Percentage Profits

I’m a novice when it comes to trading. I’ve read a few books on the subject and it is getting more interesting the more I read. One of the key things that seems to be recurring throughout most of the well written books I’ve read, is business planning. On this subject I have the following query I hope some of you more experienced traders can help me with;

Within “Come into My Trading Room” (Elder) he says the percentage return you can expect to make from trading is approx as follows:

Beginner: loss of 10% to one a half times return on T bills

Intermediate: twice the current rate on T bills to 20% annual return on equity

Expert: same as Intermediate (although you may grab a 100% return in a good year)

Are these estimates reasonable?

Do any of you guy’s rate this book?

Many Thanks & Kind Regards

I have no idea how Elder (a) estimates his relative returns or (b) defines the 3 'levels' of trader.

It's a little too pat to be anything other than guesswork and even though the guy may have some expertise in the field of trading, I suspect his exposure to real live traders in those three 'classes' is far more limited than you might imagine.

I've not been able to find any empirical evidence to support his claims on a quick search on the internet. Doesn't mean it doesn't exist of course, but tie this in with the perennial questions relating to percentage of losers etc. and you can form a reasonably solid view as to the paucity of data in this area.

To define these classes would be difficult enough. To ascribe such specifics to their relative success is foolish in my view.

Haven't read the book, but I gather he is comparing a rock solid and low risk investment such as a T-bill with trading (rather than investing). For a start, they're two quite different strategies and can't really compared like-for-like. And what does "10% to a half" relate to? The 'beginners' trading capital? If by beginner he means someone who isn't consistently successful with their trades, I'd say the figure would be nearer 100%. If an intermediate is someone who makes more winning trades than losing trades AND makes more profit than loss (oh yes) an annual return of 20% wouldn't be enough to keep them in the game, or interested in being in the game.

My point is, and it is my strongly held view, based on my equally limited experience of other traders and my own transitions, that the move from beginner to expert has to be rapid. Very, very rapid. It's a quantum thing rather than a linear progression. Anyone else agree/resonate with this?

I can't comment on returns as this is a subject which doesn't get discussed too openly among those who do genuinely trade for a living, but if you're only getting 100% pa, you're taking it easy. And I consider myself a very cautious trader.

TheBramble said:

I can't comment on returns as this is a subject which doesn't get discussed too openly among those who do genuinely trade for a living, but if you're only getting 100% pa, you're taking it easy. And I consider myself a very cautious trader.

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Getting people to talk about how much money they actually make is rather more difficult than it might seem at first, possibly because they are making a bathload and don't want endless questions about their method, or maybe because they aren't doing so well.....

Face it, some people make a living off this, and if you're competent, and you don't get shafted by unpredictable market events, you could make 2000% in a year, if you had the right system, the right instruments and balls of steel. It all depends on your attitude to trading.

Thank you “TheBramble” for taking the time (obviously very profitable time) to reply to my post.

The “loss of 10% to one a half times return on T bills” in my original post should have read. A loss of 10% of trading capital in 1st year (worst case that would be acceptable) to a goal for a beginner to generate an annual return equal to one and a half times the current rate on T-Bills.

I think what Elder is saying here is that a lot of good (world class) traders fail in the beginning and therefore in the beginning you should try and minimise your losses or make a small profit within your 1st year or so, or until you have learnt the craft of trading.

The Beginners Capital? Elder states earlier in this book that the minimum account size you should start with is $20,000 (although he recommends $50,000)

Your comments “I can't comment on returns” probably gets to the heart of what I’m looking for. If I am serious about trading (which I am), I’ll want to develop a business plan, (as I would for any other type of business) If I want to develop a business plan, what do I base my income projections on, if the information is not out there?

Elder’s book, as mentioned above, is the only book I’ve found that estimates these figures. (I’m open to suggestion here if there is anyone who knows of any reputable books or web site were this information can be gained)


Jbat001 Thanks for your comments

I agree with your comments on getting people to talk about returns.

I’m not sure about your comments on being shafted by unpredictable markets events. How could I possibly blame the failure of my proposed trading business on “unpredictable market events”, this sounds like an excuse for my failures as a trader. Surely the unpredictable market events are just as unpredictable for 99% of all other market participants.

“2000% profits a year and balls steel” sounds like no other business I’ve heard of. Sounds more like a lucky run at the horse racing to me (with all the associated risks). My attitude to trading (or any other business) could not allow this.

