Realistic Rate of Return?

beachlife said:

How can any trader that blows up be considered to have been good?

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LOL as per usual you try and pass on some info and you just hear what you want to. No wonder you walked into a property cluster F___. I'll leave you to it.

beachlife said:

How can any trader that blows up be considered to have been good?

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If you read Market Wizards by Jack Schwager, most of the people were successful after blowing up.

Many a good trader learnt how to respect the market after blowing up.

Personally, I'd be wary of any trader that hasn't blown up a few times early on in the career.

Valued said:

Were you writing options or something beachlife? You would have to be trying pretty hard to get wiped out on long calls or puts unless you used far too much risk per trade.

To be a professional trader for decades, I suppose you have to be able to trade more than just one instrument in one market. What if certain markets close due to disaster? You have to be able to trade multiple instruments in multiple markets.

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This is a good answer to that earlier question. I know two people who were trading for a living, both were for about 5-10 years making pretty decent money. They both had entrepreneur mentality's as they both were former business owners. The main reason why they failed was because they were equity traders and could only make money on long positions. If you want to trade for a living you need to know how to trade more than just one instrument, I think the majority of people that trade for a living would either be futures or FX traders or a mixture of both. In regards to what a realistic rate of return is that depends on weather you trade part time or for a living.
If you trade for a living you will be drawing down on your funds at least monthly to pay for living/trading expenses not to mention Tax so you can't compound all of your returns. I know of some traders that can consistently get around 10-20% monthly trading Futures and FX but these guys would have to be in the top 1% these are people that trade for a living and have to draw down on there returns monthly to pay for living costs and tax etc. So you can't really compound that amount. They make what they can make and withdraw how ever much they want to withdraw but still live a pretty modest lifestyle.

Valued said:

Were you writing options or something beachlife? You would have to be trying pretty hard to get wiped out on long calls or puts unless you used far too much risk per trade..

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No writing, just trading bought calls and bought puts as taught by a mob I wont name, but it was the late 90's and there was 3 of them all teaching the same thing, all claiming it was their own, one jumped on by asic, the other gone, the 3rd still spruking (not DK - stayed away from him). I heard the market makers knew what was being taught. Stops always got hit on the open of the next day if the US was quiet that night. I lost count of how many times I was stopped out even when the underlying moved in the right direction - the power of the greeks.

Trembling Hand said:

LOL as per usual you try and pass on some info and you just hear what you want to. No wonder you walked into a property cluster F___. I'll leave you to it.

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Hardly a cluster F. For 5 years it paid me a wage, allowed my wife to quit work too, bought us two 2 month around the world trips, and we came out the other end with a clean credit record, owning our own home, just no investments. Times were so good I didnt even bother with trading. I am not the only person on the planet that didnt see the GFC coming and if I had to choose between those 5 years and work I would do it again in a heart beat.

But back to you, crappy traders make the mistakes I made and then some quit (like I did back then), some go on to become good traders. You havent answered how the ones that become good traders in your eyes then manage to blow up again.

If not any of the things I did then what?

BTW how do you define a good trader?

I can see why people would lose money on options. I have seemed to have taken to options quite naturally so far. I wasn't aware of the greeks but just working it out myself I was already calculating the delta and theta. I reasoned that the option can only be worth as much as the intrinsic value and anything else must just be some value to compensate the writer of the option for being at risk. I then read about the greeks.

I think options are the bees knees for equities. For indices it's plainly inferior to futures in my opinion. For equities they seem amazing. The leverage can surpass any other instrument. I just took call options at 1:87 on Friday. Talk about leverage and the risk is absolute unlike a CFD which only offers 20:1 and you can lose more than your margin. The only issue is you have to get right not just the market direction but the market speed.

beachlife said:

You have missed the whole point. .

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I thought you were asking the question because you wanted an idea of how much capital you would need,

Basically all i was suggesting is use a conservative return for your calculations, that way you know you'll be ok.

But, i also suggested have a wage buffer of savings, because there will be years you may make 0% or even a loss, and if you are relying on hand to mouth monthly returns to eat as well as having a small capital base you are in trouble, because you may have to eat the small capital base if you have a bad year ( or two)

But i have no vested interest in your success or failure, i was just offering my opinion and what i thought was a rational way of setting yourself up.

