Article

What can I make in my first year trading?

We get questions like this one quite often. We find that most aspiring traders don?t have a clue as to what to expect from the market. Yet here they are, putting up their money. Most are going to learn the hard way. We have no idea in the world what you can expect to make in your first year of trading, or any other year, for that matter. What we can tell you is that without proper guidance and help, you are probably going to have some very bitter experiences. Why? Because your anticipations are almost completely wrong.

Futures traders, especially beginning traders, often open an account with unrealistic expectations of trading performance. These expectations could be formed by the sales literature for a trading program that emphasizes its profitability, by reports of success stories by top traders or by some brokers within the industry. In all cases, you are rarely made aware of the many other times when performances were considerably worse. In other words, you are a victim of selection bias.

Most advertisers of courses, systems, books, etc., will mislead you into thinking that you just can?t lose if you buy what they are selling. We are talking here about hype, major hype ? as much as the authorities will allow them to get away with.

Selection bias is a term well known within the social sciences and occurs whenever some undesired screening factor leads to a misrepresentation of a population sample. For example, traders seldom express their losing trades with as much enthusiasm as their winning trades. Consequently, a random selection of letters or phone calls received by a company that sells a trading program often will overstate the proportion of traders who are doing well. Sometimes the cause of the selection bias is not obvious. For instance, let’s say that a trader who purchases a very expensive price and charting package is more profitable than another trader without it. The merits of the package seem obvious. Maybe not. It could be that the individual who can afford to purchase the package is better capitalized than the other trader and this is the reason for the better performance.

Starting off your futures and options trading experience with unrealistic expectations inevitably will lead to frustration and disappointment. It’s better to face reality now. It will make life as a trader easier down the road. Here are just a few facts to dispel those unrealistic expectations.

  1. More traders lose money than make money. The figures are fuzzy, but it is 80% to 90% (maybe more) who end up losers and leave.
  2. Within the industry, only a small percentage of retail traders are profitable on a consistent basis. Moreover, if you are just starting out, you should expect to incur some loss strictly due to error on your part as you climb up the learning curve. Increased trading knowledge and experience combined with trading strategies that have superior risk/return characteristics can help put the odds of success in your favor. So, it is important to study the markets and educate yourself before trading or, alternatively, you can rely on the support of your broker professional. Another option you may also want to consider is paper trading. It’s a viable option because it’s a lot cheaper to make a mistake in a fictitious account than a real one.
  3. You will have losing trades. In fact, most of your trades will be losing trades. It is impossible to predict price movements every time. Even when the technical and fundamental factors are in agreement, the market often moves in an unexpected way. This can even happen several times in a row. For this reason, it is always important to make sure that loss is limited on every trade and that you have sufficient trading capital to withstand several losing trades without being taken out of the game.
  4. Don’t expect to become financially independent. It’s unrealistic to expect a small-sized account, especially one under $5,000, to generate consistent income to replace regular employment. While this may be possible for a very low percentage of traders, it does often require high-risk trading. High-risk trading means that if you are one of the many who lost money, then you probably lost your money very quickly and you may end up owing even more money to the clearing firm. High-risk trading should be avoided, especially by the beginner. Rather, concentrate on low-risk, low-frequency trading and devote appropriate effort to increasing your knowledge and understanding of futures trading.

Keep in mind that, as a beginner the emphasis should be on learning and proceeding slowly. By that, I mean practicing in a paper trading account and confining your trades to those that have low risk. The expectations of huge profit that many beginners start out with may be realized, but only after you invest the requisite time and energy and only after a slow and realistic start.

Joe Ross, trader, author, educator, is one of the most eclectic traders in the business.  His experience of 47+ years includes position trading of shares and futures.  He daytrades stock indices, currencies, and forex.  He trades futures spreads and options on futures, and has written books about it all—12 to be exact.Joe is the discoverer of The Law of Charts™, and is famous for the Ross hook™ and the Traders Trick Entry™ . These concepts are explained in detail in a free e-book at Joe's site TradingEducators.comJoe also runs a site focused on futures spread trading, which can be found at http://www.spread-trading.comJoe holds a Bachelor of Science degree in Business Administration from the University of California at Los Angeles. He did his Masters work in Computer Sciences at the George Washington University extension in Norfolk, Virginia.

May 8, 2003
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#2
This article was originally posted on the forums yesterday by mistake. I've removed it to avoid confusion. Apologies to the three people who posted on the thread - I thought I'd be able to copy them to here but my lack of mod skills strikes again! Maybe another mod could help me out?
 
Aug 28, 2003
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#4
Interesting, but could you post some benchmark figures so that readers can compare their results.

