Would you be happy with 15% a year?

[tomorton]

Hi Jack o'Clubs - Hedge fund managers and retail traders? - there's no comparison in any sense that means anything. No doubt many of us drive a sensible 5 door hatchback with a 1.6l engine. Does that make us a comparable road user with the company Eddie Stobart Limited? - I think not.

Hi malaguti - Actually, most novice traders do risk their whole account. My evidence for this is that most traders do eventually blow their account - or more than one. They don't mean to and they possibly don't think they are doing so, but they surely are, as much as if they'd put the lot on a horse. And as for the lack of an alternative, well that's just no reason to blind yourself to the risks. Just because everything is risky doesn't mean everything is equally safe.

 

[tomorton]

Hi evertontrader - Just because we can calculate the compounded outcome of a modest annual percentage return - and we've all done this calculation on a winter's evening - doesn't mean its do-able or even advisable.

To my thinking, trading is like ski-jumping - you'd better be damn good or don't bother.

 

[Fugazsy]

Nobody is denying the fact that 15% per year is good (which is better than nothing), the question is can a retail trader make more?
Yes. Easy? No. Why? Because retail traders are flashed with information which is far away from the "right education".
What is the "right education"? The right education is also the ability to filter the common information that triggers a trader in a non ending spiral in trying to have an edge over the market that only bring desperation. It is also the ability and the tenacity to learn from yourself, which is the most difficult part of all and just a few will have the strength to go that way...

The market is fluid, it is always ever-changing, an objective method is rigid, very limited (easy but very limited), yes can be good for a 15% return, but for greater returns a deeper understanding of the market and of yourself is required in all its facets.......

 

[evertontrader]

Hi evertontrader - Just because we can calculate the compounded outcome of a modest annual percentage return - and we've all done this calculation on a winter's evening - doesn't mean its do-able or even advisable.

To my thinking, trading is like ski-jumping - you'd better be damn good or don't bother.

Tom, I agree that it's easy to start daydreaming about how you will spend the riches you're soon to have when playing with a compound calculator but bear with me. The annual return I'm proposing is very different to the usual, indeed a few here are so shocked at the idea of a meagre 15% return to the point that they suggest it's not worth trading at all if that's your target.

I'm suggesting there is an alternative to this way of thinking, proposing that a patient and disciplined approach accepting lower returns can still yield very attractive results without the unrealistic targets and inordinate risk taking that accompanies conventional retail trading expectations.

I created this thread to see the contrasting arguments, I suspected the topic would be provocative. If I'm honest, a younger version of myself would of also irrationally rejected 15% annual returns. I wonder if what has been discussed so far has persuaded anyone to reconsider their original stance... or at least challenge the status quo.

 

[Jason101]

Would you be happy with 15% a year?

My belief is that mm ergo the % you risk and shoot for. Is much more fundamental to your trading than your entry and exit system, to the extent that it makes and defines the individual trader and the individual traders personal life and financial situation. So I believe your question would be so subjective the answer would be meaningless to you.
My answer today, for my current circumstances and the current market conditions would be, no 15% is far to less. My answer in a couple of years time may well be yes 15% and the associated risk/reward is just about right for my financial and personal situation.

Sorry to be so dry, but I am replying as I see it.

 

[Fugazsy]

Hi Fugazsy

I suppose I can only give you my own experience - and now after approx 13 yrs in retail FX trading - I have met and talked with many traders over the years and have shared many of our own findings.

What I never realised - and nobody really discusses this subject - but you own money value perception is important.

When I first started - in the early 2000's - everything was on the up - I have sold out a couple of businesses ( one with a £5 million T/O ) and was semi retired and life was good.

I was under no money pressures - my house at that time was rising on value about £5k every month - and I had 3 pensions to look forward to - with 2 I had been paying into for over 20 years.

I could afford a good size account and the idea of losing £1k on a FX intraday trade was of no great worry - as I had the means and was used to dealing with large sums of money

If I had been say in my late 20's with say 3 children and not a good job and money behind me - I dont think I would have approached trading the same - I think I would not want to lose £100 on a trade never mind a £1000 +.

As my account grew - I had been lucky - my method worked - but i had never had 7 consecutive losses - in fact with real money I don't think I had at that time more than a bad run of 4 losses in a row.

