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What is a reasonable return


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What is a reasonable return

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  #1 (permalink)
 SammyD 
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Hi all,
I'm curious what you perceive as a reasonable annual return on a percent basis. I'm not asking for proof or statements, simply from experience as a day/swing trader. Thanks.

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 Hotch 
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Personally, it depends on a lot of other factors, namely

1-Risk, however you wish to define it.
2-Size of account. Some people will say, well you can just leverage your strategy, if your account is 10x the size, just trade 10x the contracts, but in reality it doesn't work that way. It's what I always take away when reading market wizards, most of them got a break trading at a much higher risk then they trade now. At the end of the day, you buy stuff with currency, not %.
3-Effort put in, I'm happier with an algo making 50% a year, then having to start at screens for days for 200%.

Honestly, it'll range from 20% to 1000%+ for me. If I were to presume that you're asking to see what you could make/whether your returns are good, I think it would be better to ask what you'd be happy with. After all, happiness is what everything is about.

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 bijeremiad 
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go to https://www.absolutereturns.com/

Look at what the various CTA, CPO, and forex guys do. You will find annual returns ranging from -60% to 100%+.

Attached are a couple screen shots of FX funds (don't know anything about them, just grabbed some random ones towards the top of the list).

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craig1928
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Hotch View Post
2-Size of account. Some people will say, well you can just leverage your strategy, if your account is 10x the size, just trade 10x the contracts, but in reality it doesn't work that way.

In what way, is it a liquidity issue or a psychological issue?

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 wrbtrader 
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SammyD View Post
Hi all,
I'm curious what you perceive as a reasonable annual return on a percent basis. I'm not asking for proof or statements, simply from experience as a day/swing trader. Thanks.

A reasonable annual return will be different for one trader to another trader due to personal lifestyle habits. Thus, someone that's single with no debt with have a different opinion of what a reasonable annual return will be versus someone supporting a family and many other different types of personal lifestyle situations.

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 Hotch 
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wrbtrader View Post
A reasonable annual return will be different for one trader to another trader due to personal lifestyle habits. Thus, someone that's single with no debt with have a different opinion of what a reasonable annual return will be versus someone supporting a family and many other different types of personal lifestyle situations.

I agree that it's personal opinion (see previous post), but I would point out that you shouldn't measure what a reasonable return is by what you can buy with it. It has to take account of the risk. If you make enough to look after your family, that's all well and good, but if you're risking the house every night to do it, that's not ok.

A 5% return isn't bad because you can't afford your mortgage, and a 500% return isn't good because you can afford it, that's the wrong perspective, it should be in relation to risk.

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 Market Sniper 88 
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Hi

I think a better word to use instead of reasonable would be realistic.

I think you also have to have a look at it over a period of time. Say you used 5 years as an example. 10+ years at least would be even better and with some experience as a trader.

I would like to look at this initially without having to think about what everyone's different personal expenses etc are.

If you had a $100,000 account and you had a great first year and made 30-50% (which I think would be very good), over the next 4 years this could easily range from 100%+ per annum to break even or also even a losing year or 2. I would say that most traders come into this game with totally unrealistic expectations (me included) and get a rude shock back to reality. I think trading also makes it very difficult to budget if it is your sole source of income as returns can be quite inconsistent. I think style of trading also makes a difference ,that is day trading vs swing/position trading.

Just my 2 cents.

Would love to talk more about this and maybe some full time, sole income producing traders could chime in.

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 Massive l 
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A reasonable return IMO would be as much or more than the S&P for that year.

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 Big Mike 
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Massive l View Post
A reasonable return IMO would be as much or more than the S&P for that year.

Perfect answer... thread can be closed now... all the guys dreaming of turning 10k futures account into $500 a day, please move along.

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 Fadi 
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I think it is very reasonable and realistic to achieve between 20% and 50% per year if you really know how to trade and apply at the same time proper risk strategies like professional institutions and funds do...

Of course on some years you might score lower, maybe just 10% or even go negative, while on other years you could run into 80% and 100% returns if not more - it is all possible, and it would even happen to you every now and then.

But if you are working out an average to perhaps determine the minimum capital required for you to become independent or something of this type, please multiply by two any figure you get for safety reasons.
During these preliminary planning phases we really tend as humans to underestimate our expenses, and overestimate our returns and gain. this is just the nature of the beast

Now if you don't know how to actively trade the market, a simple and effective investment strategy like the dogs of the Dow, or better the small dogs of the Dow would have returned so far YTD 2012 (at the morning of the 1st of October) +15.10% on investment, plus 3.57% of dividends in total.

See... that's already close enough to my lower limit given above and you didn't spend your days staring at your screen. But again, if you really swing the market's up and downs, a good trader makes much more than that especially in bear years and crisis times when that simple strategy would turn negative.

For those saying that a reasonable return would be as much or more than the S&P for that year; this is clearly the agreed upon benchmark that all hedge funds and mutual funds compare to. But you also know that these type of institutions have several constraints of being continuously invested in the market up to a certain percentage, have quotas and restrictions in sectors and industries or instruments that can trade, etc...

An independent and private trader that is well versed can easily exceed the return percentage of these institutions. Of course not by value, these guys turn over billions of dollars, but I am referring purely to the percentage figure.

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 Market Sniper 88 
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Can you tell me what "dogs of the Dow" is? Are you talking about investing in the stocks that make up the Dow?

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 Fadi 
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Market Sniper 88 View Post
Can you tell me what "dogs of the Dow" is? Are you talking about investing in the stocks that make up the Dow?

Dogs of the Dow
After the stock market closes on the last day of the year, of the 30 stocks that make up the Dow Jones Industrial Average, select the ten stocks which have the highest dividend yield. Then simply invest an equal dollar amount in each of these ten high yield stocks. Then hold these ten "Dogs of the Dow" for one year. Repeat these steps each and every year. That's it!

Small Dogs of the Dow
On the last day of any given year, select the ten highest yielding stocks as described above. Of these ten Dogs simply select the five Dogs with the lowest stock price and you will have what we call the Small Dogs of the Dow (Sometimes referred to as the Puppies of the Dow or the Flying Five). Then invest an equal dollar amount in each of these 5 high yielding, low priced stocks. Then hold these five "Small Dogs of the Dow" for one year.

Investing in the Puppies of the Dow would have resulted in a 20.9% average annual return since 1973!
- As reported in U.S. News & World Report, July 8, 1996

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 kevinhenjum 
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For all of us that have been traing for a while, a resonable return is anything greater than zero.

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 Massive l 
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Fadi View Post
For those saying that a reasonable return would be as much or more than the S&P for that year; this is clearly the agreed upon benchmark that all hedge funds and mutual funds compare to. But you also know that these type of institutions have several constraints of being continuously invested in the market up to a certain percentage, have quotas and restrictions in sectors and industries or instruments that can trade, etc...

An independent and private trader that is well versed can easily exceed the return percentage of these institutions. Of course not by value, these guys turn over billions of dollars, but I am referring purely to the percentage figure.