Valued said:

I think options are the bees knees for equities. For indices it's plainly inferior to futures in my opinion. For equities they seem amazing. The leverage can surpass any other instrument. I just took call options at 1:87 on Friday. Talk about leverage and the risk is absolute unlike a CFD which only offers 20:1 and you can lose more than your margin. The only issue is you have to get right not just the market direction but the market speed.

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I use options in my investment operation also, I pretty much only write options though, i don't normally buy them.

It’s not what return you can earn that will make you wealthy. It’s what return you can continue to compound that counts. (or sizing up if using other people’s money).

Make 100% return un-compounded year in year out for 40 years and you will be a legend the likes of which has never been seen. Yet you will still have made less than the nong who could only compound his pot at 10%.

If you’re not in a position to compound a decent percent of your return (or use other peoples money safely) then trading has no more imbedded wealth creation potential than any other job with the down side that earnings are more volatile and the discipline to keep at it will have to be internal.

Compounding is king.

Size does matter.

beachlife said:

But back to you, crappy traders make the mistakes I made and then some quit (like I did back then), some go on to become good traders. You havent answered how the ones that become good traders in your eyes then manage to blow up again.

If not any of the things I did then what?

BTW how do you define a good trader?

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Yeah I did. You haven't been through a market change. You are viewing the market in 1 dimension, you haven't seen how something can completely change characteristics. Your 'system' has been optimised, to some degree, to historical data.

It will change and you will have a mighty hard time to relearn an approach because that is the nature of the game. You spend so long trying to get to a position where you know after the next 10-100-whatever trades you will be ahead then all of a sudden you will be forced to abandon that. MASSIVELY hard thing to do. It has nothing to do with the newbies mistakes 101.

Its about being left behind, markets change. They become too volatile for your positioning or signals or too locked up, which happened to the SPI traders. They were without doubt good traders. No way in the world you trade day in day out for 10-15 years swinging multiple millions per clip and and doing a few % of the instrument turnover without being a 'good' trader. I'm not talking retail wannbes on a CFD account. I'm talking about the actual people that ARE the market. What happened is a few arb bots post GFC just locked up the market when it was in the 4000s and would hardly budge all day. Basically over a year or two they emptied the locals account by out staying them and out boring them.

Many had to go to different markets and completely different approaches. Some just fell to bits. Same thing is happening to medium term trend traders now in the ASX. Same thing will happen to US traders when that straight line market changes. Same thing will happen to the market I trade when the Seng either goes to 8000 or 50,000. What works now more than likely will not work in 4-5 years. Its always been that way.

Oh and a perfect example is the HFT crowd. A year ago everyone in the media and on forums were bitching about how its all so unfair that these guys are robbing the retail/sup funds with ease. Guess what is happening now? Most have gone broke the rest are on their knees.

TH would you say then that you either have to be very good at creating new systems to suit different market characteristics or be a very good discretionary trader who can see the changes in the market and react?

Perhaps it's like poker. In the year 2000 poker was easy. People used to walk in and just take money off the table easily or they played online and won bucket loads of cash. These days those some people are losers or break even players. They cannot keep up. The game has changed completely. It was only those who could create new styles of play that remain in the game. People had to adapt to the psychology of the other participants. Once they started to act differently, the game went upside down. Some were able to adapt their game based on feel and were successful. Others have used very complex game theory math and advanced software to create a system that works (although the dynamics of poker being a solvable zero sum game means the latter will eventually win).

Being able to identify hat your market s either about to change or has changed is one.
Neural networks and it's derivatives will be the future.

Valued said:

TH would you say then that you either have to be very good at creating new systems to suit different market characteristics or be a very good discretionary trader who can see the changes in the market and react?

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Well you probably have to be one of the two. As for true system trading that is why they do out of sample testing and Monte Carlo testing to understand when their systems are 'broken'.

With a disc traders yeah you have to be very honest with yourself and recognise that at some point you will have to literally abandon the golden goose and then go in search again. And its only after you are in a nasty draw down and the last thing you want to do is stop trading, re-test, reduce size and slowly build because that will be a very long time before you hit a high water mark again. Nasty nasty old game!

I do like Richard Farleigh's approach. He will trade/invest in any market. He said he was once bullish on bananas after noticing some price trend so he bought banana futures lol. Basically, to him something is trending or it is not. If it's trending he jumps on board and follows it no matter what it is. If a certain market isn't trending he just goes and looks somewhere else. Since he isn't limited to just stocks (and he doesn't even like stocks) he will look elsewhere. However, trading commodities and forex probably isn't for everyone.