What is your annual profit goal?

[wisestguy]

two different issues here .

not about who is right and wrong about the market .

it's about the use of genuine trading statements and records ,at least that is my point.


PS. I agree with frugi .

 

[the blades]

Am I the only one who ever actually enjoys trading for its own sake? I must be doing it wrong

No, I love it too

good luck to those who can generate £100K PA. I can't

UTB

 

[roguetrader]

Hmmn this must be where the big swingin dicks hang out, 1000% per year return? Either I mis-understand the question or there are some really wealthy people here.

 

[wisestguy]

either that or they have rich daddies and mammies willing to finance them.

still about returns to risk though , you might make 100k a year but what if your risk is 200 k .

not that hot then , is it ?

 

[clandestino]

either that or they have rich daddies and mammies willing to finance them.

still about returns to risk though , you might make 100k a year but what if your risk is 200 k .

not that hot then , is it ?

I'd say that risking $200k & earning $100k on top is a fantastic return. At 50%, chances are you'd be extremely lucky to make that in a year through trading. The actual risk rate is irrelevant here as we are discussing methods to calculate gains.

As Lion63 stated earlier, there are already long established ways of measuring returns. The simplest way for beginners is to take the balance of your capital at the end of the period, subtract the balance at the start of the period, & then divide this result by the balance at the start of the period.

Spreadbetters must remember to include the total level of capital they are risking, not just their cash deposits or the margins on the positions they have open. Otherwise they are only kidding themselves !!

Kind regards,
Mark

 

[JumpOff]

As Lion63 stated earlier, there are already long established ways of measuring returns. And these long established ways due not include the "total amount at risk" in the calculations. ROI is about how much return you get on the cash you put up. Your use of OPM (other people's money) will increase your risk and your gearing for good or bad, but it is not a factor in calculating ROI by any standard accounting method. The taxman won't care how much margin you used, only how much cash you lost or gained compared to your basis (the amount of cash you started with).

There is a valid point, that leaving margin out of your calculations doesn'[t give the whole picture, so perhaps a term of Return on Risk (ROR) in addition to ROI.

JO

 

[wisestguy]

>>I'd say that risking $200k & earning $100k on top is a fantastic return. At 50%, chances are you'd be >>extremely lucky to make that in a year through trading. The actual risk rate is irrelevant here as we are >>discussing methods to calculate gains.


it's OK , not great , exactly what I said , but the fact is that your are risking 2x as much as you are gaining - not that good .

and risk is ALWAYS a factor , only the very naive would ignore that .


>>As Lion63 stated earlier, there are already long established ways of measuring returns. The simplest >>way for beginners is to take the balance of your capital at the end of the period, subtract the balance at >>the start of the period, & then divide this result by the balance at the start of the period.


good grief, why not just say Returns to risk capital - same thing and so much easier.
and it applies to all , not just begginers .

no matter how experienced you are , the measurements don't change , unless you somehow think as you trade more , " these ratios don't apply to me " .

if so one is fooling oneself .


>>Spreadbetters must remember to include the total level of capital they are risking, not just their cash >>deposits or the margins on the positions they have open. Otherwise they are only kidding themselves !!


and so must traders using brokers.


>>ROI is about how much return you get on the cash you put up.


same thing as return to capital at risk , so what's the big deal ? and don't matter 1 bit if it's yours or OPM - it's all capital at risk .


>>There is a valid point, that leaving margin out of your calculations doesn'[t give the whole picture, so >>perhaps a term of Return on Risk (ROR) in addition to ROI.


and quite obvious too

 

[roguetrader]

I'd say that risking $200k & earning $100k on top is a fantastic return.

While i would be the last person to jump up and say making money trading the market is easy, just a case of do this, do that and your laughing, I am not finding it easy at all.
I am a little confused at the assessment of risk here.

If I'm trading a $50,000 account I understand the various ideas of calculating a return....or loss at year end in % terms. However, apart from some catastrophic occurrence, very little of that money is actually at risk. To use a simple example lets say I trade my whole account on one stock, god forbid, I buy 1000 xyz at $50 per share,ignoring commissions for now, so I have $50,000 at risk, or do I?? I have a $1 stop in place, so barring a catastrophic fall in the stock price my risk is $1000 not $50,000

 

[LION63]

Roguetrader,

That is a fair and good example and I agree that your risk is $1,000 or 2% of your capital. If those shares were to rise by $2 yielding a $2,000 profit, how much would one say is (1) the ROCE and (2) the risk reward ratio?