You're forgetting that 90% of traders fail.
Anything over 20% is really not that reasonable for the average trader.
Most go negative. Some stay up for a period of time but eventually get their clocked cleaned.
If you are just breaking even at 0% for the year you are doing well as a trader
Obviously this won't pay the bills but at least they are not in the negative, while most are.


I have a close friend that has over 100% returns in a year and he is exceptionally talented.
He has down years as well but overall has amazing returns. What he does is not reasonable for most people.
I would say he is 1 in 10,000 if not less.

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 josh 
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If "reasonable" means "compared to others" then yes, positive is reasonable.

If "reasonable" means "compared with what else you could be doing with your money," then > S&P 500 is reasonable (otherwise, you should just park it in an index fund).

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 Silver Dragon 
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SammyD View Post
Hi all,
I'm curious what you perceive as a reasonable annual return on a percent basis. I'm not asking for proof or statements, simply from experience as a day/swing trader. Thanks.

Its hard to put a % on it. Depends on what type of lifestyle you want to live and how much experience you have plus your account size.

If your new to trading then not blowing up your account in the first month would be a reasonable return. Not blowing up your account the first year would be a excellent return.

After you learn how to trade they it really depends on your goals. If your trading as a hobby then something matching the return on S&P would be outstanding. If your trading for a living then your goals could be much higher.

It also depends on account size. a 10% return on a 500K account would be 50K. Most people could live well off of that amount. Where as you would need a 50% return on a 100K account to achieve the same amount as above.


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 josh 
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According to Jack Schwager, Marty Schwartz (the "pit bull") averaged about 25% per month over 10 years. (he pulled money out, it was not compounded of course). Yes, that's right, 1% per day.

You will find returns and losses across the board, owing to a variety of variables, but the foremost being the actual trader(s) who manages the money. Average investors dream of 15% per year returns, or just breaking even.

So, it depends.

Small account or large does not matter that much when we are talking percentage returns, as the risk should be a function of the account size. Having a $500K account means only that one will lose more money if he does not know how to trade. He would be better off to be much less capitalized. Think of it this way. If I have a $10K account, what good does it do me to have $20K? All it does is it allows me to lose $10K, which is a 50% drawdown, and still be in business. To a 50% drawdown, I say "no thanks" and also, "something's wrong" if your drawdown is 50%. Schwager's "Hedge Funds" book gives max lifetime drawdowns for many of those excellent traders at 10-15% or less. Being undercapitalized such that it severely limits your strategy is not good, but it's a lot better than being overcapitalized and being a bad trader.

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 PositiveDeviant 
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Massive l View Post
If you are just breaking even at 0% for the year you are doing well as a trader

This describes my trading career so far. (1.5 years on and off)

I refuse to trade again until I find a clearly defined quantifiable, tradable edge.



Massive l View Post
I have a close friend that has over 100% returns in a year and he is exceptionally talented.

What do you think his success is down to?

"The primary thing required to obtain what you want from life, is simply the will to pursue it, and the faith to believe it is possible." - Author Unknown

"The ability to maintain discipline and stick to the rules is the hallmark of the experienced successful trader" - Curtis Faith
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 Pepe2000 
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You should be able to have quite a good idea what will be your income from trading IMHO. If you donīt know that and you are trading live, something is wrong. I love this business for several reasons and one of the best reasons is that you can test how "your business" will do before you start live.

The problem is that IMO this is the part which most traders skip because of lack of patience.

Than they:

1) Donīt have enough confidence to overcome some issues of trading (drawdowns etc.)
2) Donīt have the answers to the valid questions of which the most repeatable is how much I can make.

It is like asking how much can I make running a 7/11 business?

There is not an easy answer to that. You can just build up one grocery store and employ yourself there as a clerk and work there your whole life - making more or less average salary. Or you can build a whole empire of international grocery stores around the globe and make billions of dolars.

To answer the question:
You can make more than you dreamed of or you can loose everything and more. To have a very good idea about how much it will be in your case follow the following manual:

1) Study the markets
2) Create (this is IMO important - you have to CREATE not just copy someone elses work) your own strategy/plan. You can also backtest it to see if it works (and if it is possible to backtest).
3) Papertrade your plan for at least a period where you can make statisticaly viable amout of trades. If you daytrade than I suggest at least 150 trades (beginner)
4) Adjust your strategy
5) Papertrade your plan again for good amount of time

Now you analyse the outcome and do a statistics of most important values - RRR, win%, Drawdown. With help of these you get pretty accurate answer to your question. There is just one BIG catch in this. When you start trading live than suddently your outcomes will become slightly different when you are not psychologicaly prepared for what is comming.

Not an easy way but the answer will be closer to reality than any reply you can get on internet forum

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 SammyD 
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Pepe2000 View Post
You should be able to have quite a good idea what will be your income from trading IMHO. If you donīt know that and you are trading live, something is wrong. I love this business for several reasons and one of the best reasons is that you can test how "your business" will do before you start live.

The problem is that IMO this is the part which most traders skip because of lack of patience.

Than they:

1) Donīt have enough confidence to overcome some issues of trading (drawdowns etc.)
2) Donīt have the answers to the valid questions of which the most repeatable is how much I can make.

It is like asking how much can I make running a 7/11 business?

There is not an easy answer to that. You can just build up one grocery store and employ yourself there as a clerk and work there your whole life - making more or less average salary. Or you can build a whole empire of international grocery stores around the globe and make billions of dolars.

To answer the question:
You can make more than you dreamed of or you can loose everything and more. To have a very good idea about how much it will be in your case follow the following manual:

1) Study the markets
2) Create (this is IMO important - you have to CREATE not just copy someone elses work) your own strategy/plan. You can also backtest it to see if it works (and if it is possible to backtest).
3) Papertrade your plan for at least a period where you can make statisticaly viable amout of trades. If you daytrade than I suggest at least 150 trades (beginner)
4) Adjust your strategy
5) Papertrade your plan again for good amount of time

Now you analyse the outcome and do a statistics of most important values - RRR, win%, Drawdown. With help of these you get pretty accurate answer to your question. There is just one BIG catch in this. When you start trading live than suddently your outcomes will become slightly different when you are not psychologicaly prepared for what is comming.

Not an easy way but the answer will be closer to reality than any reply you can get on internet forum

Thanks for the advice. I have followed much of your prescribed plan for a few years ( ). At the time I wrote this post over half a year ago, I was considering wiping the slate clean, which I did. I am now trading PA. Nevertheless, it is always nice to have some figures behind annual returns so I can compare my own progress.

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TraderBrian
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I get this question regularly, and it is a very fair question.

The answer has two sides:

The general answer - of course it all depends on your aggressiveness, resources and talents, so yes, you can target anywhere from 2% per day (which compounds like crazy) to 100% a month - and these are achievable. while not commonplace nor probable for a novice trader. A conservative and very achievable target would be 25% a year or 2% a month.

More specifically, what I have found reasonable based on the traders I've worked with, 10% monthly return is a reasonable general target for a relatively new trader to pursue with a moderate ($25-50,000) account.