Thanks

belflan said:

Jbat001 Thanks for your comments

I agree with your comments on getting people to talk about returns.

I’m not sure about your comments on being shafted by unpredictable markets events. How could I possibly blame the failure of my proposed trading business on “unpredictable market events”, this sounds like an excuse for my failures as a trader. Surely the unpredictable market events are just as unpredictable for 99% of all other market participants.

“2000% profits a year and balls steel” sounds like no other business I’ve heard of. Sounds more like a lucky run at the horse racing to me (with all the associated risks). My attitude to trading (or any other business) could not allow this.

Thanks

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No worries

MY 2000% was an extreme example, and it refers to a spreadbetting methodology where bets can be 'safely' and gradually increased. If you look at a juicy volatile currency pair like USD/SEK or USD/NOK, even a relatively simple MA and MACD trading approach will yield great results. Use the same system on EUR/USD though, and you'll lose money hand over fist. This is what I mean about choosing the right instrument. Not all methodologies are suitable for all instruments!

Unpredictable market events are times when an instrument spikes a couple of hundred points in five minutes, gaps clean through your stoploss and you take a big loss. These happen, and they are survivable, but I was even more thinking of the psychological aspect of losing that much money in a day. This is where the final requirement, the balls of steel come in. Once you've chosen your methodology, and the indicators say 'Go In!', you go in, and don't come out until a very precise set of exit conditions are met. I feel like if my exit indicators are even a little bit ambiguous, I don't feel safe.

The market is an animal - I hope to always keep in control of it, rather than vice versa.

I read Elders book a long time ago and as far as I can remember the section on potential returns was more by way of managing expectations. It is easy to go into this business expecting wild returns after a short learning period. Take on board his advice on the first year and plan on not making any money and living off other funds. I think his comment that losing 10% is the minimum acceptable is worth taking on board and have rules in place to make sure you control any losses. Put together a plan on how you will learn to trade in a year not how much you will make.

Best of Luck

Thanks again “Jbat001”

I’ve also read in a few different books that you should limit your market exposure to 1-2% (of your trading capital) on any individual trade, and 6-10% overall (of your trading capital) at any one time. I take it that your 2000% extreme example would be outside of these limits (i.e. it may be a methodology for me to look at a few months/years down the line when I’m more experienced?)

I pulled up the USD/SEK and USD/NOK pairs you mentioned on my ETrade demo account along with MA and MACD (you call these “relatively simple”. These indicators are a about as far as my understanding stretches at the minute). I can’t back test what your suggesting here (don’t have the software) but I take your word for it that a MA and MACD methodology would work well (What time frame were you thinking of I’m looking at Hourly’s). I understand that these types of pairs are more volatile, but does this mean that they are likely to give better returns than EUR/USD with these simple strategies? What strategies work better on the more stable pairs; say GBP/USD or GBP/JPY which I’ve been trading in my demo account?

In the absences of anyone’s account history (which I’m pretty sure I’m not going to get without it being a lie to try and get me to buy something). Would back testing trading strategies be a reasonable way to predict what profits I could make from a trading business? I know there can be some problems with doing this. (i.e. you start tweaking the indicators to get the prefect system that will work on your chosen instrument for the last few years, but this itself can not predict how it is really going behave in the future.)

Or

I read on another thread how a newbie has been trading a demo for 10 months now, should I do something like this so I have my own almost real data to go on for projected profits. (As you can probably tell I’m reluctant to risk any money unit I have a good idea what I’m doing and if it will be profitable)

Garethb thanks also for your comments

When you say “put together a plan on how you will learn to trade in a year not how much you will make” I take your point. I’m not in any way seeing trading as a possible get rich quick scheme. I totally acknowledge that trading for a living is not an easy way of making a living. What I’m trying to find out is if a normal, hard working, semi-intelligent (debatable) person like me can make good money trading, or should I believe the press that most traders fail and it not worth thinking about as a business. I liked the idea of trading, I’ve read some books on it and now I like it more. But if I don’t believe it is a viable way of making money (i.e. it’s for the chosen few). Then I’ll walk away now, and go do thing else. I haven’t been able to gain details of what I can expect in the way of profits except from books like market wizards, and these guys seem like the chosen few to me.


