"The main difference between the Pros and the amateurs is expectations"

[Hotch]

...and I don't mean mathematical (for once!).

I am now rather sure that most people who fail at trading fail because they are trying to make ridiculous returns which are exceedingly hard to make. The guys making billions at hedge funds are making, on a good year, say 100% (obviously depends a lot fund to fund), while the mugs on the forums get into this trying to make a living off 10k.

Now I would think it IS easier to make higher returns on a smaller account (say 6 figs instead of 9), but not that much easier!

To illustrate the point:

1:1 R:R ratio, 70% win rate. 1 trade a day, will give you 8R a month. (completely doable mechanically, can do much better discretionary if you're good).

Boom, 150% a year on 1% risk management. Now for your hedge fund manager, you're sorted, but for our chump with 10k, that's £62.5 a day, barely beating minimum wage. That's if he spends zip on food, board etc.

So how can you make it with 10k?

1-You can be awesome.
2-You can trade part time/save up til you build a decent stake.
3-You can get a track record and try and whore yourself out.
4-You can do something else which would probably be easier.
5-You can vendor trolololol.

To conclude: you're ****ed.

 

[Pazienza]

LOL

Good post, and funny.

I'd say you're right basically, I'd just expand it a little to include general mindset, attitude etc.

But essentially, the difference between someone who makes it and someone who doesn't is what's inside their heads.

 

[brewski1984]

I'd be happy with £62 a day! Couldn't really live off it but still.

 

[Jason101]

...and I don't mean mathematical (for once!).



1:1 R:R ratio, 70% win rate.

on 1% risk management.

So how can you make it with 10k?

1-You can be awesome.
2-You can trade part time/save up til you build a decent stake.
3-You can get a track record and try and whore yourself out.
4-You can do something else which would probably be easier.
5-You can vendor trolololol.

To conclude: you're ****ed.

Or...

6.-You trade at 20% risk, double your account in a few trades, then rapidly reduce risk.

Very Risky but not as risky as never making it with £10k.

 

[Hotch]

Or...

6.-You trade at 20% risk, double your account in a few trades, then rapidly reduce risk.

Very Risky but not as risky as never making it with £10k.

I'd say that comes under "being awesome". And I think you'd need a few doubles.

 

[Hotch]

LOL

Good post, and funny.

I'd say you're right basically, I'd just expand it a little to include general mindset, attitude etc.

But essentially, the difference between someone who makes it and someone who doesn't is what's inside their heads.

Amen.

 

[cr6196]

The guys making billions at hedge funds are making, on a good year, say 100% (obviously depends a lot fund to fund)

I don't get it, are you joking? (thats a serious question, i may be missing something). Logically, if you make over 30% for any decent length of time you will end up owning the market (and the inflows will make trading much more difficult anyway). If the fund is over $500m averaging anywhere near 15% and single digit volatility over 5-7 year period is extraordinary in any asset class (i.e from the data I have, which is from late 09, only Caxton, Brevan Howard, Moore Cap and a few distressed/value/smallcap funds have got anywhere near this). Altho less money is an advantage, i would agree that most investors are far too ambitious. The only way to make anything with 10k is investing in an education.

 

[BeginnerJoe]

7. Join make 2 million from $100 in 2 years threads. With 10k, you can join 100 different schemes. You only need one of them to work to make a killing.

 

[Hotch]

I don't get it, are you joking? (thats a serious question, i may be missing something). Logically, if you make over 30% for any decent length of time you will end up owning the market (and the inflows will make trading much more difficult anyway). If the fund is over $500m averaging anywhere near 15% and single digit volatility over 5-7 year period is extraordinary in any asset class (i.e from the data I have, which is from late 09, only Caxton, Brevan Howard, Moore Cap and a few distressed/value/smallcap funds have got anywhere near this). Altho less money is an advantage, i would agree that most investors are far too ambitious. The only way to make anything with 10k is investing in an education.