 

[roguetrader]

To my mind the only meaningful calculation in this situation is your true average risk reward, the bottom line as it were. This would be calculated by adding together all your first stop losses and deviding by the number of trades taken, set against the sum of all your gains/losses incl commissions, margin costs etc devided by number of trades. This would tell you what you risked to make the gain you made.

 

[vetten]

Most of yous are making it too difficult to measure profits.

I go for the simple one: cash end -/- cash start of the year is my profit. This profit will appear in the yearly statement of individuals and businesses.
You can`t put on a balance sheet that you made that profit with or without gearing or how much gearing Lion, only as a foot note.

As an account I have to go with this one, BUT the riskier my strategy, I will want to have a proportionally higher return on my capital.

Even a stop loss doesn`t work exactly. Many times I have been sold out below my stop loss, because the market is moving fast.
It can even be in extreme circumstances that EOD price is $ 15, next day opens at $ 10........
Then what roguetrader??????

 

[LION63]

Vetten,

I would not seek to tell you or anyone else how to account for your profits/losses, I have just stated what is conventional. It really comes down to a matter of choice unless one has other investors who may well require a bit more clarity.

 

[vetten]

I looked at post 27 Lion where you say no matter how high the gearing, if you make 1000 quid on a 1000 quid margin that is 100% of the trade. If your total equity is 10,000 - you made a10% return.

Sorry Lion, I agree..........

 

[LION63]

Vetten,

One of the biggest problems we have as short term traders is prices gapping on the open in either direction. Unfortunately, there is nothing one can do about it, it is very nice when it is in your favour but when it goes the other way, as you say, stops are useless. That is why many traders try not to run trades overnight. How would I have felt if I was long Merck or FannieMae a few weeks ago? Devastated. How do I recover such massive losses and what do I do if I were trading off a 10% margin and had committed 10% of my capital to the trade? Answer: Go and get a job because I have just been wiped out regardless of my opening account balance.

 

[roguetrader]

It can even be in extreme circumstances that EOD price is $ 15, next day opens at $ 10........
Then what roguetrader??????

Ok my bad vetten, I didn't take the time to go into detail, simple gap rule in a gap down situation, or should I say gap against my trade I adjust stop loss to the 20 min high or low, this gives you a new stop loss which clearly would have to be accounted for in the end and illustrates my point true risk / reward can only truely be calculated in hindsight after all is settled, anything before that is just notional or expected.

 

[clandestino]

it's OK , not great , exactly what I said , but the fact is that your are risking 2x as much as you are gaining - not that good .

Well, the values involved in the risk - reward ratio are completely irrelevant without considering the riskiness of the venture.

Consider the listed companies within the UK. All their assets are exposed to various levels of risk, yet they cannot hope for returns of 50% within a year. In fact, they are usually risking capital at least 20times greater than the returns they can expect. However, they know that the risk level is low enough to manage.

and risk is ALWAYS a factor , only the very naive would ignore that .

I think you've taken this slightly out of context - I meant risk is not a factor, when discussing "whilst-in-an-internet-chat," how returns are measured. The only risk at factor for me, is a power cut chopping me off midway through a post !
The level of risk doesn't come into it at all - only the amount of capital ventured. Just because one venture is more risky than another, it doesn't mean we should measure it differently !!

so I have $50,000 at risk, or do I?? I have a $1 stop in place, so barring a catastrophic fall in the stock price my risk is $1000 not $50,000

I believe that you have shot yourself in the foot here, by owning up to the fact that you know full well that the whole $50,000 is at risk !! (albeit a small risk.)

As such, it would be foolish to believe, as LION63 states, that a $2000 gain would be a 100% return. In actual fact, it is a 5% return. The stop loss is irrelevant.

I believe that these issues are key to why spreadbetters lose time and time again. They are not sure of exactly how much capital is being risked in a series of positions, & before they know it, their account is in the red. Often massively so. Of course, this would not be the case if the humble "stop-loss" was guaranteed ... but it isn't.

Compare this with equity trading - the worst scenario being that your portfolio is completely liquidated. At least the individual was aware of the risks, & didn't risk money that didn't belong to him !