Thanks
Glen

If I do go on to be a full time successful trader I promise to give newbie’s access to my account returns records. (I reserve the right to change my mind about this at any time)

belflan said:

Thanks again “Jbat001”

I’ve also read in a few different books that you should limit your market exposure to 1-2% (of your trading capital) on any individual trade, and 6-10% overall (of your trading capital) at any one time. I take it that your 2000% extreme example would be outside of these limits (i.e. it may be a methodology for me to look at a few months/years down the line when I’m more experienced?)

I pulled up the USD/SEK and USD/NOK pairs you mentioned on my ETrade demo account along with MA and MACD (you call these “relatively simple”. These indicators are a about as far as my understanding stretches at the minute). I can’t back test what your suggesting here (don’t have the software) but I take your word for it that a MA and MACD methodology would work well (What time frame were you thinking of I’m looking at Hourly’s). I understand that these types of pairs are more volatile, but does this mean that they are likely to give better returns than EUR/USD with these simple strategies? What strategies work better on the more stable pairs; say GBP/USD or GBP/JPY which I’ve been trading in my demo account?:

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You certainly sound like a man with the right attitude. USD/SEK or USD/NOK are good specifically because they are very volatile. A Moving Average approach will usually fail because an instrument at some point will oscillate back and forth over your MA lines, generating false buy and sell signals (the infamous 'whipsaw' effect). You go in, it changes direction, you lose money. You reverse your position, it changes direction again, you lose money - very demoralising!

The scandinavian currencies tend to make big swings in either direction, meaning that they only very rarely loiter on or near the MA line, making a MA-based system at least possible. To make it viable, throw in a MACD oscillator. You can use this to check that the market isn't about to immediately change direction when you open a position, and it gives you some warning of when to get out too. Taking these together, you can work a profitable system that will return positive results - I tend to look at the 30 minute chart to weed out the smaller market moves. Choose an MA that isn't too long, and one that is really short, and you might just be surprised......

Choosing USD/GBP or other pairs with a smaller range makes MA based systems less and less effective. To trade these, you'll need to come up with a completely different methodology. Best advice I could think of would be not to despair of a system if it doesn't produce positive results all the time. The key to winning is not to always pick winners, but simply to ruthlessly limit your losses. If you can manage that, you'll win automatically

If you are not aiming for 1% per day, you are unlikely to be trading full time for long or for ever.

As to Elder's figures - pure hogwash. Those coming into trading do not lose just a percentage of their start up capital, which is normally way too small anyhow, they lose it all. Those that do not lose it all by chance, lose it all eventually. Only those that come into trading with the right attitude, appropriate capitalization, pre-defined game plan including risk and money management and a set of trading methods that will fit all market conditions get to make it.

Forget statistics.

Danger Field said:

If you are not aiming for 1% per day, you are unlikely to be trading full time for long or for ever.

As to Elder's figures - pure hogwash. Those coming into trading do not lose just a percentage of their start up capital, which is normally way too small anyhow, they lose it all. Those that do not lose it all by chance, lose it all eventually. Only those that come into trading with the right attitude, appropriate capitalization, pre-defined game plan including risk and money management and a set of trading methods that will fit all market conditions get to make it.

Forget statistics.

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Agreed. Properly capitalised, but much more importantly, properly planned, with a razor-sharp entry and exit strategy and balls of steel. It can be done!

Despite the sharkiness of the SB companies, I chose spreadbetting because it allowed me to do more with less in terms of start up capital, and I was very lucky in the early stages (might not have got away with it had I done it over again). Spreadbetting isn't a bad place to begin for a new trader.

Jbat001 said:

Despite the sharkiness of the SB companies, I chose spreadbetting because it allowed me to do more with less in terms of start up capital, and I was very lucky in the early stages (might not have got away with it had I done it over again). Spreadbetting isn't a bad place to begin for a new trader.

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You were very lucky. It wont hold. Spreadbetting is an excellent place for people to begin to lose money. I do not subscribe to the idea that more newbies go broke with spreadbetting companies than with brokers. The percentages are fairly equal. The only difference is the ante for a brokerage account is higher. Spreadbet companies mop up the small fry that would blow their money on stupid things anyway. They do a service in providing liquidity and hedge for professionals. Not to mention re-insurance.

