What is considered a good return ?

[wisestguy]

How much % return would you consider good , on capital at risk , given :

- an active trading time of at least 2 years

- a requirement to use stop losses , at a MAXIMUM of 30 pts per trade .

- using the daily dow , dow futures .

- no drawdowns beyond the initial capital

- reasonable capital sizes , MAXIMUM say 20 k pound .

- CONSTANT capital at risk throughout .
ie ) start with 20k , always 20k max as risk capital ,

 

[ewilcox]

100%

no seriously...pretty difficult question to answer really. would totally depend on how risk averse you are - i.e. how much you want to protect your original capital. for some 100% might be considered good. for others just to beat an index by 1-2% would be great.

sorry probably not the answer you are looking for though.

ew.

 

[wisestguy]

100%

no seriously...pretty difficult question to answer really. would totally depend on how risk averse you are - i.e. how much you want to protect your original capital. for some 100% might be considered good. for others just to beat an index by 1-2% would be great.

sorry probably not the answer you are looking for though.

ew.

pretty risk adverse . I did say to use SL on all trades possible and with a max of 30 pts .

I've heard people make 100's of percent in less than this time frame , but this risk they would have taken would have been much much bigger . and w/o the use of stops too , which I could never stomach .

 

[juanbyte]

Hi WG

With the correct money management you only need to make 6 points per day from the Dow to make 1,400% per annum.

With the correct system you would be risking a tenth of your max possible risk

 

[wisestguy]

JB,

can you elaborate on this MM system of yours ? because making 6pts a day for a 1400% per annum return does not seem realistic to say the least .

and is this 1/10 of the max risk per trade or what ?

regards.

 

[BeanCounter]

- a requirement to use stop losses , at a MAXIMUM of 30 pts per trade

Would of thought the stop of pts per trade is somewhat misleading.. money mgt should look at the risk return ratio.

This, in turn, is dependent on the market (volatility) & upside possibility.

A 30 pt stop with a 120 pt upside is 4:1 , whereas if the upside was only 30 pts, you'd be looking at an evens trade

And also (and maybe Im being a bit thick here) but the pts per trade isnt related to the capital risk, because that is dependent on much wagered per point?

 

[stevet]

if your trading methodology includes a max stop limit of 30 pts - your return on capital will be -minus 100%

 

[wisestguy]

Would of thought the stop of pts per trade is somewhat misleading.. money mgt should look at the risk return ratio.

This, in turn, is dependent on the market (volatility) & upside possibility.

A 30 pt stop with a 120 pt upside is 4:1 , whereas if the upside was only 30 pts, you'd be looking at an evens trade

And also (and maybe Im being a bit thick here) but the pts per trade isnt related to the capital risk, because that is dependent on much wagered per point?

Not really , the 30 pt max is just an example , but I still think one should use a stop on all trades . it could be more or less than 30 ,but that was just my choice at the time .

I prefer to use Return to Risk as how much you profit over your capital at risk , hence the opening line in my post .

on a per trade basis , it is rather false - how can you tell what the return is until the trade is over . hindsight is a great judge , unfortunately , we as traders cannot live by that !


return on pts and on capital are 2 somewhat different measures .

 

[BeanCounter]

Agree on the stop sentiment, Ive learnt that one from painful experience.

how can you tell what the return is until the trade is over . hindsight is a great judge

I see your point, but I use the Return as the target return (based on swing trading) when entering a trade

I may have intermediate and short term targets (which, if met, become new stop points to lock in profits). However, I'll always try to set a final / long term target (3-6 months). This then becomes the basis of RR in my go / nogo decision.

And I never risk more than 2% of my cap that the stop would generate (1% is usual, 2% if I feel lucky.. )

 

[GirlPower]

if your trading methodology includes a max stop limit of 30 pts - your return on capital will be -minus 100%

Are you saying that is too big or too small?

I know stops are a vital component of capital preservation, profit taking and loss limitation, but In and of itself, I can't fathom how a 30pt stop will have any direct and negative impact on your capital.

 

[stevet]

the first error that learners feel causes them to lose money is by not having stops

the second way they feel causes them to lose money is by having stops

the concept of placing a stop to preserve capital is very misunderstood - of course it forces someone out of a losing trade - but if they just get back into more losing trades - stops will slowly but surely whittle down your capital - but knowing when to quit a losing trade is a key element of trading and once you understand this element - you would no longer use stops

 

[juanbyte]

WG

The optimum amount you should risk per trade depends on the win/lose and risk/reward ratios of the system you are trading, it is calculated using Kellys formula
Kv = P – (1-P)/Wl

This is the maximum you can risk without ruin, what I am saying is that you can risk 1/10th of this and still make 1400% pa.