I never mentioned anything about consistency did I? 100% ish (I think 150%) is the biggest I've seen, I was being conservative while illustrating my point, if I had put 30% up you can be sure someone would of come on saying "herp derp, xyz made 120% in 07, blatantly possible, you suck, blergh"

 

[Jason101]

I'd say that comes under "being awesome". And I think you'd need a few doubles.

Awesome or just big balls or pragmatic.

With your illustration of 1:1 R:R ratio, 70% win rate. At 20%R the odds of doubling (just the once) before blowing out are actually very good.

And the chances of being screwed at 1%R of £10k @ 1:1R:R, 70% win rate (trying to live off £60 a day for a full time job)is actually pretty much a certainty.

 

[jthetrader]

I'm not very good at putting my theories down mathematically but I can see, in spite of my poor maths skills, that the OP has a point. The way you make real money is to get a load of qualifications, spend a few years as a trader working for a big bank, make a few contacts and then start a hedge fund. Crucially you are using other people's money, you get rich not off your own money but off the money you can attract.

And if you're starting with £10 grand why not just buy a few protective options and then put £5,000 into a highly leveraged position on a 'gut trade' (e.g. I think the Euro should be weaker than it is). If you win you win, if you lose you lose. Assuming you doubled your money on such a trade you would need to reinvest each time and double your money five or six times to be able to assume lower risk positions and live off the proceeds.

Something like £100,000 in capital, with a 60% chance of winning on a given day and a 40% chance of breaking even, with a 95% chance that no single day capital deviation (i.e. loss or gain) will exceed 1% of deployed capital. If I've done it right you would probably, in an average week, have 3 losing days where you may lose £1,000 a day, and then 4 winning days where you may win £1,000 a day. However let's say the losing days came first you would be down £1,000 on day one, £990 on day two, £980.10 on day 3. So now your capital is only £97,029. So if you went up 1% on day four you'd be up to £98,000.19, 1% on day five you'd be up to £98,980.20, 1% on day six you'd be up £99,970, 1% on day seven you'd be up to £100,969.

Whereas, if you had the four winning days in a row first you'd go

Day 1-£101,000
Day 2-£102,010
Day 3-£103,030
Day 4-£104,060.40
Day 5-£103,019.80
Day 6-£101,989
Day 7-£101,969

So you would be 'event neutral', so long as you were able to get it right 4 days a week and wrong only 3 days a week and lose no more (and by necessity gain no more) than 1% a day you could cream off 1% a week of your capital (most people with £100,000 in the bank would kill to be able to derive a £1,000 a week income from it).

Now, we just need to figure out how to win 4 days out of every 7 and we're home free. Or are we? See I don't think, without using options of course (which would eat into your weekly profits- how much does it cost to insure a £100,000 position on average, considering you couldn't afford to lose more than 2.7% of your capital I suspect the cost would be high ) you could guarantee to keep the fluctuations down to 1% a day. So at a 95% confidence interval (right term?) you would see a >1% movement every 20 weeks or so. That could be a good thing (an unexpected 20% return in a day) or a bad thing (wiped out).

So maybe, with the 60% good 40% bad thing worked out deriving a £500 a week income from £100,000 is doable?

 

[jthetrader]

The other problem is alpha/beta, if you can figure out how to get good alpha you're set. Any trend follower can get a 30% return during a bull market, you just borrow five times the capital you have and buy into the S & P 500, it goes up 10% in a year and you have made a 50% gain, you pay back the cost of borrowing (which would probably be quite low if the markets were growing a lot) the money, say 5%, and you have a 30% return. And you can claim to be able to beat the market hands down.

 

[Hotch]

Awesome or just big balls or pragmatic.

With your illustration of 1:1 R:R ratio, 70% win rate. At 20%R the odds of doubling (just the once) before blowing out are actually very good.