Jbat001 said:

You certainly sound like a man with the right attitude. USD/SEK or USD/NOK are good specifically because they are very volatile. A Moving Average approach will usually fail because an instrument at some point will oscillate back and forth over your MA lines, generating false buy and sell signals (the infamous 'whipsaw' effect). You go in, it changes direction, you lose money. You reverse your position, it changes direction again, you lose money - very demoralising!

The scandinavian currencies tend to make big swings in either direction, meaning that they only very rarely loiter on or near the MA line, making a MA-based system at least possible. To make it viable, throw in a MACD oscillator. You can use this to check that the market isn't about to immediately change direction when you open a position, and it gives you some warning of when to get out too. Taking these together, you can work a profitable system that will return positive results - I tend to look at the 30 minute chart to weed out the smaller market moves. Choose an MA that isn't too long, and one that is really short, and you might just be surprised......

Choosing USD/GBP or other pairs with a smaller range makes MA based systems less and less effective. To trade these, you'll need to come up with a completely different methodology. Best advice I could think of would be not to despair of a system if it doesn't produce positive results all the time. The key to winning is not to always pick winners, but simply to ruthlessly limit your losses. If you can manage that, you'll win automatically

Click to expand...

Thanks Jbat001,

To be honest I’ve never thought about adding these more volatile currencies to my trading plan, but I guess at this stage I need to keep an open mind about what instruments I will trade and not to ‘personalise the markets’ as I have read somewhere. I’ll take on board what you’re saying here. (I’ve found free back testing software that comes as a part of CMC demo account platform, so this will be useful for my planning; I think the free software only lasts for a couple of weeks, but I’ll think about opening an account after that)

Danger Field said:

If you are not aiming for 1% per day, you are unlikely to be trading full time for long or for ever.

As to Elder's figures - pure hogwash. Those coming into trading do not lose just a percentage of their start up capital, which is normally way too small anyhow, they lose it all. Those that do not lose it all by chance, lose it all eventually. Only those that come into trading with the right attitude, appropriate capitalization, pre-defined game plan including risk and money management and a set of trading methods that will fit all market conditions get to make it.

Forget statistics.

Click to expand...

Thanks for your comments Danger Field

“If you are not aiming for 1% a per day, you are unlikely to be trading full time for long or for ever”

To an outsider/beginner this seems very ambitious/unattainable (I’m I wrong about this? Comments from other experienced traders would be much appreciated)

I guess to make a living of trading a lot depends on the account size you start with. (i.e. if I start with an account of say 100K, 1% per week will make me more top line than I’m earning at the moment.)

“Those coming into trading do not lose just a percentage of their start up capital which is normally way too small anyhow, they lose it all”

In fairness to Elder I think what he’s saying here is that because a lot of traders do, just as you say, lose it all, that a 10% loss (1st year) is the only loss that should be acceptable (i.e. very tight money management should be used to allow beginners to learn)

“Only those that come into trading with the right attitude, appropriate capitalization, pre-defined game plan including risk and money management and a set of trading methods that will fit all market conditions get to make it.”

I hear what you’re saying here, and I will not consider entering the markets without all the things you mention above. But my reason for starting this thread was to try and tease out of actual traders; if I was to plan etc (like you say) what the returns are likely to be.

It’s it worth the effort? Could the effort be more profitably spent going into a business of a different kind? Is this really just a hobby for the majority of you? (I see no shame in that if it is, but I would like it as a business)

Private professional trading seems (at the moment anyway) to be all “smoke and mirrors”. People who tell you what they’re making are usually lying to get you to buy something, and unlike most other business proposals you can’t project reasonable estimates of what profits you’re likely to make because the information is not out there (if it was, would I believe it? Now there’s a question).

In a dilemma :|

Thanks again
Glen

an old thread, wow

A very well written response from 'TheBramble', very nice.
Lots of other valid points in this thread too.

I don't aim for 1% per day but from my trade observations a typical day would return 1%+ ROI for me but then that can go either way during the life of the trade and normally it is the right way and larger the closer to expiration day.

Back to the YTD% question, on a good year hundreds of % is easily achieved on a not so good year it could be just a double digit or even a loss god forbid. For my own trading there has never really been a consistent amount and I've seen ranges from -100% in a couple of the beginning years to ranges of +40 to +300s in the later years. It also depends on how fast and furious I am drawing down the profits which funnily enough in my earlier years had a lot to do with the very low gains as well as some of the -100%ers

You trade, you learn and next years is another year in the markets regardless.