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What Separates Trading Success from Failure — A Look Back at Our Funded Traders

Posted by TopstepTrader on March 19, 2018

Chicago Trading.pngIn 2017, TopstepTrader funded almost 400 futures traders with our capital, providing them risk-free opportunities to profit.

As we fund even more traders this year (we're on pace to fund 3x as many — with 241 traders funded in January and February!), we wanted to share concrete examples of the difference between profitable and unprofitable traders. 

To do so, we went back to the trading data. We tracked average daily profits, average daily losses, largest profit, and largest losses, comparing the traders who were active as of January 1, 2018 with those accounts that were closed in 2017. We grouped traders into two groups: those that were currently active in their Funded Account™ (Group A) and those that broke a rule trading in their Funded Account (Group B).

The results speak for themselves. 


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The chart below outlines the high-level results. We've color coded the numbers to call out the results. Like your P&L chart — green = good; red = bad

  Group A Group B
Average Losses of $500+ on Losing Days

11.3% 22.7%
Average Losing Day Larger Than Average Winning Day

29% 40%
Largest Losing Day Greater Than $1,000

12% 19.4%
Largest Winning Day (Average)

$451.11 $467.05
Largest Losing Day Greater Than Personal Loss Limit*

20.5% 49.3%
Largest Losing Day
(Average)

-$569.69 -$734.59

*The Personal Loss Limit is what the trader identifies at the start of the Funded Account as the maximum losses that they will accept in one trading day before taking the rest of the day off. 

As you can see, the only metric where Group B (the unprofitable traders) outperformed was on the average largest winning day, where they averaged just $16 more in profits. But that small gain was more than negated by $165 more in losses on the largest losing day.

Not only do these statistics clearly show why Group A was profitable, but the magnitude of difference between successful and unsuccessful traders was incredible. In many cases, unprofitable traders were twice as likely to exhibit some of these bad habits as profitable traders. 

That leads us to the three main takeaways.

The Biggest Takeaway: Control Your Losses

There is a reason that legendary traders like Paul Tudor Jones and Ray Dalio talk so much about controlling risk: it is the most important thing that traders do.

The recurring theme among this data: traders that were unprofitable in their Funded Account were more likely to have large ($500+) losses than traders that were profitable. Unprofitable traders were twice as likely as profitable traders to average more than $500 in losses on a losing day, with nearly 23% of Group B traders falling into that category.

Additionally, 40% of Group B traders had an average losing day that was larger than their largest winning day. If they lost $500 on average on their losing days, they did not have a single day that made more than $500.

40%!! 

It should be clear how unsustainable that is. 

We Shouldn’t Have to Say This, but a $1,000 Losing Day is a Lot of Money

Nearly 20% of traders in Group B lost more than $1,000 on their largest losing day, compared with just 12% of traders in Group A.

Now, don't misunderstand: 12% is still a lot; $1,000 is a lot of money. But funded trader risk manager Mick Ieronimo said that the larger losses typically came early in the account — and often caused successful traders to wake up. Instead of going on tilt, successful traders often adjusted their risk management and kept a mentality of “Never Again.”

“Large losses have a real sting. Traders are either going to react by trying to make the money back really quickly or by saying ‘Never Again,’” Mick said. “The traders that tried to make the losses back typically do not fare well. Doing well in trading — whether in TopstepTrader’s Funded Account or your own brokerage account — is all about controlling losses.”

Higher Risk Does Not Equal Higher Reward

One thing we frequently hear is that traders want to scale up their accounts quickly. They think that if we only let them trade 10+ contracts, they’d be wildly profitable. The math doesn’t work out that way. If you aren’t profitable trading 2 contracts, you won’t be profitable trading 10.

But you might think that the traders that accepted high risk in their trading accounts were also making more on their winning days (higher risk = higher reward, right?). That simply wasn't the case. While those traders did make $16 more on average, those gains were more than made up for by the higher losses that they took on their worst days. 

Our Actionable Advice

This is our best advice for someone just getting into a Funded Account (or who is trading live money).

  1. Start slow. You have weeks, months and years to become a legendary billionaire trader. You won’t need to do that by Friday. Get your feet under you and add additional contracts methodically.

  2. Control your losing days, which means you have to step away. There will be days when you don’t see the market correctly. The best traders in the world don’t make money on 100% of days. More importantly, they don’t have to! They make profits when the market gives it to them and control the losses when it doesn’t.

  3. Keep an eye on your trading statistics. Compare how profitable you are on your winning days with how much you give back to the market on your losing days. If you aren’t at a 2:1 ratio, the only way you will be profitable is to have a ridiculously high winning percentage — 70% or higher. That level of performance would be very challenging to sustain.

Get more insights from successful traders in our funded trader blog series.

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Topics: TopstepTrader Funded Traders, Trading Basics, Forex, Futures