Very easy to see the difference:
If you have a trading account and trade "all in" - the ROI is on that investment.
Assuming you put only 2% of your trading account at risk - the ROI has to be divided by 50 to get the percentage.
Believing that more than half of the traders are trading at higher than 2% risk (with small accounts inevitable)
that ROI percentage calculation is quite different from that one with a better cushion.
As mentioned - it depends first on your money management combined with your trading consistency and a relative
small drawdown. This is a factor one could calculate and name it efficiency.
The following user says Thank You to GFIs1 for this post:
Sounds to me like 5-10% per week might be hard to do....SO why trade? If 1-2% per week is even far fetched then trading is useless. I expect 5-10% per week can be done on any size account. But I'm no professional. I personally know 1 guy with $15,000 account that regularly does over $1000.00 everyday. He must be the exception to the norm.
I may hang up my trading dreams before I get started! Thanks for saving me!
The following user says Thank You to bbstulsa for this post:
Then he is overleveraged and risking too much. Let's say someone risks something semi-reasonable like 1% per trade (which is still far too much). You're telling me that he takes 6 trades a day risking 1%, and making 1% on each; or, he takes 2 trades, risking 1% on each and getting a 3R return on each, etc? No, not likely. He probably risks much more, and has so far gotten lucky and has not gotten blown out of the water. Ask your friend what his typical drawdown on a trade is, if he even makes that much, which is not likely (have you seen his statements, or has he just told you this?). One does not make 6% per day, "every day" as you say, with reasonable risk.
I'm not trying to piss on stories of successful traders; after all, Jack Schwager has claimed that Marty Schwartz (I think it was him) at one time pulled 25% per month (and withdrew it), which is 1% per day. THAT, I think is amazing but doable, and I believe it 100%. Any trader would dream of consistent returns like that. But 6% per day, every day? Someone's lying, or lucky he still has an account. Sorry, reality trumps fish tales, and math doesn't lie.
The following 2 users say Thank You to josh for this post:
Just because he has 15,000 in his account does not mean that is what he is basing his risk off of. He could also have 100k sitting safetly in his bank account that he doesnt feel safe giving a broker especially after pfg. Or he could be making the whole thing up, there is no way to know, but we can sit here and debate it all day long, the joys of the internet.
The following 2 users say Thank You to mongoose for this post:
Good point, did not think of it this way. Then if the hypothetical 100K is indeed to be used as capital, then we can safely say that his "account" is $115K, in which case this is still an exceptionally good return (1% per day) but more in the realm of possibility. The risk is based off of money one intends to use as risk capital, so in the example you give, the account size is actually much larger than $15K, the risk is smaller, and the gain is smaller.
I must be missing something! With 6 tick stop loss in place and a target of 4 ticks with a $10,000 account, No one here can profit $500.00 on 1 trade trading 10 contracts? I know it can be done 4-6 times per day.
Why would you need a $100,000.00 account to trade 10 contracts?