what should my return expectations be?

[dr.blix]

hi,

i'm new to the forum and new to trading. i've been day trading (long only) the main ftse indeces for 3 months using an online broker and the LSE's level 2.

i use £8000 capital (i had £8500 but i'm down £500 at the mo) and i get around £400 a week return...my lowest week being £0 (while i was making back loses) and my highest week being £1200. i haven't totted up my earnings over my first quarter yet, but, as i say, roughly 400 per week with a 500 loss of capital. ironically i now seem to be earning less as i learn about reducing risk of exposure with smaller positions. anyway, sorry about blathering...

my probably silly question is: what sort of return should i be looking at? i realise this is a bit of a 'piece of string' question, but i don't want to be pushing it and burning my nerves out if i have too high an expectation of what i should be returning. also i'd like to know if i should expect more of a return on my capital...and i'd also like to know if i'm using the correct spelling of capital.

 

[KillPhil08]

long only?

 

[dr.blix]

yeah sorry killphil, i don't know any proper language yet...i mean don't do any short selling (hopefully as i learn more i can start to think about short selling alongside what i do now).

 

[KillPhil08]

Was going to say your kinda limiting your opportunities only buying stuff. Especially during october! (and a recession).

 

[dr.blix]

i figured if i could do it in a recession i would prob be able to do it any other time...strangely i feel less comfortable trading now.

any thoughts on my question would be appreciated, cheers.

 

[timsk]

my probably silly question is: what sort of return should i be looking at? i realise this is a bit of a 'piece of string' question, but i don't want to be pushing it and burning my nerves out if i have too high an expectation of what i should be returning.

Hi dr.blix,
Year 1: break even (after costs: i.e. commissions and sub's etc.)
Year 2: equal to or better than a bank / building society deposit account interest rate
Year 3: equal to or better than two times the bank / BS interest rate

The above is a conservative expectation, but a very real one for many new traders. As a general rule of thumb, if new traders focused on preserving their capital (i.e. not losing or at least minimising their losses) instead of trying to make a killing, then they would last a lot longer. Better to aim for a modest goal and hit it than to aim for the skies and blow up your account. Professional traders who really know what they're about will, of course, want and expect much better returns. You'll come across references on these boards and elsewhere to pro' day traders making on average around 1% per day and swing traders making around 10% per month. One thing is for sure, while returns such as these are definitely possible, the number of traders who are able to produce such results - and do so consistently - are very few and far between.
HTH.
Tim.

 

[Adamus]

Alternatively you could work it out from analysing your own trading methodology.

Unleveraged, you only need to make 3 or 4% per year on 100 or more trades with a good level of consistency.

You would have to be pretty rigorous in the application of your trading rules.

When you leverage that, your returns should grow exponentially.

- in theory anyway

 

[Magos]

hi,

i'm new to the forum and new to trading. i've been day trading (long only) the main ftse indeces for 3 months using an online broker and the LSE's level 2.

i use £8000 capital (i had £8500 but i'm down £500 at the mo) and i get around £400 a week return...my lowest week being £0 (while i was making back loses) and my highest week being £1200. i haven't totted up my earnings over my first quarter yet, but, as i say, roughly 400 per week with a 500 loss of capital. ironically i now seem to be earning less as i learn about reducing risk of exposure with smaller positions. anyway, sorry about blathering...

my probably silly question is: what sort of return should i be looking at? i realise this is a bit of a 'piece of string' question, but i don't want to be pushing it and burning my nerves out if i have too high an expectation of what i should be returning. also i'd like to know if i should expect more of a return on my capital...and i'd also like to know if i'm using the correct spelling of capital.

some hedge funds report crazy returns but more than 20% yearly should be really good. Try to raise some money and be a money manager

 

[dr.blix]

thanks for taking the time to reply chaps...much appreciated. you've probably helped me survive a little longer.