Many businesses in many industries look to realize 6-10% net profit, and since trading does have its unique qualities and certain advantages over other businesses, again 10% is not unreasonable.

Hope this helps.

TraderBrian

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TraderBrian
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Pepe2000 View Post
I love this business for several reasons and one of the best reasons is that you can test how "your business" will do before you start live.

This is one of my favorite things about trading! It is also one of the aspects that make it unique.

In every other business I can think of, you have to invest to find out if an idea will work - otherwise it's just speculation.

Trading is the only one where you can test your ideas in the real world (both historical data and live in demo account) with having to risk any capital - and find out exactly what to reasonably expect.

From a business venture standpoint, this is fantastic.

TraderBrian

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 Pepe2000 
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Exactly. I agree totaly.

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 Big Mike 
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 mokodo 
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I'd say turn this question around - how much money are you prepared to lose in a year, then apply this figure to your historical stats and see what return you would get. If you are short of your goal, whatever that is, this is the gap that needs filling. Thinking that way around focuses on what you can do to improve; the improvement fills the gap. Self improvement is the currency of trading, the less you can think about the money the better IMHO. I suggest the feeling of winning is more worthwhile than the feeling of being paid your winnings. Easier said than done of course!

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 Zwaen 
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I'd say turn this question around - how much money are you prepared to lose in a year, then apply this figure to your historical stats and see what return you would get. If you are short of your goal, whatever that is, this is the gap that needs filling. Thinking that way around focuses on what you can do to improve; the improvement fills the gap. Self improvement is the currency of trading, the less you can think about the money the better IMHO. I suggest the feeling of winning is more worthwhile than the feeling of being paid your winnings. Easier said than done of course!

Maybe not entirely on topic, but your post reminds me of stages in method development. In earlier times, when was searching and constructing a method for trading, I wanted to find a profitable method too much. I started deceiving myself, cooking my own statistics, to make the method profitable. For example, finding some reasons to not take some losing trades, or finding a ‘filter’ which had no logical basis. This kind of self-deceiving is very sneaky, and it took some time before I recognized my behavior.

This behavior reminds me off the general trait known as backwards rationalization: after some facts happened, your minds finds reason to make you feel better( or rationilizes it ). For example, how many times after you lose something (material possession / job etc) you told yourself ‘ it wasn’t that good anyway’ ? If you not already have done, look around at people and you will recognize that almost everyone constantly applies this behavior. It is very deeply rooted.

Off course, when I started trading the ' profitable' method with real money, I always had problems pulling the trigger. Probably because deep down I knew, the method wasn't that good, and I had been self-deceiving.

Then at a moment I recognized this behavior, and I flipped it around: I constantly try to find holes in a method, and try to find reasons why it will not work. Only if a method survives this stage, I will find it tradable - robust. Be very hard for a/your method, or in the end you will pay for your behavior.

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  #28 (permalink)
 lugopt 
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That would definitely depend on instrument traded and the inherit leverage.

If I have $10K and buy 65 SPYs and it goes up 1% (~14 S&P500 points), my profit will be around 1% of my total account (no leverage).

If I have $10K and open Long 2 ES contracts and it goes up 1% (14 S&P500 points), my profit will be around 14% of my total account.

The minimum daily ATR for S&P 500 in 2012 is above 7. If someone managed to get 2 ES points daily on 1 ES contract, one gets over 50% profit in a month over the ES initial margin.

So it always depend on instrument traded and the leverage it has.

Thank you, Luis

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  #29 (permalink)
 Itchymoku 
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maybe 1% a month per year you've been trading would probably be a round-about average to look forward to. Obviously starting out in the first year has the most sporadic draw-downs, at least that's what happened for me.

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  #30 (permalink)
Paige
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A comparison to the SPX is not relevant because the SPX could easily move in a 500 point range in a year and still show no return at a given point. Short-term (full-time) traders would obviously have the *opportunity* to exploit such a wide range in order to *attempt* a return.

That being said, anyone who expects more than 1-2 % per month is probably living in a dream world. Yes, we've read about those who have achieved incredible returns --- just like we read about Warren Buffett and those who win lotteries. The reason they are being written about is because they are extreme abberations. Someone has to be "the best" or "the winner" in any endeavour of participation where results are calculated. I wouldn't count on it being you --if I were you.

To test time (5-10 or more years) and average more than 12-24% annually would likely (I'm guessing here) put you in the top 1/4% of all people who have ever attempted to actively trade financial markets for their personal own accounts.

Sometimes I think that people are fooled into believing that because they happen to trade money for a living (as opposed to a product or service) -- that they are entitled to get rich? Well, there's no more chance of that happening than the guy who opens a sandwich shop or a hardware store turning it into McDonald's or Home Depot.

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  #31 (permalink)
 Futures Operator 
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I have been told by a successful trader, an average of 1% a day (1R, or your risk on one trade) is a spectacular but achievable goal.

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  #32 (permalink)
 GFIs1 
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Quoting 
What rate of return is realistic for an individual self-directed retail trader.

Before pushing the VOTE button - Got a problem understanding the exact poll question..

Shall I understand

1) what I am expecting from a normal retail trader who should live from trading? or
2) what I am expecting from MY trading?

Help please!

GFIs1

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  #33 (permalink)
 patbateman 
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A small profit factor with a modest 33% drawdown will make you much more than the S&P annually.

If you are new, forex is the best IMO. Futures are difficult to trade with a small account, due to the structure of contract margins. Forex will cost (overhead) less than a futures account. Forex also has better pip increments compared to future ticks.

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  #34 (permalink)
 Big Mike 
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Poll closed, results:



Mike

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 NW27 
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Big Mike View Post
Poll closed, results:



Mike

screencasts are hard to view on tapatalk.

Regards,
Neil.

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  #36 (permalink)
 mattz   is a Vendor
 
 
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So 57.14% think that self directed should be minimum 5% a month?

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  #37 (permalink)
 imPairsonator 
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Am I the only one who finds these 10%+ (hell, even 3%+) hopes/expectations absurd? I mean...10% monthly will triple your money in a year. The best and luckiest traders Schwager has interviewed didn't reach that type of performance.

I guess it's possible maybe if you're trading some tiny and ridiculously inefficient market nobody else knows about...?

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  #38 (permalink)
 Big Mike 
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mattz View Post
So 57.14% think that self directed should be minimum 5% a month?


imPairsonator View Post
Am I the only one who finds these 10%+ (hell, even 3%+) hopes/expectations absurd? I mean...10% monthly will triple your money in a year. The best and luckiest traders Schwager has interviewed didn't reach that type of performance.

I guess it's possible maybe if you're trading some tiny and ridiculously inefficient market nobody else knows about...?

Yes, absurd in my opinion. I understand that the little retail guy has the ability to be nimble, but I think peoples expectations are all wrong here. I tried to say so earlier in this thread, but you can see everyone disagreed with me for the most part

I think it simply demonstrates how unreasonable the expectations are for most people.