It would also be useful to categorise the benchmarks for different types of trader. For example, a private retail trader learning the ropes on a £1,000 account will have little chance of beating a graduate at a big bank.
 

Roberto

Well-known member
Aug 28, 2004
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#5
Always a pleasure to see Joe's input here. Some interesting points, of course. I think that sometimes in other areas of life (as well as in trading) people have a tendency of greatly over-estimating what they can achieve quickly, and sometimes under-estimating what they can achieve slowly.
 
Jan 14, 2003
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#7
JonnyT,

I reckon around £520,000 is a reasonable target for a novice in the first year. £10,000 per week
I think you are being too conservative in your targets here, it must be your risk averse approach that has given such a low target for a novice trader :)


Paul
 
Aug 25, 2003
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#8
If you can trade full-time for real for 12 months and not lose anything then you have cracked the concept of capital preservation.

In your 2nd year you can then move on to actually making money and increasing your capital.

And yes, in your 3rd year, well £10,000 per week is easy meat, lol.

Personally I have achieved the first 2 and the start of year 3 is but 6 months away.
 
Jul 10, 2003
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#9
What can you make in your first year's trading...?

Based on personal experience and reading between the lines from many other posters.....

1. A lot of Mistakes

2. Many erroneous Assumptions

3. Some small winning trades (cut profits)

4. Lots more losing trades (let losses run)

5. A decision to really use Stops

6. A decision to limit your risk to less than 100% of your total capital.

7. A Medium to Large to Total Loss

edit: axthree's post jogs memory - unfortunately...!


8. A lot more trades than you should have
 
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axthree

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Feb 19, 2004
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#11
I've not posted on the boards for a while. (nothing of much interest to any of you).
But this seems a good place to make an admission.
Having traded small via SB for 18months and having more winners than losers I have managed to make my eyes water over the last couple of weeks.
The most important and costly mistake I've made is carelessness in stop placing.
Next comes the urge to be in the market.
Finally, to let a position run when I'm not totally relaxed about it.

Having said all that, with a big enough pot I could still have made £520,000 on the first trade :LOL:
 

Glenn

Well-known member
Mar 9, 2003
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#12
There is no skill needed to place a trade which happens to make money.
Anyone can do it with no training or trading knowledge whatever.

Doing it consistently is another thing altogether.

Glenn
 

Glenn

Well-known member
Mar 9, 2003
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#14
axthree said:
As I have discovered. I can only assume then that I had 18 months luck?
More likely an assumption of on-going 'luck'.

You said it yourself:-
"The most important and costly mistake I've made is carelessness in stop placing.
Next comes the urge to be in the market.
Finally, to let a position run when I'm not totally relaxed about it."


Seems like you allowed yourself to get sloppy and you lost the earlier consistency.


Glenn
 

Glenn

Well-known member
Mar 9, 2003
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#16
Tuffty said:
If you make money over the course of a year, how do you know it's not just luck?
I don't know anything Tuffty.
That's why I used phraseology such as "More likely.." and "Seems like..."

If you want the professional reply, then the answer would be in the form of questions. i.e.
1. Do you have a system which gives you an edge ?
2. Do you have the discipline and freedom from emotion in order to be able to use the system consistently ?

If Yes to both, then you are a trader.
If No to either, then you are (were) just lucky.

Glenn
 
Likes: Roberto
Jan 14, 2003
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#17
If you make money over the course of a year, how do you know it's not just luck?
It is highly unlikely that you could be consistently profitable by "luck" alone for 5 days a week and for 48 weeks of the year. If you can do this then by statistical norms alone, it is not down to luck.


Paul
 
Nov 20, 2003
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#18
What can I make in my first year trading?

lol nothing if you lucky if you break-even you have done well. Lets get real if you did make money lets say in you first 6 months as a new trader. I can 100% sure you. that you would give it back to the market. You would get over confident that you are Mr market wizard. It happen to me lost a ton. but thankfully I am making money now, but I would say one needs to experience loosing first You learn more that why, yes I know it harsh but so true.

sun
 

Roberto

Well-known member
Aug 28, 2004
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#20
gullible said:
SB companies will not allow you to 'win' £1/2M
You make it sound as if you believe it would be their money that you'd be "winning", gullible!

Like others here, I make my living that way and I can assure you it's not.

It's not like betting on horses, you know. :)

With statements of this kind all you're really demonstrating is your complete ignorance of how the spread-betting industry works.

Sorry to leap on you yet again, honestly. The _last_ thing I want is yet another tiresome argument about spread-betting, but it's really very, very annoying to the people here who make their living by spread-betting to see such prejudicial, ill-informed and untrue statements casually tossed out to misinform everyone else. It's not your gullibility that concerns me: it's the fact that newbies and others with little experience might actually believe you!