i realise now i've had far too high an expectation. right from the start i had set myself a target of £500 per week return. i have sometimes met or exceeded this target, but the stress has been incredibly tough on a complete novice like myself. i've literally been in tears some days last year after making bad judgements, then spending a week fighting like hell to make my capital back before taking any profits again (i've done that twice).

if pros expect 10% per month, i now realise my expectation of consistently returning 24% is ludicrous, and it's been a fluke not blowing my account already.

my money is part bank loan and part money from my family (i give my family members 10% on their money each week)...i was thinking later this year of borrowing another £8000 in an attempt to make the same amount of return but with fewer trades and small positions.

sorry for going on again, and thanks for the responses...be great if i could post my shamefully simplistic novice process up for criticism?

 

[timsk]

Hi dr.blix,

thanks for taking the time to reply chaps...much appreciated. you've probably helped me survive a little longer.?

All part of the service. . .

i realise now i've had far too high an expectation. right from the start i had set myself a target of £500 per week return. i have sometimes met or exceeded this target, but the stress has been incredibly tough on a complete novice like myself. i've literally been in tears some days last year after making bad judgements, then spending a week fighting like hell to make my capital back before taking any profits again (i've done that twice).?

£500 p/w on £8k starting capital is pushing the boat out, but hey, if you can do it, great! Good on you. Don't be limited by my comments - or anyone else's come to that. Extraordinarily large gains are entirely possible. However, they almost invariably involve taking extraordinarily large risks. The 1% gain for a day trader or 10% p/m for a swing trader mentioned in my previous post, can be achieved by only risking a small percentage of capital on any one trade - usually less than 2%.

if pros expect 10% per month, i now realise my expectation of consistently returning 24% is ludicrous, and it's been a fluke not blowing my account already.?

It might be fluke, on the other hand, maybe you're very good indeed and you have a robust system which warrants taking greater risk to enjoy above average returns. As above, please don't be limited by my comments. My previous post was merely trying to paint with a very broad brush to give a rough ball park idea of possible returns, not to impose a ceiling. Don't overlook compounding: if you can do 10% every month for a year and compound your £8k starting capital, your account will grow to £25k. That's well over 300%!

my money is part bank loan and part money from my family (i give my family members 10% on their money each week)...i was thinking later this year of borrowing another £8000 in an attempt to make the same amount of return but with fewer trades and small positions.?

This bit of your post is worrying. Most traders here would recommend strongly against borrowing money to trade - especially from family or friends. If you go down that route, the lenders must understand the risks you'll be taking with their money and the very real possibilty that they won't ever see any of it again. You - and them - must focus on the potential downside and not the potential upside.

sorry for going on again, and thanks for the responses...be great if i could post my shamefully simplistic novice process up for criticism?

By all means - go right ahead. And simple is good, we like simple!
Tim.

 

[dr.blix]

once again, thanks tim.

it's great to be able to discuss this type of stuff with people who know what they're on about...that's one downside i've found about trying to trade...to anyone who doesn't do it it's dull as hell, you can't talk to people about 'what sort of day you've had at work' because it's involved you sitting alone in a room staring at a computer all day.

i don't think you've imposed a ceiling tim, just some sense. i started out going all in on positions, then 50% now i'm onto 25% of my capital each position...continuing like this, using such a high percentage of my capital each position, i'd probably last 6 months before being chewed up.

regarding my capital, i realise this isn't great. i thought that if i lose a certain percentage, say 30%, i'd simply quit and deal with my loan repayments...so, i'd never let my capital drop anywhere near the level my family loaned me and i'd just give them it back. that's the theory anyway.

i've just been reading about 'element-of-ruin' too, i realise i've got to get smaller positions in relation to the size of my capital, but still be able to make a living from it (which was my original hope).

this means of course my account would never get any bigger, because i take my weekly profit out (on a good week). it's odd, i don't mind risking a bank loan, but i wouldn't risk building up my capital...i feel it's too hard come by each week to risk losing again...spending it appears more sensible!