Perhaps one day I could do a poll that is aimed only at traders that have been consistently profitable for more than 2 years, and ask the same question, to see what a more realistic return is for the group who is actually making returns on a consistent basis

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  #39 (permalink)
 Cashish 
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imPairsonator View Post
Am I the only one who finds these 10%+ (hell, even 3%+) hopes/expectations absurd? I mean...10% monthly will triple your money in a year. The best and luckiest traders Schwager has interviewed didn't reach that type of performance.

I guess it's possible maybe if you're trading some tiny and ridiculously inefficient market nobody else knows about...?


I somewhat agree with you, I think Big Mike should have signified who he wanted to participate in that poll, futures traders or equities traders, I believe this important distinction would have made the poll a lot more informative. I noticed you listed equities as a "favorite instrument" in your "description box," that might explain why 10% seems absurd to you. I'm sure in the real world there are many more equities traders than futures traders but I'll bet here on futures.io (formerly BMT), futures traders rule. As a futures trader I consider a 10% MoM return a modest goal, for a seasoned trader. Before everyone gets their panties in a wad, consider the criteria of the Top Step Combines that are posting here on futures.io (formerly BMT). Top Step is looking for traders that can take a 50k account and generate 5k of profit (10%) in twenty days, or 16k of profit from a 150k account (10.6%) in twenty days. Guys are doing it quite often, but they're not trading POT, HOG or YUM.

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  #40 (permalink)
 Big Mike 
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Cashish View Post
I somewhat agree with you, I think Big Mike should have signified who he wanted to participate in that poll, futures traders or equities traders, I believe this important distinction would have made the poll a lot more informative. I noticed you listed equities as a "favorite instrument" in your "description box," that might explain why 10% seems absurd to you. I'm sure in the real world there are many more equities traders than futures traders but I'll bet here on futures.io (formerly BMT), futures traders rule. As a futures trader I consider a 10% MoM return a modest goal, for a seasoned trader. Before everyone gets their panties in a wad, consider the criteria of the Top Step Combines that are posting here on futures.io (formerly BMT). Top Step is looking for traders that can take a 50k account and generate 5k of profit (10%) in twenty days, or 16k of profit from a 150k account (10.6%) in twenty days. Guys are doing it quite often, but they're not trading POT, HOG or YUM.

Yes, futures.io (formerly BMT) is far and wide made up of futures traders.

Interesting comparison w/TopstepTrader, I will ask Michael Patak at TST if he would be willing to share what a longer term MoM return looks like for traders that have been in the program for say at least 6 months or a year, just to see what a long-term consistently profitable trader looks like on their side.

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  #41 (permalink)
 mokodo 
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Big Mike View Post
Perhaps one day I could do a poll that is aimed only at traders that have been consistently profitable for more than 2 years, and ask the same question, to see what a more realistic return is for the group who is actually making returns on a consistent basis

I think that would be a great idea. A reality check poll. The gap between expectation and reality sows the seed for much disappointed and emotional injury. If on Day 1 you were told you were told you would return precisely 1% monthly for each month of your trading career how many would start?

Far fewer I think than if you were told you would AVERAGE 1% a month across the same period. My point is that 1% each month every month would be perceived by many as boring. Where as an average brings the opportunity of swings of wins and losses - and the excitement that suggests.

If I ran a prop firm that is a question I'd ask when scouting for talent, and only go for the trader who say 1% each month, every month.

I'm not sure how close 12 p.a.% is to the true figure for long term successful traders, closer than the results of the poll I'd guess. If you were running OPM they would probably be more than happy with the return if the risk profile reflected it.

Of course to present a 'the truth about retails traders' returns' you need to have access to a reliable data source. So Mike, if you could get access to that and people could not pick holes in it, I for one would very welcome it and the discussion it would spur.

My expectations on Day 1 were unrealistic, but not wildly so. And I have moderated them in line with what I believe I can achieve. The payoff though is likely to be far more personal that financial.

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  #42 (permalink)
 Koepisch 
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The term % per month can imply everything. I can't deduce any value of it, because the risk is not incorporated. For my own trading i compare primarily the averaged RR ratio of a trade and the underwater curve of the drawdowns (and of course many more metrics for detailed comparision). The % per month is heavily related to the applied money mangement and this can vary.

I think the averaged Risk-to-Reward ratio per trade can make a more reliable comparision.

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  #43 (permalink)
 Big Mike 
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Koepisch View Post
The term % per month can imply everything. I can't deduce any value of it, because the risk is not incorporated. For my own trading i compare primarily the averaged RR ratio of a trade and the underwater curve of the drawdowns (and of course many more metrics for detailed comparision). The % per month is heavily related to the applied money mangement and this can vary.

I think the averaged Risk-to-Reward ratio per trade can make a more reliable comparision.

Of course, but I think most people have expectations of their portfolio, and they know the value of their portfolio. Whether they are 10% cash or 90% cash is up to them, so the value of the portfolio is still a good way to compare monthly returns.

Mike

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  #44 (permalink)
 SammyD 
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Big Mike View Post
Yes, futures.io (formerly BMT) is far and wide made up of futures traders.

Interesting comparison w/TopstepTrader, I will ask Michael Patak at TST if he would be willing to share what a longer term MoM return looks like for traders that have been in the program for say at least 6 months or a year, just to see what a long-term consistently profitable trader looks like on their side.

Mike

What a wonderful idea. Thanks Mike.

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 SammyD 
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Cashish View Post
I somewhat agree with you, I think Big Mike should have signified who he wanted to participate in that poll, futures traders or equities traders, I believe this important distinction would have made the poll a lot more informative. I noticed you listed equities as a "favorite instrument" in your "description box," that might explain why 10% seems absurd to you. I'm sure in the real world there are many more equities traders than futures traders but I'll bet here on futures.io (formerly BMT), futures traders rule. As a futures trader I consider a 10% MoM return a modest goal, for a seasoned trader. Before everyone gets their panties in a wad, consider the criteria of the Top Step Combines that are posting here on futures.io (formerly BMT). Top Step is looking for traders that can take a 50k account and generate 5k of profit (10%) in twenty days, or 16k of profit from a 150k account (10.6%) in twenty days. Guys are doing it quite often, but they're not trading POT, HOG or YUM.

And thank you Cashish for presenting the idea

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 Futures Operator 
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Big Mike View Post
Yes, futures.io (formerly BMT) is far and wide made up of futures traders.

Interesting comparison w/TopstepTrader, I will ask Michael Patak at TST if he would be willing to share what a longer term MoM return looks like for traders that have been in the program for say at least 6 months or a year, just to see what a long-term consistently profitable trader looks like on their side.

Mike

Would be interested to know the sample size of this/number of live traders they have at TST long term as well.

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 lugopt 
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Yes, futures.io (formerly BMT) is far and wide made up of futures traders.

And I think this was the reason why futures.io (formerly BMT) users expectations are between 5-10%. Futures are leveraged between 15-20 to 1, so this 5-10% would mean less than 1% if we were trading stocks with no leverage. Basically, around or below S&P 500.

