Profit

[juanbyte]

Hi

I think this is the right place to post.

To develope a trading system it is necessary to first define the goal i.e. what you want.

With this in mind I would like to see if we could achieve from members a concensus or range for a monthly return on capital.

I think it is possible to get a 40% monthly profit what do others think. You can put what is possible and what you would like if the two are different.

 

[Helenqu]

Ok well I'd be more than happy with 10% a month, that's the figure I have in my business plan and I think that is a fairly realistic expectation with Futures.

 

[Mr. Charts]

We live on the 15%-25%, often more, monthly profits I make trading US shares intraday. So yes, sometimes 40% but not frequently.

 

[nobrainer]

My target is 5% per week , non compounded ,on my trading capital.My new years resolution has been to withdraw funds every month, in order to keep my available margin low, so preventing me from doing any bigger trades at gni than I already do.It also keeps me hungry and prevents complacency which has def. been a problem in the past.
Hard to compare percentage targets cos everyone starts with differing capital.Its naturally far easier to achieve a high% return on a low capital base.

 

[juanbyte]

Thanks nobrain some good points

Regarding withdrawing funds this is a good idea because if you increase your bets with inline with the increase in capital the risk of ruin is the same, a good idea is maybe to withdraw half the monthly winnings.

I do think however that comparing percentages is the correct way because if you have 100,000 it is much easier to make 1,000 per month than it is to make 1,000 starting with just 2,000.

 

[Uncle]

Nobrain has the right idea and 5% per week equates to my 20% per month. Remember the twin evils.........FEAR and GREED are the killers when trading.

John

 

[JonnyT]

40% per month or more is possible but I think this entails risk of wipeout.

Certainly with futures I think using a certain amount of equity per contract is probably the way to go. I know traders who specify £10,000 per contract on FTSE whereas you can trade one contract for < £1900 if you so wish. Doing that would mean a drawdown of 190 points would wipe you out, and a very minor drawdown could stop you trading.

My backtesting suggests £2000 to £3000 profit per month per contract on FTSE is possible so this would equate to 20-30% per month using £10,000 per contract. However one system I have tested has a worst drawdown of 70 points (£700) so £5000 per contract would be OK which is nearer your figure. However when you start trading multiple contracts I think protection becomes more important.

To sum up:

When starting out maybe 40% is possible, but when it becomes a living and hence serious business 20% is more than acceptable as a target.

JonnyT

 

[suggy]

i would aim for 1% a day, but obviously most dont get what they want. i have read that looking at points is a good way to take the greed/fear out of trading. i.e try for 20 points a day and adjust ur stake size to suit

 

[cassiopeia]

juanbyte

I never understand what people mean by 40% profit.

It is possible to have an exposure of 20 times your margin or more in some cases, some people prefer to define profit relative to the margin rather than the exposure. Inevitably the profit (or loss) level is very high if defined in this way but it means very little since the profit or loss depends on the margin allowed and the volatility of the underlying instrument as much as how well you are doing

I always think in terms of effective exposure rather than the margin, as if I had bought the shares, so 10 pounds per point on the FTSE100 would be in the region of £40 000 so £4000 profit is 10%.

40% a month profit as defined in terms of effective exposure is a massive amount, even with a volatile instrument and if anyone can do this consistently he/she is doing very well indeed. This is equivalent to 5700% (57 times) compounded profit over the year, so based on £10/point on the FTSE you gain £2.26 million over the year.

Forgive my skeptisism, but achieving this sort of gain without incurring large drawdowns and thereby risking your entire capital and heart attack must be very difficult.

 

[juanbyte]

profit

cassiopia

I would define profit simply as return on capital that is available to invest.
So for every 1000 you have at the beging of the month 40% profit would bring this to 1400.
If we have 20 trading days per month this is only 1.7% a day compounded.
We will have agree to disagree on the exposure bit, yes if you buy all the shares in the FTSE you would have to layout 40,000 and your profit would be 10% but you are not (I hope). This is why people trade futures for the leverage, sorry but I do not see the point in counting something you do not use.

This is straying a little from my original post which was what other people would think would be a reasonable return.

The 40% was just my thoughts. yes this is nearly 5700% pa but in the past I have made 5501% in a month, i.e. from just over £200 to £11,300 in just 4 weeks. This was probably a one off and I was at the screen constantly for 9 hours day and I do not think that this is how the majority of people want to trade.

I am trying to develope a system with only two trades a day and a max of one hour work and just wish to find a return that would suit most.

Today it was possible to have an 80% return on capital i.e. buying the low and selling the high so acheiving just 1.7% should be possible and have less risk.

Thanks for your imput so what would you say is reasonable.

 

[ChartMan]

I made 8% today. Could I have made 80%? No. I would have closed every trade after 1/2 point profit and the slightest hint of a pullback, being scared wittless by the margin.

 

[juanbyte]

Hi ChartMan

I am only aiming for 2% but like you panicked and only made 1.7% today, it did go flat at the begining.