 

[raysor]

once again, thanks tim.

it's great to be able to discuss this type of stuff with people who know what they're on about...that's one downside i've found about trying to trade...to anyone who doesn't do it it's dull as hell, you can't talk to people about 'what sort of day you've had at work' because it's involved you sitting alone in a room staring at a computer all day.

i don't think you've imposed a ceiling tim, just some sense. i started out going all in on positions, then 50% now i'm onto 25% of my capital each position...continuing like this, using such a high percentage of my capital each position, i'd probably last 6 months before being chewed up.

regarding my capital, i realise this isn't great. i thought that if i lose a certain percentage, say 30%, i'd simply quit and deal with my loan repayments...so, i'd never let my capital drop anywhere near the level my family loaned me and i'd just give them it back. that's the theory anyway.

i've just been reading about 'element-of-ruin' too, i realise i've got to get smaller positions in relation to the size of my capital, but still be able to make a living from it (which was my original hope).

this means of course my account would never get any bigger, because i take my weekly profit out (on a good week). it's odd, i don't mind risking a bank loan, but i wouldn't risk building up my capital...i feel it's too hard come by each week to risk losing again...spending it appears more sensible!

To me this just sounds crazy. You are a novice and you have borrowed money to trade? You really should start with a pot that you could lose 100% and not effect your life/finances too much. I wish you luck, you will need it!

 

[Adamus]

exactly my thoughts, plus you should do everything you can to build your capital up to the point where you dont have to take so much risk to make your £500 per week.

 

[dr.blix]

yeah i hear what your saying raysor and adam. i know i've not started this in an ideal way...my risks have been silly and i've been lucky to get this far.

it's been an incredible learning curve, throwing myself in the deep end though. i think i've gone from complete ignorance to just plain ignorant.

i plan to lower my expectations and work on my risk management.

thanks for your comments chaps.

 

[timsk]

Hi dr.blix,

i don't think you've imposed a ceiling tim, just some sense. i started out going all in on positions, then 50% now i'm onto 25% of my capital each position...continuing like this, using such a high percentage of my capital each position, i'd probably last 6 months before being chewed up.!

You need to be clear (and maybe you are - I don't know) of the difference between the amount of capital that's at risk and the amount of capital that's put to work. With your £8k, you could go long and buy 8,000 shares at £1.00 each. If the stock is suspended from trading (while your still in it) and then goes to zero when the suspension is lifted, you will lose all of your capital - but nothing more. However, if you're short then, potentially, when the suspension is lifted and the price rises above £2.00, your broker is liable to come after you with a stick. Neither scenario is very likely you might think, which is why many people trade on margin and why you can lose more than your initial deposit. This is not to be confused with the amount you risk per trade which most traders fix as a percentage of their capital. It's not my place to say what's appropriate for you and your style of trading but, that said, I'd raise an eye brow or two if you said it was above 5% max per trade. Ideally, it would be 2% or less. Therefore, your maximum stop loss would be 16p away from your entry price (1,000 x £0.16 = £160.00, i.e. 2% of your £8k capital). Just to clarify, 100% of your capital is tied up in the trade, but you're only going to risk 2% of it if the trade goes against you. Two seperate issues, not to be confused.

regarding my capital, i realise this isn't great. i thought that if i lose a certain percentage, say 30%, i'd simply quit and deal with my loan repayments...so, i'd never let my capital drop anywhere near the level my family loaned me and i'd just give them it back. that's the theory anyway.!

Rather you than me! It sounds a very risky plan and it could really start to mess with your head during an inevitable bad patch (the markets are dead good at doing that).

i've just been reading about 'element-of-ruin' too, i realise i've got to get smaller positions in relation to the size of my capital, but still be able to make a living from it (which was my original hope)!