I was treating my live account like a demo - I had confidence and was not stressed.

This all changed over 1 week when i peaked at 25 lots had 2 bad days and 7 consecutive losses and saw over £10k + wiped off my trading account.

Suddenly - I had doubts - the financial world was changing and it was just pre world recession stage. My method was no longer as good as I thought it was - I had probably not taken over 1000 live trades at that time - so I did not have 2 or 3 years of back statement history etc to make me look at the situation totally rational.

I carried on - but just at 15 lots and had some winning trades again - but i was no longer relaxed - i was getting sweaty fingers and anxiety etc etc.

Suddenly - things over just a few months changed - and with the world news saying Banks were in trouble many of my professional friends were questioning what I was doing etc etc.

I had never been a gambler - yes £50 / £100 at Ascot etc - and in casino's on holidays but no other betting accounts etc.

At that time - I realised i could not carry on at that level.

In the end - I fine tuned my method - went back down to 5 lots and worked back up to 12 lots but still was not comfortable.

Over the next year i stayed within my own limitations.

I decided to not try and compound to over 25 lots + again and realised - under 10 lots per pip I just did not have the same stress and worry.

At that time my daily pip target was 25 pips and i increased it to 30 pips a day.

I had to tell myself even at 5 lots a pip and if I could do over 100 pips a week - then its was still $5k a week - hardly peanuts. Nowadays my weekly target is 250 pips and as you know I am already up over 1500 pips in just February.

I really need to explain to everton trader where he is going wrong - but then if he's not full time he cannot do it my way .

We then had the slump and the recession - I lost money abroad in the Lehmans Bros collapse in 2009 and knew i had to carry on FX trading full time - with 2 kids in private school and an expensive life style.

I have never looked back. At my age I dont want to have palpitations and worries of leaving trades on overnight with large stakes on them . I have found my own limit - I can make very good monies ( more than I earned as a Director of a large corporation ) and in the last 3 years - i have actually got better - more chart time - more trading knowledge etc etc.

Find your comfortable limit with your own style Fugazsy and keep improving until you feel you can up your stakes and then dont do it how I did it do it just a 1 lot a time

Hope that helps

Regards


F

F

Thanks for your post but I am not sure if you answered my question.

When you got to the point where your anxiety was kicking in, did you increase it by little so it would not effect your mind?

Because that is what I do, if the size of the increase unsettles me, instead of going from 1 to 2 % I would go from 1 to 1.25% till I settle in (normally a couple of weeks) then I will move it to 1.5% and so on....

 

[Jack o'Clubs]

Hi Jack o'Clubs - Hedge fund managers and retail traders? - there's no comparison in any sense that means anything. No doubt many of us drive a sensible 5 door hatchback with a 1.6l engine. Does that make us a comparable road user with the company Eddie Stobart Limited? - I think not..

My point was that in generating a 15% return he was achieving a result that most would view as exceptional as demonstrated by the wall of money that came his way. To turn your analogy around, if professional 'Eddie Stobarts' think 15% is damned good, why would a pimply Saxo driver still with their L-plates think they can achieve much better? When the most likely outcome is driving straight into a brick wall?

I agree with you that you need more than 15% if you are risking your entire capital but I think there are more sensible and sustainable ways of trading than that. The fact that most retail traders blow up their accounts is a function of them not knowing what they're doing or trying to run before they can walk, and has nothing to do with expected returns (as I doubt many try this lark with the expectation of -100%). If any new trader came into this thinking that they have to make returns of 100%+ to compensate for the chance of losing everything, it rather increases the likelihood of them achieving the latter rather than the former.

 

[tomorton]

Novice traders DO believe they can do better than 15% and they wouldn't even enter trading if they thought they couldn't. I believe they are right but for the wrong reasons.

They do expect to get rich, they do expect to replace their entire salary. They don't appreciate the probability (not possibility) of a 100% trading account loss, but they do know trading carries a heck of a lot more risk than opening a cash ISA or a building society account so they do expect exceptional returns. Entirely rational.

15% a year? - we can all remember savings accounts that paid as much / little. There are still surely lower risk ways to achieving this than trading.

 

[evertontrader]

Tomorton, no one is saying risk 100% of your money for 15%.

