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Myth 2 of 11 in Myth Busting Series

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The internet is full of statements by so called experts. In this series called Myth Busting we take a look at a number of commonly held beliefs in the market place and query our database to see whether these statements/beliefs are FACT or FICTION.

 

PsyQuation is in unique position to provide a definitive voice on this subject with one of the largest retail FX research databases. We have tried to remain as impartial as possible to the outcome and simply let the results speak for themselves. Let’s get started.

 

DATABASE

DescriptionDetail
Accounts~120,000
Trades~120 million
Date Range20 Oct 2008 — March 2018

 

 

Myth 2.

 

Distribution of % and $ returns are similar

 

Once again the results produce a somewhat different picture to what you might have expected.

As you can see when you look at the % return performance distribution it heavily weighted to the far left side of the zero line on the X axis. The Y – axis represents the % of the database for that histogram. So we see that the median % performance of traders is a quite shocking -80%. However when you look at the $ return distribution you see that traders returns are mainly around the zero line with a small median loss -$294.

 

What you can learn from these 2 charts is that traders on average don’t lose that much in $ terms. As trading is mainly a zero sum game less brokerage this kind of makes sense. However we cannot seperate the fact that when measured on a % basis the trading returns are quite shocking. The reason is likely to become more apparent when we look at Myth 3.

 

In the chart below we demonstrate something worth knowing. It is possible to make $ profits with a negative % return, this in fact happens around 25% of the time and its also possible but more rare to have positive % returns with negative $ losses. This all results from the timing effect of deposits and or withdrawals. Let me provide you with an example.

 

Assume you start trading with $1,000 and you lose $900 that is a 90% loss. You think you have learned your lessons and now know the way towards trading riches and you load up your account with another $9,900 to take your account equity to $10,000. You now in enjoy some trading success and make $1,000 profit. Your account PNL will now show a profit of $100 but your performance will show an 89% loss.

Myth 3 of 11 in Myth Busting Series Myth 1 of 11 in Myth Busting Series