As previously stated, it's not my place to impose ceilings on what's achievable. All I can say is that many years ago, I was between jobs and I'd been trading for all of two months and decided to go for it with just £5k capital. I quickly realised I'd made a mistake!

this means of course my account would never get any bigger, because i take my weekly profit out (on a good week). it's odd, i don't mind risking a bank loan, but i wouldn't risk building up my capital...i feel it's too hard come by each week to risk losing again...spending it appears more sensible!

If you're drawing all your gains the minute you make them, your account can't grow. Additionally, you're under huge psychological pressure to produce profits. What do you do if you have a bad week? Or two? Borrow more to trade more to pay off the (rising) debt etc? As the previous two poster's have commented - this is crazy, IMO! Better to build your account gradually and compound the gains. This will give you confidence and, if you can produce profits of £500 on £8k capital, it will be literally twice as easy to achieve the same £500 profit with, say £16k capital. Three times as easy with £24k etc.
Tim.

 

[dr.blix]

thanks tim, that explanation of stops is incredibly useful. so, with my trading in 2K chunks to multiply my amount of possible positions, my stops should be max 8% per 2K position?

i've posted my rather clunky process, be great if you could have a butchers.

thanks.

bryan

 

[timsk]

thanks tim, that explanation of stops is incredibly useful. so, with my trading in 2K chunks to multiply my amount of possible positions, my stops should be max 8% per 2K position?

Hi Bryan,
No!
Not if I've understood you correctly that is. You appear to be saying that you divide your £8k capital into quarters and, potentially, have four simultaneous trades with an 8% stop on each, i.e. £2k x 8% = £160.00 x 4 = £640.00. You are then risking a total of 8%, i.e. £640.00 of total capital employed, not 2%, which is too much, IMO. Potentially, this is even more serious than it might first appear, for reasons that I'll address in the next para. If you only put on consecutive trades one after the other, then you're swinging in the opposite direction and being ultra, ultra conservative. Yes, you're only risking 2% of your £8k capital which is good, but, you're leaving £6k in your brokerage account doing nothing which is bad. There's little point having the money in there if you're not going to use it. You'd be better off putting it into a BS deposit account and getting some interest - albeit not very much.

I note on your other thread that you tend to stick to FTSE 100 Co's - mostly banking and insurance stocks. These come under the umbrella of 'financials' and, as such, will - broadly speaking - move in tandem with one another. If you're executing pairs trades in which you are simultaneously long one instrument and short another, then your risk per trade makes more sense. Assessing risk for such trades is more complex and someone other than me will have to advise you on this if this is your strategy. However, if you're taking simple directional trades and, assuming you aim to be with the dominant trend, then you're likely to be long all four instruments at the same time (or short all four). In effect, you've got one BIG trade. Okay, cue a massive generalization: for the most part, FTSE 100 Co's act as one - a rising tide floats all ships etc. It's likely, therefore, that all four trades will rise or fall together. Given that you've got 4 x spread and 4 x commissions and 4 x slippage etc. - this isn't a good idea. Worse than that, it's a bad idea! However, I am making a fair few assumptions about what you're doing, so I apologize in advance if I've got the wrong end of the stick. Also, this is just my view, feel free to challenge it. Never assume that someone on an internet forum knows what they're on about just because they've been a member for a while and/or has some pretty coloured dots after their name!

Tim.

 

[Claudia123]

To trade ftse 100 stocks and get a return you are looking for with minimal capital is not going to happen. Try Forex its more fun and can lose quicker!! Good luck anyway.

 

[dr.blix]

hi tim,

again, thanks for taking the time to go into this!

no, i'm not taking any short positions yet, i don't know how to do that.

my terrible assessment of risk has led me to essentially risk 100% of my capital. time for a rethink!

regarding the FTSE 100/250, you're right, on a ranging day the instruments generally range, and on trending days the instruments generally trend! on the £1200 week i had a few positions open simultaneously with the indeces trending up. the past few days FTSE downs has, for the most part, seen all the instruments fall through the floor.

think i'm beginning to get my head round my shocking risk...thanks!