For all the misinformation that is propagated across the retail trading spectrum, risk per trade recommendations are actually one of the more realistic. Stanley Kroll I think was one of the early proponents of the now conventional wisdom around this that is "risk no more than 2% per trade". This rule will do just fine in protecting traders from the inevitable streak of losers to come on the way to their annual return.

Having your total capital base split across your various brokerages to cover required margins and the rest in a high interest savings account is also a sensible way of distributing your monies.

 

[tomorton]

There's no disputing that one's trading account should be a small proportion of one's entire capital base. But what we're talking about is risk of 100% loss of the trading account, as opposed to risk of 15%pa gain on the trading account.

The 2% per trade risk rule is sound, and likewise it refers to 2% of trading account capital, not total capital.

Nevertheless, at a r:r of only 1:1, and a 60% win rate, it would take few trades per year to earn 15%pa on trading capital. But nobody took up trading to limit themselves to a few trades per year. In reality, any trader who makes 15% in the first half of the year (by about the 3rd January in some cases: I wish!) will do one of two things - either carry on trading exactly as before so as to compound their annual return, or increase their level of risk by either relaxing the 2% rule or loading their trading account from other capital.

One is right and one is wrong and that's the judgement that novice traders don't make.

 

[barjon]

The 2% per trade risk rule is sound, and likewise it refers to 2% of trading account capital, not total capital.

.

Yeah, trouble is that a lot of people employ it in theory until push comes to shove and they obdurately hold on to an offside trade as it sails through the 2% to 20%, 30%, 50%, 75% and bye, bye % .

 

[Fugazsy]

I asked F. a question on this thread, or is not allowed here any more? He is probably making "live" calls somewhere else...

 

[timsk]

I asked F. a question on this thread, or is not allowed here any more? He is probably making "live" calls somewhere else...

Hi Fugazsy,
If you want to ask FoMo a question about his methodology, I suggest you do so on one of his own threads, where I'm sure he will provide a very detailed reply. It's not appropriate to do so here because this thread is about whether or not members would be happy with a 15% annual return. Besides, the OP has made it clear in this post #51 and this post #52 that he doesn't want FoMo to monopolise and derail the thread by promoting his own agenda. Quite right too, IMO!
Tim.

 

[Jack o'Clubs]

There's no disputing that one's trading account should be a small proportion of one's entire capital base. But what we're talking about is risk of 100% loss of the trading account, as opposed to risk of 15%pa gain on the trading account.

The 2% per trade risk rule is sound, and likewise it refers to 2% of trading account capital, not total capital.

Nevertheless, at a r:r of only 1:1, and a 60% win rate, it would take few trades per year to earn 15%pa on trading capital. But nobody took up trading to limit themselves to a few trades per year. In reality, any trader who makes 15% in the first half of the year (by about the 3rd January in some cases: I wish!) will do one of two things - either carry on trading exactly as before so as to compound their annual return, or increase their level of risk by either relaxing the 2% rule or loading their trading account from other capital.

One is right and one is wrong and that's the judgement that novice traders don't make.

Those assumptions only work with significant leverage which is inconsistent with a 60% hit rate, since leverage within those parameters will dramatically increase the chance of you being directionally 'right' but stopped out by noise before you are proven so. If you are consistently achieving a 1:1 RR on 2% of capital with a 60% hit rate then I am genuinely impressed and you should be doing this professionally (or you’re already so filthy rich you don’t care about working for the man. Either way I’m massively impressed.)

 

[tomorton]

Those assumptions only work with significant leverage which is inconsistent with a 60% hit rate, since leverage within those parameters will dramatically increase the chance of you being directionally 'right' but stopped out by noise before you are proven so. If you are consistently achieving a 1:1 RR on 2% of capital with a 60% hit rate then I am genuinely impressed and you should be doing this professionally (or you’re already so filthy rich you don’t care about working for the man. Either way I’m massively impressed.)

I agree 1:1 r:r is not acceptable, hence I said "r:r of ONLY 1:1", that was simply to make a more conservative assumption for my argument. But to be perfectly honest, if I can only open a trade on a TA-based target of 1r, I will do so, but I expect several such trades in any series to go my way and enable me to run them comfortably past 1r.

Again, I was possibly being conservative with regards the win rate, many traders will say this is too to narrow, but it was deliberately modest to reinforce my point.