If you start with $2500 capital and trade one $5 contract, at 6 points daily this will give you over 21 trading days per month 126 points x $5 = $630 or about 25% per month.
Compounded this will give you 1,400% pa

It is much easier to make 6 points per day, when I looked at the intraday chart, there wer over 40 chances to make 6 points compared to just 6 chances to make 30 points

Hope this helps

 

[BeanCounter]

stevet:

but knowing when to quit a losing trade is a key element of trading and once you understand this element - you would no longer use stops

But, doesnt that mean your saying that you use a mental stop that you may adjust downward in the event that it gets passed?

Surely better to make sure the stop level allows reasonable price action to allow it to achieve the target?

I always place a stop to aviod big losses.

And if all your stops are getting hit, surely the TA is flawed that the stop was based on; as oppossed to the principle of stops themselves

But, I would consider myself a beginner; so maybe I'm falling into the trap you are referring to

 

[stevet]

yep

 

[wisestguy]

Agree on the stop sentiment, Ive learnt that one from painful experience.



I see your point, but I use the Return as the target return (based on swing trading) when entering a trade

I may have intermediate and short term targets (which, if met, become new stop points to lock in profits). However, I'll always try to set a final / long term target (3-6 months). This then becomes the basis of RR in my go / nogo decision.

And I never risk more than 2% of my cap that the stop would generate (1% is usual, 2% if I feel lucky.. )

OK , return as a target per trade is OK.

the rest I have no problem with though I may not do the same thing .

So on what you said , what do you think a good return over 2 years would be.

 

[wisestguy]

WG

The optimum amount you should risk per trade depends on the win/lose and risk/reward ratios of the system you are trading, it is calculated using Kellys formula
Kv = P – (1-P)/Wl

This is the maximum you can risk without ruin, what I am saying is that you can risk 1/10th of this and still make 1400% pa.

If you start with $2500 capital and trade one $5 contract, at 6 points daily this will give you over 21 trading days per month 126 points x $5 = $630 or about 25% per month.
Compounded this will give you 1,400% pa

It is much easier to make 6 points per day, when I looked at the intraday chart, there wer over 40 chances to make 6 points compared to just 6 chances to make 30 points

Hope this helps

oh man , you need a phd for this .

I'd rather stick to simple ratios .

1/10 of your capital to risk per trade is still a little high . I would accept 7 max.

this assumes that you can make 126 points without incurring any 10% lossses , I think that is unrealistic .

also time is key , anyone can be lucky within 6 - 12 months and make X% but keep up the returns over a couple of years is far more difficult , especially with risk controls.

 

[BeanCounter]

what do you think a good return over 2 years would be.

To be honest, your asking the wrong person on that one. I'm still learning, so initial cap is low (£1k), as is stake (1-2%). I'll be happy with a positive return over two years (which, from reading, seems to be a reasonable timescale for learning 'the game').

But, longer term, with the BoE base rate being @ 4.5% and expectations of the rate moving upward; the 'risk free' return on investment could be said to be 5.5%. Seeing as an individual wouldnt be able to borrow money for less than a 1% premium on that rate (say 6.5%); add to that a risk premium, and I get to a rough hurdle rate of 10% pa.

If your not reurning more than this pa, there are probably better things you could be doing with the cap.

 

[juanbyte]

You do not need a PHD just enter your W/L and R/R ratios here

http://hquotes.com.historical-stock-quotes.com/tradehard/simulator.html

If you don't know them, maybe you shouldn't be trading.

Try putting the following results into the simulator:

Win Lose 3.0 then 0.9125

Win Prob 0.32 0.774

Lines 10

Which one would you prefer to trade?

I did not say risk 10% of you capital I said risk 1/10 of your optimum risk.

My max stop is 2.6%, this is reduced by implementing a time stop.

You say that you "think it is unrealistic" and you would accept 7, based on nothing but opinions.
All that I have said is based on actual trades.

One of the worst things in trading is to have an opinion, you are thinking like the crowd and the fact that 95% of traders lose money leaves me to conclude that the consensus of opinion is incorrect.
If you cannot make 6 points per day net any losers from the Dow whats the point of trading

 

[juanbyte]

BC

Set your targets low enough and you will acheive them.

To make 10%pa over 220 trading days is only 0.0005% increase
per day. It is possible to make 50% + per day on the Dow.

Why settle for 100,000 times less

 

[Dave1971]

BC

Set your targets low enough and you will acheive them.

To make 10%pa over 220 trading days is only 0.0005% increase
per day. It is possible to make 50% + per day on the Dow.

Why settle for 100,000 times less

I agree entirely JB that's why we are all trading. Theoretical returns such as the one you've posted seem very acheivable, but how many people do you think acheive it?