Kind regards,
Mark

 

[roguetrader]

I believe that you have shot yourself in the foot here, by owning up to the fact that you know full well that the whole $50,000 is at risk !! (albeit a small risk.)

Taken to an extreme, yes a significant amount of the total capital placed in a trade is at risk, though the odds of a stock you were trading going to zero before your stop activated are probably slightly worse than my odds of winning the lottery. Running with that assumption it would be impossible to calculate a risk / reward as your risk would be anywhere from entry to....who knows? My point was simply that commonly accepted risk / reward calculations going into a trade of the type quoted as 1:2, 1:3 etc do not consider the entire capital at risk.

Compare this with equity trading - the worst scenario being that your portfolio is completely liquidated. At least the individual was aware of the risks, & didn't risk money that didn't belong to him !

Traders using margin are quite capable of losing money that doesn't belong to them particularly in a world where their whole capital is at risk and say 50% of it doesn't belong to them

 

[wisestguy]

>>To use a simple example lets say I trade my whole account on one stock, god forbid, I buy 1000 xyz at >>$50 per share,ignoring commissions for now, so I have $50,000 at risk, or do I?? I have a $1 stop in >>place, so barring a catastrophic fall in the stock price my risk is $1000 not $50,000


very simple : return to risk capital over a period and how much your risk is per trade , both are different but related measurements . both are needed .

if you start the year with 50k in your pot and year end it is 150k , then your RTRC is 200% for the year

and if your are risking say 3% on each trade , due to a stop loss , slippage notwithstanding , then that is your risk per trade.

but that 3% risk has more connotation than a lot here are willing to admit , since the total number of losers for the year can factor in to your returns fairly drastically. so 3% x say 15 losers for the year = 45% loss already !

this has to be subtracted from your returns , then you must measure that resultant figure against your base capital , there you have your RTRC.

also RTRC on a raw basis counts a great deal . if you are holding shares long term , and the market crashes and stays there then you are in deep sh#t . look at japan since 1990 , at western markets since 2000. exactly what has happened. it may be 20 years and still you won't reach your breakeven price . in theory you have no losses since you are still in the " trade '" , but in reality you have lost that money for 20 years or more - that's a loss in anyone's book , notwithstanding the market losses itself. lose lose
situation.

RTRC is very simple and true , complicated by people who want to camouflage their lousy returns or even losses.


clandestino,


>>Consider the listed companies within the UK. All their assets are exposed to various levels of risk, yet >>they cannot hope for returns of 50% within a year. In fact, they are usually risking capital at least >>20times greater than the returns they can expect. However, they know that the risk level is low enough >>to manage.


in essense all risk is the same . you can lose whatever you put at risk . In trading ? the risk is clear - you can lose whatever you risk on the markets.


>>The level of risk doesn't come into it at all - only the amount of capital ventured.


in trading the level of capital ventured is the amount at risk , if I am take your meaning correctly.

 

[roguetrader]

>>To use a simple example lets say I trade my whole account on one stock, god forbid, I buy 1000 xyz at >>$50 per share,ignoring commissions for now, so I have $50,000 at risk, or do I?? I have a $1 stop in >>place, so barring a catastrophic fall in the stock price my risk is $1000 not $50,000


very simple : return to risk capital over a period and how much your risk is per trade , both are different but related measurements . both are needed .

if you start the year with 50k in your pot and year end it is 150k , then your RTRC is 200% for the year

and if your are risking say 3% on each trade , due to a stop loss , slippage notwithstanding , then that is your risk per trade.

but that 3% risk has more connotation than a lot here are willing to admit , since the total number of losers for the year can factor in to your returns fairly drastically. so 3% x say 15 losers for the year = 45% loss already !

wisestguy, I take your point, and I think this debate has become one of the proving points for that old saying. "You can make statistics say anything you want." Bottom line here is to make money we take risk, it's a risk reward game plain and simple. And anyone uncomfortable with the risk should not be in the game.

 

[the blades]

>>

if you start the year with 50k in your pot and year end it is 150k , then your RTRC is 200% for the year

Agreed. For me, it really is that simple.

Unfortunately (again, for me), if I start the year with £50K i'd be happy to end it with £65K, though I'll try for the £200K

UTB