 

[evertontrader]

Profit targets in relation to individual position risk and and the overall ideal risk per trade are separate but equally important topics to me. It's difficult to propose a specific approach with regards to these points as it will be different depending on the strategy, time-frames and frequency of entry. Apart from the usual "don't take too much risk", the specifics will come through a process self discovery and strategy experimentation.

One thing I will say, lowering expectations upfront to the realms of the realistic should encourage smaller risk, less psychological pressure and better chances of overall success, at least to me.

Personally, I risk ~2% per initial entry followed by any subsequent pyramid entries having a max risk of 1%... this is to help avoid the reverse pyramid problem. With regards to profit targets per trade, I don't have any, instead I let trades run until they signal an exit is required via either a SL breach or trend reversal signals.

 

[Jack o'Clubs]

I agree 1:1 r:r is not acceptable, hence I said "r:r of ONLY 1:1", that was simply to make a more conservative assumption for my argument. But to be perfectly honest, if I can only open a trade on a TA-based target of 1r, I will do so, but I expect several such trades in any series to go my way and enable me to run them comfortably past 1r.

Again, I was possibly being conservative with regards the win rate, many traders will say this is too to narrow, but it was deliberately modest to reinforce my point.

Hi Tom,

I'm being obtuse here so please bear with me. I've taken time to read your Trader's Profile to get an idea of your technique which is swing trading based - I don't know how much you've customised the Rivalland methodology, but if you are consistently achieving a 60% hit rate with a RR of at least 1 and 2% capital at risk for each trade then I can't see how fear of total loss can be an issue at all. I've plugged those stats into a Monte-Carlo simulation and the maximum drawdown I got was about 30%, and yes, typical upside was well in excess of 100%+. What am I not understanding?

 

[Fugazsy]

Hi Fugazsy,
If you want to ask FoMo a question about his methodology, I suggest you do so on one of his own threads, where I'm sure he will provide a very detailed reply. It's not appropriate to do so here because this thread is about whether or not members would be happy with a 15% annual return. Besides, the OP has made it clear in this post #51 and this post #52 that he doesn't want FoMo to monopolise and derail the thread by promoting his own agenda. Quite right too, IMO!
Tim.

Hi Tim

Mine was just a joke, I was teasing F,

http://www.trade2win.com/boards/dis...ert-retail-forex-trader-3748.html#post2495238

Beside my question was relevant in my view, we were expanding, we were questioning the threshold of the risk and the anxiety involved.

I was well aware of the posts you mentioned which I personally think they were a bit rude in F persona, I do not think F has any agenda, yes he is a bit repetitive sometimes and the way he trades is not clear to me but in the aspect of money management and psychological management for the short time trader has great insight more then anybody on this forum and maybe you should open your mind and learn a bit.

Beside I think a bit of sense of humour is necessary between us, but if you do not think so I will refrain.....

 

[tomorton]

Hi Tom,

I'm being obtuse here so please bear with me. I've taken time to read your Trader's Profile to get an idea of your technique which is swing trading based - I don't know how much you've customised the Rivalland methodology, but if you are consistently achieving a 60% hit rate with a RR of at least 1 and 2% capital at risk for each trade then I can't see how fear of total loss can be an issue at all. I've plugged those stats into a Monte-Carlo simulation and the maximum drawdown I got was about 30%, and yes, typical upside was well in excess of 100%+. What am I not understanding?

Hey Jack - Yes, drawdown isn't a serious problem for me these days but the average novice trader as per the earlier posts on this thread, it is a high probability but not only that, they mostly don't realise it, so not only is this a real risk but it is under-valued by those most at risk. I haven't done a Monte-Carlo simulation because I wouldn't know how to but what you've said is very very reassuring, thanks for your efforts on that.

 

[timsk]

Hi Fugazsy,

. . . but in the aspect of money management and psychological management for the short time trader has great insight more then anybody on this forum and maybe you should open your mind and learn a bit

May be I should, and maybe you should try and be more polite and less condescending. If you want to be a FoMo disciple that's your prerogative, but I would caution against becoming a clone. Comments such as this suggest that you may have a problem.

Beside I think a bit of sense of humour is necessary between us, but if you do not think so I will refrain.....

I'm afraid this is a non sequitur. Of course a sense of humour is good, but that has no relevance either to your post #73 or my answer to it.
Tim.