is 100% return each year realistic?

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davidh1819

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Hello as some of you may know I am in the process of building a trading strategy for spread betting. I know a lot of you will what to say to me loosing 100% a year is more realistic because so many traders loose money. But amusing I have several systems and strategys for a range of markets and that I have the discipline trade and become consistent is it realistic to make 100% a year with out running the risk of ruin?
 
David, you're asking the wrong question. It is possible to design systems that generate 100% annual return - BUT the drawdowns tend to be horrific. What you need to ask yourself is - how much drawdown are you able to tolerate?

I would suggest drawdown in excess of 50% is likely to make most people abandon their strategy.

Typically, a systematic trend model will have a return/drawdown ratio of 1 or thereabouts. Thus you COULD devise a 100% a year system but you may at some point face a drawdown in excess of 90%.. is this something you think you could live with?
 
Why not stop thinking about potential reward and start thinking about potential risk.

The question therefore to ask is 'how much potential risk (drawdown) is realistic for me to handle'.

Once you've answered that question the one about potential reward will be far easier to answer.

But as one of the posters says, anymore than 50% drawdown and it's impossible to trade. So be very careful, and I mean very careful, about estimating the amount of risk you're willing to handle because most will say '40-50%, that's no problem, I can handle that'.

Trouble is saying they can actually handle it without actually losing money is easy to say. But actually being able to handle it when the money is lost is where they'll throw in the towel.

My advice is simple, design a system around a maximum 20% drawdown otherwise probabilities suggest it will be impossible to trade with real money.

Good luck
 
You and I are in agreement on this one, anley, but it's very rare that the term "drawdown" is mentioned on t2w. It's usually more about how many pips a week one can make, 20 pct/month returns etc. but very little reference to expected drawdown in attempting to achieve this.

20% drawdown should be manageable, but at that level, it's unlikely the trader will make more than 30-40% a year. For some posters on t2w, that is regarded as insignificant. Arguments along the lines of "if you had £500, do you think you could make £2 a day? Well, that's 100% a year" are usually trotted out, to somehow make it seem like a piece of cake.
 
I remember a thread was started regarding drawdowns a few months ago, and it got a few scarce replies. This isn't surprising as most don't want to even face up to a few consecutive losses in trading, let alone a prolonged series of losses.
 
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If you have to ask, then answer is probably "no". It is better to formulate your methodology, decide on your margin principles, and then trade accordingly. Do not make goals for how much you are going to make. Just trade, and let everything fall where they may.
There are also too many variables involved with just how much you can make. Your style of trading, risk tolerance, margining, quantity of trades up at one time. All those factors need to be addressed beforehand. Ultimately, you will know 1 year from now if it is possible for you to make 100% in one year.
I can tell you this, that amount is microscopic to the potential you could make, yet the smallest of consistent gains will put you in the top 10% of all traders.


davidh1819 said:
Hello as some of you may know I am in the process of building a trading strategy for spread betting. I know a lot of you will what to say to me loosing 100% a year is more realistic because so many traders loose money. But amusing I have several systems and strategys for a range of markets and that I have the discipline trade and become consistent is it realistic to make 100% a year with out running the risk of ruin?
Click to expand...
 
David

After looking at your previous posts you appear to ask a question and never participate in the discussions that follow. Most are thread starters and the questions are very frivolous and open-ended. You seem to want a quick one word answer when it is simply not possible to do so.

You talk about reward, but what elements are you considering in the way reward will be obtained?

As the other posters have already said, risk is a vital part of your plans, so therefore do you know what your risk is?

My take on what you are asking is (just my opinion) that risk is relative to your level of understanding/experience, which leads on to; reward is relative to your level of knowledge/experience.

When you have enough time and evidence in developing the above you will be in a position to understand how you can generate these figures you talk about, whilst not risking excess levels of capital in relation to your account size.
 
Words of wisdom.


wallstreetwarrior87 said:
David

After looking at your previous posts you appear to ask a question and never participate in the discussions that follow. Most are thread starters and the questions are very frivolous and open-ended. You seem to want a quick one word answer when it is simply not possible to do so.

You talk about reward, but what elements are you considering in the way reward will be obtained?

As the other posters have already said, risk is a vital part of your plans, so therefore do you know what your risk is?