Am I missing something?

Thank you,

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  #48 (permalink)
 Itchymoku 
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Well this question comes in two parts - 1. how much would you tell a beginner trader they'll make monthly and 2.
how much would an experience trader make monthly

Every trader starts out with a compound calculator anticipating the excitement. first year trading for me was more or less figuring out how much money I'd allow myself to lose before giving up. I think we could all write a book on it. It's not easy taking other people's money. If you can grind through 20 trades a week and you're up 1 trades worth of money after commissions and do that month after month, you have a career. I don't think its uncommon even for professional traders to have losing months and still make a living at the end of the year.

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  #49 (permalink)
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Here is my explanation as to why people set unreasonable expectations and hence the results of this poll:

Legendary Traders There is a reference to small groups of legendary traders that made above average returns.
These traders looked upon as stars but the truth is that they are a small group of people. You can learn about their way thinking, their methods, etc but don't think for a minute you can be them. The truth is that everyone just talks about their success, and no one mentions the fact that many of them lost in the millions, and remortgaged their house twice prior to becoming successful. Marty Schwartz tried to have 4 apprentices and non worked out (food for thought)

Educators Your early education will shape your expectations in the market place.
if you went with "1% a day" and "Make $200 in a day before the wife wakes up" then "Houston, we ..."
There are legitimate people who trade and teach, but it's your job to decide who is a salesman and who is a trader.

Capital Differences If you had a year where you took 5K to 8K in percent it's 60% BUT it's only 3K.
Try that on 50K to 80K or 500K to 800K and realize what it's like to have only 5 filled out of 20, or setting a target on 20 lots and only 3 get filled and then you need to exit as the market as it starts to go against you.
I am not here to say you can take an account from 5k to 8K, but rather demonstrate that traders think exponentially in terms of the growth of their account without realizing the implications of it.

Income Beginner traders reflect what they want to earn, not what is realistic. Psychologically that achieves the comfort of thinking that there is income consistency and there is actual high reward behind their efforts to learn the markets.

As Mike said: there is a diverse group of guys here. You have 3 kinds: Traders who actually trade and put $ on the line, perpetual papers trader and the "academics" who know every platform, read every book, and even have programming skills (but do not trade or trade minimally as time allows). Therefore you will have people coming from different angles when all asked the same question.

Here is Matt's realistic" return: Survive year one and year two with real funds.
Any positive return there after in an achievement because most of those that started with you dropped and gave up.
I had good mentors in my business, trading and personal life. They shaped my life with a sense of realism that gave me a measuring stick against my achievements.

Dont set unrealistic expectations, because if you fail to meet them you will simply get disappointed and you will have a sense of underachievement. There are so many threads about money management, positions sizing, etc that you can learn plenty from and apply in your trading to improve your method and execution.

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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  #50 (permalink)
 patbateman 
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lugopt View Post
And I think this was the reason why futures.io (formerly BMT) users expectations are between 5-10%. Futures are leveraged between 15-20 to 1, so this 5-10% would mean less than 1% if we were trading stocks with no leverage. Basically, around or below S&P 500.

Am I missing something?

Thank you,

Yes. Drawdown. This leverage is never fully used with directional bets.

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 Futures Operator 
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patbateman View Post
Yes. Drawdown. This leverage is never fully used with directional bets.

So on lugopt's point, considering draw down, leverage, and risk management, how does one calculate how much leverage is effectively used, and how one can expect this to impact returns?

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  #52 (permalink)
 Luger 
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Futures Operator View Post
So on lugopt's point, considering draw down, leverage, and risk management, how does one calculate how much leverage is effectively used, and how one can expect this to impact returns?

How I look at leverage is pretty basic. If the instrument you are trading moves 0.5% and your account moves 2%, then your leverage factor is 2% / 0.5% = 4. If you are trading multiple instruments then it gets more complicated, but just knowing this is basic risk preparation. It lets you know what you are in for if a catastrophic event occurs while you are in a trade.

Ex. Trading with leverage factor of 5 and no stop...go long and overnight your market craters 5%. You just lost 25% of your account. If that was in your risk profile, then fine. If you weren't expecting that as a possible outcome, then you were not using proper risk management.

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  #53 (permalink)
 Pepe2000 
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I will just repeat myself, but I will try once again. I read lot of stuff even from most experienced traders with which I disagree. Forgive my arogance, but I am allways trying to make my own decisions. That is why I allways suggest to make a backtest and papertrade for a while. If you papertrade long enough with a system (not just monkey style clicking) you will soon find out what is the system capable of. The difference between the real money and papertrade is mostly your psychology. So if there is a huge difference, you know what do you need to work on (there are also other things like slippeage but this is not the thing which makes difference).

I think we are mixing apples and oranges here. You cannot have the same expectations as swing trader trading 1mil. account, doing 3-6 trades per month and daytrader trading his small 20k account with 1-5 trades per day. Totaly different approaches, different amount of time invested, different account, different risk. IMO uncomparable.

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 patbateman 
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Futures Operator View Post
So on lugopt's point, considering draw down, leverage, and risk management, how does one calculate how much leverage is effectively used, and how one can expect this to impact returns?

Although this can become very complex, it is acceptable to limit the drawdown to be _ % of your account. So if you have a $20,000 account, and a 40% drawdown, that 40% will be $8,000. Use that to calculate your leverage.

"A Jedi's strength flows from the force."
-Yoda
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  #55 (permalink)
 gfmatt 
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I think if you are day trading futures or stocks and not aiming for 10% per month (a very high goal), you shouldn't be day trading.

If you are (only) looking for 3 to 5 percent per month, there are easier and less stressful methods than day trading - by finding a good theta decay options strategy. Check out some of the strategies by well-respected options mentors like Dan Sheridan or John Locke ( a lot of info is freely available, although they have mentoring services too). Positive theta, monthly strategies allow for good returns without being tied to your screen 24/7.

These strategies are especially good for those who still have regular jobs.

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 gfmatt 
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Oh, and one more thing. These types of options strategies are highly scalable (on big indexes like SPX or RUT).

On Tastytrade, they recently highlighted a retired 50+ year old woman who started trading one type of positive theta strategy with $100,000. Due to her success, friends asked her to manage some money for them, and now she is running a $100 million + fund, running the same relatively simple premium selling strategy.

You can check out her interview here:

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  #57 (permalink)
dave5578
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I really don't mean to troll on this, but........


I personally believe that mfbreakout can come close to $500 a day with 10k on 2 cl cars.


But the missing links are the steel 50lb balls and years of pure dedication. Straight truth for the newbs mike.

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  #58 (permalink)
TraderRach
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The $ amount you make is highly correlated with how much $ you're prepared to lose. The more you risk, the more you can gain (or lose).

% return can be very misleading. With highly leveraged products you don't need to hold all the funds of your trading capital in your trading account and the % return of your trading account can be very high.

Once you have a very good system and very good trading skills (a solid foundation), a goal is to increase the amounts you are trading to make it worthwhile and meet your financial objectives.