8% is great and will soon increase your capital, I only got 8% in a year on my pension.

Use smaller stakes if you are uncomfortable with the margin


Juanbyte (cos I only got one tooth ))

 

[ChartMan]

You're lucky- I got -20% on my Equitable Pension
Words fail me. You'd think with all their clout and expertise they could make 1% compound a month...... I'd just love to manage my own fund.
Read my post again. I didn't panick. Just the opposite .

 

[cassiopeia]

A good way to establish how much profit you can make is to plot the overall % return of your overall strategy over time. (Obviously you have to use historic data to do this with all the disadvantages this brings but how else can you estimate anything?) This is a similar concept to expectancy as explained by Van Tharp.

Once the graph is drawn you then examine the maximum drawdown, perhaps this is 5%. Compare this to the maximum amount of money you are prepared to lose over a series of losses, say this is £10 000, then the maximum amount to invest is £200 000. (If you use 10% margin as reference then the equivalent figures would be 50% of total profit, still £10 000 loss and a maximum of £20 000 to invest/trade)

The result should be equivalent in risk terms whether you base it on margin or effective exposure, you are simply balancing profits with drawdowns. Of course we should be aware that the maximum drawdown could be far greater so ideally you should include as many years as possible in the analysis.

Drawdowns are really the basis behind how much profit you can make from a given strategy since if large this can impose a limit on the profitability due to the periodic erosion of capital, or in most cases it is simply the psychological loss limit you are prepared to accept

 

[FTSE Beater]

Of course we should be aware that the maximum drawdown could be far greater so ideally you should include as many years as possible in the analysis.

Hi Cassiopeia

That's great in theory, but I would say that after trading for a number of years, you'll know what you expected return will be. Unless you can backtest the strategy.

Just my thoughts

 

[cassiopeia]

FTSEbeater

after trading for a number of years, you'll know what you expected return will be

You must have been using a consistent plan to make this viable, that is why I prefer to backtest using a single (simple) strategy. However, both backtesting and examining your records rely on the market characteristics remaining broadly the same. So it is not infallible, even if you backtest for 10 years or so you cannot ignore the possibility of sudden changes which are not included in the data. Is this not the trap some of the theoretical option writers, and emerging bond traders fell into? It goes well for years and years, and suddenly they are not prepared for what is about to happen.

How suseptible your strategy is to sudden changes depends on how it works. The most dangerous ones are those without strict stops and money management, in other words those strategies which don't allow you to salvage your capital and admit your opinion was just plain wrong!

 

[FTSE Beater]

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It goes well for years and years, and suddenly they are not prepared for what is about to happen.

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Hi Cassiopeia

I think that's completely ture. I remember Dippers at the trading day saying that a strategy only tends to work for a couple of years.

I believe backtesting is a useful guide, but not really much more than that as the market has different characteristics from one day to the next


<hr>

How susceptible your strategy is to sudden changes depends on how it works. The most dangerous ones are those without strict stops and money management, in other words those strategies which don't allow you to salvage your capital and admit your opinion was just plain wrong!

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Completely agree. That goes for any type of trading

 

[kevin546]

Interesting subject. My profit target is based on points gained each time I trade rather than month by month. I look to the time I intend to sit at my computer and daytrade and want to get something for the time I put in. I trade the FTSE 100 index (presently with D4F and hope to move over to IB as soon as the account is approved). I aim to get 20 points if I am here for half a session and if I come back for the afternoon then a further 20.

It is not massive and can easily be obtained but the important point is that it is achievable, it takes the greed factor out (for me anyway). As for any deal I normally look for anything from 5 points to 20 from 1 price move so my 20 points will normally come from several deals over a few hours but can be obtained within the hour. As for profit I am happy with whatever I get and if it is more than this I treat it as a bonus rather than consideration for increasing my target level. Like everyone I have good and bad days or periods, sometimes I will make significantly more than the 20 points or go for days taking profits then hit a rough patch because my own trading has not been up to scatch. I look at the overall position and for me any level of profit after a month however small is fine by me.

I suppose this has been my attitude because over the past 3 years I have continued to change something within my trading strategy as I find a problem that needs to be resolved and so there are going to be errors. This has taught me about money management and the importance of a stop loss more than profit levels. Now that I have finally find the right combination (for me) my view on this may change

Often I walk away when I have got this amount rather than chase the deals.

As for repeat profit that is all about how good your strategy is and how good YOU ARE AT APPLYING IT.

Good luck

regards Kevin

 

[juanbyte]

Hi Kevin

We all have good days, good weeks and good months.

To average things out I look at monthly gains.

Any profit should be checked over a longer period i.e. annually to see what the actual monthly average is.

 

[JonnyT]

Hi Kevin,

If you can average 40 points per day on FTSE then you are one of the worlds best traders. Anything around 10 per day is good.

Congratulations

JonnyT