recount the author’s experience with day trading… whether independently or through a failed hedge fund or the like. The author will try to show their objectivity by declaring how they “worked hard” at it or how they “really tried to give it a fair shot.”

However, if you read the articles closely, you’ll invariably come across the real culprit. The author will admit that they got bored and stepped outside their process.

Or that they weren’t satisfied with their results and felt “compelled” to take additional trades.

Or that they took an inordinate number of trades instead of exercising superior patience and waiting for the most optimal circumstances to present.

Here’s the rub… 

Day trading is undeniably possible… and profitable… for the right people. You just have to commit yourself to becoming that right person.

Investigate For Yourself 

So the next time you hear some wannabe railing against short term trading as an impossible undertaking or, more specifically, against the failure rate of new traders, remember… a fool and money have no business getting together… and anyone who expects a successful outcome of such a pairing is an even bigger fool.

Yeah, I said it…


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