And the chances of being screwed at 1%R of £10k @ 1:1R:R, 70% win rate (trying to live off £60 a day for a full time job)is actually pretty much a certainty.

Kelly all the way!

 

[Liquid validity]

...and I don't mean mathematical (for once!).

I am now rather sure that most people who fail at trading fail because they are trying to make ridiculous returns which are exceedingly hard to make. The guys making billions at hedge funds are making, on a good year, say 100% (obviously depends a lot fund to fund), while the mugs on the forums get into this trying to make a living off 10k.

Now I would think it IS easier to make higher returns on a smaller account (say 6 figs instead of 9), but not that much easier!

To illustrate the point:

1:1 R:R ratio, 70% win rate. 1 trade a day, will give you 8R a month. (completely doable mechanically, can do much better discretionary if you're good).

Boom, 150% a year on 1% risk management. Now for your hedge fund manager, you're sorted, but for our chump with 10k, that's £62.5 a day, barely beating minimum wage. That's if he spends zip on food, board etc.

So how can you make it with 10k?

1-You can be awesome.
2-You can trade part time/save up til you build a decent stake.
3-You can get a track record and try and whore yourself out.
4-You can do something else which would probably be easier.
5-You can vendor trolololol.

To conclude: you're ****ed.

Completely agree.
I'd say you need at least 15k + a years living expenses + contingency.
With 10k and trying to live off it, no chance.
Apart from the options listed, lets face it only 2 + 4 are realistic for most.
One other option would be:

6-Automate that mechanical strat with a higher trade freq. and lower trip costs to
build a decent stake, again though, that requires work cause no $h1tty MT EA
bought off some d1p$h1t vendor will work

 

[cr6196]

I never mentioned anything about consistency did I? 100% ish (I think 150%) is the biggest I've seen, I was being conservative while illustrating my point, if I had put 30% up you can be sure someone would of come on saying "herp derp, xyz made 120% in 07, blatantly possible, you suck, blergh"

right, Paulson Credit Opportunity made ~540% in 08 or 09. I agree someone might have said that but it wouldn't be relevant. It probablly says something about the onesided view people have towards trading. Either way, if your sharpe is anywhere near 2 over a 5-year its amazing and most people don't have a chance considering that the vast majority of HFs don't get near that. reality is far more mundane than people's dreams.

 

[Mata Nui]

I would say there is another option. A high risk early on to build up the account balance then reduce the risk as:
a. The need for the high risk reduces.
b. The emotional issues of having the now larger numbers at risk increases.
c. The technicalities of working that much cash into the markets increase.

People always trot out the same tired bull about how making x% all the time means you would eventually own the world. What everyone seems to forget is that the limitations that apply to small retail traders and those that apply to hedge funds are not the same. A very basic example is the % risked per trade. In a hedge fund i couldnt possible risk 5% of the fund per trade. besides the point that the investors would string me up by my balls the first time i tried it there is no way on this planet i would manage to work that much into the market well enough to come out with a low risk profit. If i only have a 1k retail account though i can get my 5% risk on with 0 slippage and as long as i get the direction right i can pull whatever profit it gives me (1:0.5, 1:1, 1:2) over and over again.
Not saying i do that but i just get fed up of all the bull**** reasons given for why it cant be done.

 

[Liquid validity]

Anything is possible in theory with 5% risk.
Even if you didn't blow up, the drawdown would probably be way too high for most,
somewhere in the 30-50% or worse depending on strike / R:R

I don't know about anyone else, but I have experienced 50% drawdown in the past,
with swing and pos trading, I can tell you its no f***in joke...

 

[tomorton]

At every point, the professional is thinking about what he could lose, the amateur about what he could gain. I suppose that makes us here all amateurs, even the professionals.

 

[james1989]

It's just all a game of luck, if you believe in capitalism, buy a stock.

 

[james1989]

Have you ever wondered why investment banks lose money when the indices head south?