The amount you trade should be appropriate for the skills you have as a trader. Trading too high an amount too early will give you unnecessary stress and take the focus off building a solid foundation.

I think the $ you make trading is more important than the % return. A high % return on a small number still equals a small number. The focus should be on making trading pay for a great lifestyle.

Cheers Rachel

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ba2012
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the historical data tests and forward demo tests may not mean much as markets change and so do you...i try to stick to shorter term goals - weekly and monthly...

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  #60 (permalink)
 bushido 
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Found this thread while looking for the answer to the question. So was there any conclusion on this?

Sounds like most people think 10% is not reasonable, but that has been touted in almost every futures course that i've come across.

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  #61 (permalink)
 bijeremiad 
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@bushido

There was a poll taken among members, which can be seen here.

But if you are seeking consensus with a tight standard deviation, you are looking at the wrong industry.

Some questioned the poll results because they voted on what they hoped vs what they actually achieved. Anyone could vote - trader or not-yet.

The question is not totally clear in terms of equity and leverage, nor is it expressed in terms of R or % draw down. Even if you got a "number" it would be lacking in context. Are returns reinvested or harvested for income? Lots of different ways to approach it.

It is frustrating as you try and get a sense for the feasibility of trading and how much capital you would need. It is amazing that even after sifting through all caveats and disclosures and extreme percentages (90%, 10%, 5%...), it is so hard to find an answer. Many are happy to provide the gross statistic of X% fail, but few are willing to answer the conditional probability - given someone who survives what is the range of possible out comes. I've no doubt it is an difficult question to answer, but I doubt it is as hard to answer as it is to find the answer on a trading forum.

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  #62 (permalink)
 SammyD 
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@bushido, I didn't really come away with a clear answer either but in my trading since the time of this original post I still cannot put a figure on it because there are ups and downs. Also, sometimes there are not as many opportunities to trade at certain times, which requires me to sit out. Therefore, all of these factors make it hard to give an average and my returns are still too inconsistent to give a ballpark. Sorry.

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  #63 (permalink)
 bushido 
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Thanks bijeremiad and SammyD.

I guess we need traders who are consistently profitable to give us a sense of their MoM / YoY returns.

I'm just starting out in trading futures, hence wanted to get an idea of the average returns assuming I survive the first 6-12 months where 95-99% would fail.

I wanted to compare that with swing trading stocks where I think ~20% annual returns is reasonable with much less monitoring/skill/stress required

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  #64 (permalink)
 GFIs1 
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Main points are
1) System consistency with small Dradown rate and phase
2) Percentage of money @ risk you are willing to put in the market

Looking back to the result of last year in my journal
I had a result of 1015 points after 52 weeks. Each point is 25 EUR. So the total is roughly 25K EUR net.
Giving a margin (at Interactive Brokers) which varied over the year for the FIRST Dax future INTRADAY
between 6600 EUR to 9000 EUR and we take the less favourable 9000 and put ALL IN to trade then the
gain was > 250% on that first capital. (Of course much less if you only trade 2% of your money).
Stacking up over the year the gain to trade more than one Dax future (the margin from the second one
is less) could have given 750% (with 1-5 futures over the year and 3 at the end).
Just an example of how that gain percentage can vary.
If this was a good year I can not tell - but some experience in trading is absolutely necessary...

GFIs1

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ucanttrade
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A day trader has to look at percentage results on a monthly basis, in my opinion. Very few day traders actually show profit on a yearly basis.

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  #66 (permalink)
 COTtrader 
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A 100% rate of return on your original investment per year is achieved by making only 1 ES point (4 ticks) per day on a 10K account. That is my rate of return on 1 contract. Trading 5 contracts on a 50K account, I earn $50K a year.

After I make 1 point, I go to SIM. More ticks are not necessary only more contracts to increase my return. Once you make it, don't give it back. Keep it! That is a hard lesson for most traders.

Ken "COTtrader"

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 mattz   is a Vendor
 
 
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This is an article about the best earners out there:

The 40 Highest-Earning Hedge Fund Managers And Traders - Forbes

We see some of the best out there @ 25-30%
Some stars that shined in the past earned only 1%

adds perspective.

M

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email support@OptimusFutures.com
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 bushido 
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Seems like people are using different bases to calculate return. I think its more accurate if return is calculated over the account size (assuming entire account is for day trading futures) rather than margin posted for contracts traded.

@COTtrader Good point. 1 ES point a day = 100% assuming 1 contract per $10K in account. Something that sounds so straight forward but so difficult to do consistently!

@mattz thanks for the link. those hedge fund managers are throwing around billions of dollars though, probably oversized for intraday futures trading? I don't know.

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bushido View Post
Seems like people are using different bases to calculate return. I think its more accurate if return is calculated over the account size (assuming entire account is for day trading futures) rather than margin posted for contracts traded.


@mattz thanks for the link. those hedge fund managers are throwing around billions of dollars though, probably oversized for intraday futures trading? I don't know.

You are most welcome. The idea was to show you what the best 40 are capable of, and to shed some perspective on risk/reward in trading.

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email support@OptimusFutures.com
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 mattz   is a Vendor
 
 
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A 100% rate of return on your original investment per year is achieved by making only 1 ES point (4 ticks) per day on a 10K account. That is my rate of return on 1 contract. Trading 5 contracts on a 50K account, I earn $50K a year.

After I make 1 point, I go to SIM. More ticks are not necessary only more contracts to increase my return. Once you make it, don't give it back. Keep it! That is a hard lesson for most traders.

Ken "COTtrader"

Can you please tell what stops are used, and why go to sim as oppose to quitting trading for the day as in walking away.
Always interested in hearing perspective of other traders.

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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  #71 (permalink)
 GFIs1 
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bushido View Post
Seems like people are using different bases to calculate return. I think its more accurate if return is calculated over the account size (assuming entire account is for day trading futures) rather than margin posted for contracts traded.

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.

GFIs1

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  #72 (permalink)
 bbstulsa 
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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!

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 kevinkdog   is a Vendor
 
 
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I personally know 1 guy with $15,000 account that regularly does over $1000.00 everyday. He must be the exception to the norm.

Ask this friend to teach you. Seriously. Anyone pulling in $250K per year on a $15K account is unbelievably good. Listen to what he says and does.

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 josh 
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bbstulsa View Post
I personally know 1 guy with $15,000 account that regularly does over $1000.00 everyday.

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.

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 kevinkdog   is a Vendor
 
 
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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.

Likely this is the reality of the friend's situation.

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 mongoose 
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josh View 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.

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.

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 josh 
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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.

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.

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 bbstulsa 
Tulsa, OK
 
 
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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?

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  #79 (permalink)
 josh 
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bbstulsa View Post
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?

Sure, any lucky fool can profit $500 on one trade. But only a fool would continue to play such a loser's game if he did happen to win once.

One loss, and you are down $800, 8% of your account. Have you ever had 3 losses in a row? You are down 25%, and now must make 33% profit to get back to breakeven.