My take on what you are asking is (just my opinion) that risk is relative to your level of understanding/experience, which leads on to; reward is relative to your level of knowledge/experience.

When you have enough time and evidence in developing the above you will be in a position to understand how you can generate these figures you talk about, whilst not risking excess levels of capital in relation to your account size.
Click to expand...
 
anley said:
Why not stop thinking about potential reward and start thinking about potential risk.

The question therefore to ask is 'how much potential risk (drawdown) is realistic for me to handle'.

Once you've answered that question the one about potential reward will be far easier to answer.

But as one of the posters says, anymore than 50% drawdown and it's impossible to trade. So be very careful, and I mean very careful, about estimating the amount of risk you're willing to handle because most will say '40-50%, that's no problem, I can handle that'.

Trouble is saying they can actually handle it without actually losing money is easy to say. But actually being able to handle it when the money is lost is where they'll throw in the towel.

My advice is simple, design a system around a maximum 20% drawdown otherwise probabilities suggest it will be impossible to trade with real money.

Good luck
Click to expand...

One of the best posts I've seen for a long time.
 
wallstreetwarrior87 said:
David

After looking at your previous posts you appear to ask a question and never participate in the discussions that follow.
Click to expand...

well you havent seen all of my posts if you think i never participate because i do :) .


I understand that losses and draw down is an inevitable part of the process and of course I will take it all into consideration. After all I am in it to make money not lose it and yes I am still a beginner with no experience hence why I am on this forum trying to learn from professional and experienced traders like you. I understand it takes money to make money. Just because im only asking about profit does not mean I don’t care about losses. I must admit I have tried to find ways of avoiding losses in backtesting but iv realised its just not possible :(

I just wanted to know if 100% return from spread betting a year is realistic without being to optimistic IV seen too many posts of people hear saying 100% a day or 100% a week.
 
I didn't suggest 50% drawdown and neither did anley.
In fact I think 20% is too much, but it's reasonable for some people using some methods.
Personally I'm very risk averse so my maximum drawdown is very small as is my maximum risk per trade, but I've been trading my particular style for many years and since the OP is just starting out then he should accept 20% drawdown absolute tops.
 
Here is my experience this year, bearing in mind i'm a relative newcomer:

Well from my experiences of trading a solid medium-term strategy over the last year using spread betting, i'm nearly knocking on the 100% value for the year. However, that was based on a 5% risk initially, which is double what I would like, but it was limited by minimum bet size. So assuming I was using the 2.5% risk I want to aim for with a larger account, that's actually just 50% i'm approaching, with a max drawdown this year of about 15%. Admittedly i've been using a small £500 account, but trading it as though it were larger.
I would access my performance this year as good in a choppy market.

So based on my experience, to answer your question, I would say 100% is certainly feasible in a "good" year for a good trader, but I would put a realistic long term yearly average of 50% as a reasonable expectancy for a proven "good" trader.

my 2cents...
 
davidh1819 said:
I just wanted to know if 100% return from spread betting a year is realistic without being to optimistic IV seen too many posts of people hear saying 100% a day or 100% a week.
Click to expand...

You can certainly make 100% in a week, as some guys have shown, but typically they lose the lot in the 2nd week... It's called gambling! works for some people!
 
If you could consistently make 100% a year with relatively small drawdowns you will literally be offered tens of millions of pounds to manage if not more in a short time. Warren Buffet makes in the order of 20% per year historically. Do you imagine that you can do five times as well as him on a regular basis?

As a beginner you should be looking to break even in your first year. That will put you well ahead of the majorty of traders. As other have said, look to manage your risk first.
 
Totally disagree with your last paragraph.. By your logic if someone was to 'break even' each and every year this would put them ahead of the majority of traders.... Well that may be true, but is it a good plan? Is it sh1te!
 
Rossini said:
Totally disagree with your last paragraph.. By your logic if someone was to 'break even' each and every year this would put them ahead of the majority of traders.... Well that may be true, but is it a good plan? Is it sh1te!
Click to expand...

Yes, breaking even is obviously not a long term plan for success! Its more that I'm saying treat the first year as a learning exercise and look to preserve capital. If someone is still earning zero returns after 2 or 3 years though then that's a different matter as there is no point in putting in all that work for nothing.
 
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