October 1, 2018

Can Individual Traders Succeed In Financial Markets?

In a recent study, Brad Barber and colleagues studied all individual traders participating in the Taiwan stock market over a 14 year period.  Interestingly, they plot a survival curve for traders and found that 75% of all participants quit after a two year period and 90% are gone after four years, with poor performers significantly more likely to quit than their more successful counterparts. Over the period studied, the group of traders was unprofitable every year net of fees. They cite evidence that traders engage in more trading following profitable periods. They conclude that traders persist in pursuing profits, not because of objective evidence of success, but because of overconfidence following wins.

As a psychologist working as a performance coach at trading firms, I have had a multi-year front seat to the successes and failures of traders. My interpretation of the dismal success rate data is somewhat different from that of the researchers. In any elite performance field, whether it be golfing, acting, chess, or Olympic sports, many are called and few are chosen. The proportion of participants that ultimately make a solid living from their performance is quite small. The important questions pertain to the talent, skill, and development factors that differentiate the elite few from the others.

Read more at https://www.forbes.com/sites/brettsteenbarger/2018/09/30/can-individual-traders-succeed-in-financial-markets/#900637f14d7b

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