If you were to embark upon such idiocy with real money, you would fully deserve losing it. Just give it to charity if you are going to be so reckless and foolish.

Sorry, but I am calling a spade a spade. If it is being rude, so be it. It is amazing how often I read this ridiculousness from people who have never tried it. "It's so easy." "Ever tried it?" "Nope."

Mathematics are not in your favor with the above strategy, and because of this it WILL lose, sooner or later, but from the sound of it, sooner.

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  #80 (permalink)
 bbstulsa 
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You are right! Only a idiot would trade that recklessly.

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  #81 (permalink)
pinetree
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Interesting topic. This is one of the biggest questions we traders struggle with - how do we measure our performance? Is X% a year good or just ok? Is X% of the days range good, or is that a weak performance?

Everyone comes into this with sights set way too high. Market lore is filled with inspiring success stories, combine that with internet-fueled urban legends and false advertising from vendors, and you really can't blame newbs for having pie in the sky dreams.

I think when we read about Marty Schwartz or Michael Marcus and their accomplishments, it probably didn't occur to us that their trading talents were on par with those of sports stars like Michael Jordan or Joe Montana or Tiger Woods, and thus expecting to perform at that level was not reasonable at all.

Brett Steenbarger had a blog post that touched on this and I'll link it. (hope it's ok to post a link - it's to a free blog) :

TraderFeed: The Capitalization of Traders: Why It Is Crucial to Success

I think most would be surprised (I know I was at first) that the brokerage contact had never seen a sub-100k trader generate returns that could sustain a living. Goes against all the hype, doesn't it? When he said over 80% blow out, note he said the % is much higher for small accounts. And that's just those who lose it all. It doesn't include those who lose, but stop before the account is depleted. Sobering.

So I'll go with Brett (a verifiable real person) before I believe anonymous internet stories of making 1k a day off a 15k account.

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  #82 (permalink)
 Fadi 
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pinetree View Post
I think most would be surprised (I know I was at first) that the brokerage contact had never seen a sub-100k trader generate returns that could sustain a living. Goes against all the hype, doesn't it? When he said over 80% blow out, note he said the % is much higher for small accounts. And that's just those who lose it all. It doesn't include those who lose, but stop before the account is depleted.

I couldn't agree more, and I am definitely not surprised.

Small accounts naturally push a trader to overlook all money management rules to give some sense to his trading, simply due to the simple fact that the numbers are so small for satisfaction, let alone complete financial independence.

If one is trading a $50,000 account and is to respect institutional money management strategies, standard financial engineering and general risk management rules, he can't expect more than 20% to 40% return per year on average, and this won't happen each year, please trust me on that... This accounts for a $10k to $20k gain per year gross.

So how can a trader live on such an income per year?
Of course many people live with less, but these guys never tried trading for the most part... Usually retail traders come from a middle to higher social class, with some kind of education, an average to a good job position and most importantly a certain level of income that allowed them to save those $50,000 in the first place.
I have yet to see a trader that takes a loan from the bank to start trading. Not saying it never happened, there surely is somebody out there who thought about it and tried it; but I'd better not encounter such a case for the remainder of my career

Successful people will do what unsuccessful people won't or can't do!
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  #83 (permalink)
 SammyD 
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Great insight here guys. Thank you!

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  #84 (permalink)
mwtzzz
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pinetree View Post
Everyone comes into this with sights set way too high. Market lore is filled with inspiring success stories, combine that with internet-fueled urban legends

Yes, most of those "success" stories are temporary and involve substantial risk, much more than the average person would be comfortable with. In fact, many of the traders behind those stories later on have admitted that they were reckless and would not do it again. Skating very thin ice.


Quoting 
So I'll go with Brett (a verifiable real person) before I believe anonymous internet stories of making 1k a day off a 15k account.

Yes it is entirely unrealistic because it fails to account for drawdown periods, much less make any attempt to quantify those drawdowns. People should realize that rewards are commensurate with risk. With a reasonable strategy you can expect maybe 1-3 reward/risk ratio. For every $1k you earn, you have to wait through a $3-$4k drawdown in the process.

So if you're getting 1k/day, you're taking on a $3k loss during that same day. And you're repeating this day after day. Of course all days aren't the same, so your $3k loss will get carried over sometimes. Now you're talking a two, three or four day period where you're not making any money, and you're carrying a $3k loss. So, the "$1k/day" thing actually is no longer a $1k/day. It is now a $1k/4 days. Or $1k/week. Or $1k/two weeks.

And your drawdown will not stay at $3k, unless you have really really good money management techniques. So your drawdown will fluctuate too. Unless you know what you're doing, your drawdown runs the risk of a margin call. Then it's game over.


Fadi View Post
Small accounts naturally push a trader to overlook all money management rules to give some sense to his trading, simply due to the simple fact that the numbers are so small for satisfaction, let alone complete financial independence.

Absolutely. Risk is commensurate with reward. To get X reward, you take X risk. To get X + 10 reward, you take X + 10 risk. Small accounts means small risks and small rewards.

And 30% net return per year is definitely not something any beginning trader should even consider likely. Those are best case figures for professional traders. I mean, most people are going struggle for a couple years at least (if they survive that long) to barely break even. Then hopefully they have enough insight and acumen to be able to tweak their strategy enough to where it starts getting profitable.

You can't just go into trading without doing any thinking. You have to spend a lot of time thinking about your risk management, your setups (entries/exits), your markets - what drives them, what defines them. But nobody does this. Everyone jumps into it with the "jock attitude:" "I'm a gunslinger. I'll make it work with confidence and adrenaline."

Naw. you won't.

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  #85 (permalink)
 josh 
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mwtzzz View Post
Absolutely. Risk is commensurate with reward. To get X reward, you take X risk. To get X + 10 reward, you take X + 10 risk. Small accounts means small risks and small rewards.

I agree with the overall sentiment of your post, but am scratching my head a bit at the above quote. You seem to be describing a symmetric risk profile. The best traders make their profile asymmetric; some great example of large funds doing this are in the Hedge Funds MW book by Schwager; they create opportunities where the downside risk is fairly limited, but where the upside potential is quite large. I'm not suggesting that as potential reward goes up that risk should not also go up, but I am saying that it does not need to (nor should it be) a symmetrical, linear relationship.

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  #86 (permalink)
 kronie 
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What is a reasonable return?


something that allows you to return the next day and turn the machines back on.


((hint: Trading Places )))

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mwtzzz
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josh View Post
I agree with the overall sentiment of your post, but am scratching my head a bit at the above quote. You seem to be describing a symmetric risk profile.

Yeah, don't take it literally. It's just to make the point that greater returns = greater risk.

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pinetree
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I also want to add that while Brett's post may seem discouraging, at no point did he or his brokerage contact ever say small retail traders couldn't be profitable. Just that they weren't going to make enough to sustain a living.

I personally know of two traders that trade for a living (primary source of income is trading) from home in a retail account who started out as typical undercapitalized newbs. I see a lot of crap that makes me skeptical but both these guys have passed my BS test and I completely believe both of them.

They didn't just start making a living off an 8k account though. It was a long process, including initial years of frustration-- losing money and sim trading, then growing their capital through trading profits and continuing to work a job until it was enough so that they could quit the 9-5 jive for good.

I can't say how much money they make or what size they are trading because neither of them volunteered it, and I thought it would be impolite for me to ask. But I can confirm that they each started out with less than 10k and "made it" in under a decade.

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mwtzzz
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pinetree View Post
I also want to add that while Brett's post may seem discouraging, at no point did he or his brokerage contact ever say small retail traders couldn't be profitable. Just that they weren't going to make enough to sustain a living.

My homepage has a trading section that summarizes my views on trading. In my opinion, long term success hinges on whether or not you do the things listed in the "Guidelines" section.

Is long term profitability possible? Yes it is. It is difficult? Not particularly, once you've defined and quantified the key things. But getting to that point is a bit "tricky" because it requires that you have a correct understanding of what motivates asset prices and that you have done enough strategizing to develop a good method of limiting risk. As all traders know, the tricky part is limiting risk while still remaining profitable (over the long term.) Once you've gotten past that hump, the rest is straightforward.

Getting past that hump really gets to the heart of the matter: the ugly words "randomness" and "unpredictability" that traders don't like to hear. But, once you embrace those, you're halfway home.

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 bijeremiad 
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Here is another "in the wild" observation of Charles Kirk.



The graph comes from an article in Barron's.

Impressive returns, but far from $X per day, day-in-day-out.

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 bushido 
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This guy ( Profit Expectations) says 2 points per ES contract per day, which is $100 bucks on a $10k capital, which is 1% per day.

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 bijeremiad 
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Here are the trading results of a day trader from Norway.

"Averaged" $1475 per day over 10 years. First few years were "learning", good years 2006-2009, more challenging lately.

85.7% profitable days. Only 15 losing days in 2006, 17 in 2007 and 8 in 2008. But more recently he has had two losing months in January 2012 and April 2012.

Another thing to keep in mind is that his profit is only 0.07% of the notional $5.1BN of stock traded. Edges are tiny.

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 bijeremiad 
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Here are the monthly results of a day trader, Matt. Trades stocks with a prop firm, mostly his own money. Employs mountains of leverage, buys thousands of shares and takes dimes and dollars out of the market. You can see him progress over 4 years from $120/day to $8k/day.

Here is his view of the trading landscape in terms of those who survive/thrive in the trading world.

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 bijeremiad 
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In another post, I discuss the results of 266 day traders at a day-trading firm that came under SEC scrutiny and made the P&L of their traders part of the public court record.

The profitable group falls into three buckets: 1) single digit returns (averaging 4%), 2) market-like returns (averaging 21%), and 3) leveraged returns (200%+).

Unfortunately, no way to tell how much leverage used, nor what the draw downs were like.

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 bushido 
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Great posts and research bijeremiad!

The day trader from Norway seems to be employing multiple strategies involving illiquid stocks. That may not compare that well with day trading futures. Nonetheless, the results are very impressive.

Your research on Tuco is quite illuminating, with less than 10% being profitable enough to be considered making a living from trading.

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Ilikefutures
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One of my favorite books is "Live The Dream by Profitably Day Trading Stock Index Futures" by Gary Smith. This was written back in 1994-1995. Gary was unprofitable for many years, and then decided to start day trading stock index futures (NYFE and S&P 500). He set a goal to just be profitable every month. I think that should be a good place to start for any day trader, rather than focus on any type of return. Over 90% of traders are unprofitable to begin with, so start with this seemingly modest goal. And, don't quit your day job!

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 bijeremiad 
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Here is the capitalization plan of Maverick FX.

Looks like they would expect you to return about 4.5%/yr on your buying power - unlevered. The levered returns are more like 125%. Presumably these levels exist because they have had some people achieve them. No discussion on line of those statistics...


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 bijeremiad 
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Here are "implied" results from trading room recommendations from Maverick for 2013 for the FX group. Average win rate was about 55% with Wavg/Lavg around 1.7. Can't really tell but looks to be about 12-15 trades per month.




Here are some slightly different numbers from their equity/options group. They mentioned 2013 was their worst year for the last 5. Have seen win% in the high 50s to low 60s and Wavg/Lavg closer to 2:1, with calculated returns in the 50-80% range.


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  #99 (permalink)
 sands 
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As subjective a question as I can think of :-)

Myself I pay more care to the daily pnl, and try to get some consistancy there. Then checkpoint against weeklies and monthlies to ensure I'm not overly or underly active. Annual pnl takes care of itself.

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Rock Sexton
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Zwaen View Post
Maybe not entirely on topic, but your post reminds me of stages in method development. In earlier times, when was searching and constructing a method for trading, I wanted to find a profitable method too much. I started deceiving myself, cooking my own statistics, to make the method profitable. For example, finding some reasons to not take some losing trades, or finding a ‘filter’ which had no logical basis. This kind of self-deceiving is very sneaky, and it took some time before I recognized my behavior.

This behavior reminds me off the general trait known as backwards rationalization: after some facts happened, your minds finds reason to make you feel better( or rationilizes it ). For example, how many times after you lose something (material possession / job etc) you told yourself ‘ it wasn’t that good anyway’ ? If you not already have done, look around at people and you will recognize that almost everyone constantly applies this behavior. It is very deeply rooted.

Off course, when I started trading the ' profitable' method with real money, I always had problems pulling the trigger. Probably because deep down I knew, the method wasn't that good, and I had been self-deceiving.

Then at a moment I recognized this behavior, and I flipped it around: I constantly try to find holes in a method, and try to find reasons why it will not work. Only if a method survives this stage, I will find it tradable - robust. Be very hard for a/your method, or in the end you will pay for your behavior.

This post is interesting because for me, I've always been the guy trying to poke holes in my own system. That trait is what helped me get it to where it's at today. I'm amazed at what it's become considering I'm entirely self-taught and yet I still find myself looking too hard for reasons to be wrong. It's quite strange.

I've been attempting to get to the root of my cynical behavior and my relationship to money because it prevents me from executing trades properly at times or even executing them all. Too often I'll look at stocks that match my criteria and try to discern which one is the likely winner. This defies the nature of distribution of win/losses in a system. This does not allow the averages to bare out as they should. If the system is sound and the risk management is in place, then cumulatively one should come out ahead.

BTW, I transitioned into swing trading full time over a year ago. I got to a point where I knew I couldn't go on day trading high risk positions for small pockets of movement for the rest of my life. One of the things I'm also trying to work on is my reluctance to remove risk via scaling out. Too often I'm narrowly focused on the total profit factor if I hold the entire position from A to Z.

I currently find myself down 6% on my $300,000 capital. Some things beyond my control happened leading into the new year and I made an unwise choice to offset the situation by increasing positions sizes about 2x-3x. It got me completely off my game. I couldn't mentally handle the $ fluctuations as the position was working itself out.

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