10% heralded as good trader??

[Fangdog]

Another factor, but not all. Is huge fund managers are compensated based on the the size of the fund (a certain percentage). If they make an industry acceptable return and it could happen as early as one month, why would they want to take further risks and jeopardise their management gig?

Think of it as a football coach who consistently has an 7-5 or 8-4 season. He has a long career as a football coach because he never has a losing season. Why would he risk going for 4th down and one, when he can punt and still end-up 7-5 or 8-4.

Most people who decide to trade, know there is more to it than just 10% returns. What they don't know, is whether they can do it or not, and most can't.

 

[sunggong]

As others have mentioned, it's MUCH EASIER to make 400% using $25k account than with $1,000k account.

Much easier....

But of course, getting 400% return is not an easy thing to do CONSISTENTLY, even with $25k account.

Quote from shortorlong:

Why is it that in a lot of literature, and on TV, 10-15% returns are heralded as such a great accomplishment?

CNBC and other networks herald fund managers returning 10-15% as best of breed.

But lots of daytraders and others are returning 200, 300, sometimes 400% annualy..

Is it because fund managers have millions of dollars and daytrading doesn't scale?

What's the deal here. How are daytraders able to double their profits while professional fund managers with tons of resources and huge teams of analysts are unable to match?

 

[riskfreetrading]

guys: the question should be in my view, how could one achieve a safe, scalable rate of return which is 2 to 4 times the risk free rate of return?

it the answer is yes, then one can obtain any rate of return one pleases!

 

[HotTip]

Quote from sunggong:

As others have mentioned, it's MUCH EASIER to make 400% using $25k account than with $1,000k account.

Much easier....

But of course, getting 400% return is not an easy thing to do CONSISTENTLY, even with $25k account.

Plus I think there are a lot of traders out there who only maintain a certain amount of money in their brokerage account and transfer the excess to MFs or other endeavors. If you make a 400% return every year trading futures on a $25k account but you don't let the account compound, then stating that you make 400% annually is fallacious.

 

[cabletrader]

Quote from HotTip:

Plus I think there are a lot of traders out there who only maintain a certain amount of money in their brokerage account and transfer the excess to MFs or other endeavors. If you make a 400% return every year trading futures on a $25k account but you don't let the account compound, then stating that you make 400% annually is fallacious.

You're right, I open every month with the same balance after drawing off profits from the previous month (if there are any!) so the returns aren't compounded, but how does that make a 400% return fallacious if the account did actually produce a 400% return? Sorry, don't get it.

 

[BlindLemonBoosh]

Quote from riskfreetrading:

guys: the question should be in my view, how could one achieve a safe, scalable rate of return which is 2 to 4 times the risk free rate of return?

it the answer is yes, then one can obtain any rate of return one pleases!

Please define "safe".

 

[Cutten]

Quote from cabletrader:

You're right, I open every month with the same balance after drawing off profits from the previous month (if there are any!) so the returns aren't compounded, but how does that make a 400% return fallacious if the account did actually produce a 400% return? Sorry, don't get it.

Because it can't be compounded, and it isn't being measured as a % of what matters i.e. your net worth. IMO, returns should be measured as after-tax net profit, as a percentage of total net worth. That is the only figure that matters. Your ability to pay bills and buy things is not determined by your account size and % return, after all, but rather by actual dollars.

I could withdraw half my account, trade the same, make the same profit, get just as richer (hopefully) as before. Has my % return doubled? No, not in any meaningful sense. All that has happened is I have transferred the risk from my trading account to my overall net worth. Since net worth is what matters, that is how the return should be judged.

Any non-scalable return is good in terms of income, but eventually the return diminishes. Let's say you can make $200k daytrading, but it doesn't scale. After 4 years, your return is now 25%, if you keep reinvesting your profits. After 10 years you have accumulated 2 mill, and are now making 10%, the same paltry returns that this thread is decrying.

Daytrading is a great way to go from 10k to 500k to a couple of mill, if you are good enough to do that. But beyond that, it kinda sucks.

 

[Brandonf]

Quote from shortorlong:

I see, so even full-time day traders are only making 20 or 30% returns?

So I guess in order to make $50k, they are trading with $250k of capital and earning 20% returns.

So I guess if they are getting 10:1 leverage, they are trading 25K principal.

Is that math correct? So they are mostly making 20% returns on $250k, so 200% returns on 25k?


Or are they making only 20% on the principal, using that 10:1 leverage? If that's the case, then they need $250k principal to make $50k per year :O

Read the Market Wizard's books by Schwagger or Hedge Hunters by Katherine Burton. Either will give you a good idea of what people do. If you can consistantly do 15% + per year your pretty good, if you can do 30% + per year your a trading god. Warren Buffet has done pretty well averaging around 25/30% per year, so I think you can take your cues from those types of examples.

 

[Brandonf]

Quote from Fangdog:

Another factor, but not all. Is huge fund managers are compensated based on the the size of the fund (a certain percentage). If they make an industry acceptable return and it could happen as early as one month, why would they want to take further risks and jeopardise their management gig?

Think of it as a football coach who consistently has an 7-5 or 8-4 season. He has a long career as a football coach because he never has a losing season. Why would he risk going for 4th down and one, when he can punt and still end-up 7-5 or 8-4.

Most people who decide to trade, know there is more to it than just 10% returns. What they don't know, is whether they can do it or not, and most can't.

I don't really think thats the best analogy, but I don't really have the words right now to express why that is. I will say though that there are a lot of traders who will walk away after they are up X on the day, for awhile I did this as well, but really what that is is lazyness and fear. You should never limit yourself, and as a trader, when things are going your way you have to press your edge.

 

[cabletrader]

Quote from Cutten:

Because it can't be compounded, and it isn't being measured as a % of what matters i.e. your net worth.

I thought we were just talking about returns on a trading account, if you're saying trading profits should be calculated as a percentage return on net worth then you need to take into account all assets, liabilities, and investments and that figure will be irrelevant when it comes to trading performance as it's going to vary from trader to trader.

Quote from Cutten:

Any non-scalable return is good in terms of income, but eventually the return diminishes. Let's say you can make $200k daytrading, but it doesn't scale. After 4 years, your return is now 25%, if you keep reinvesting your profits. After 10 years you have accumulated 2 mill, and are now making 10%, the same paltry returns that this thread is decrying.

You're assuming traders work on a fixed dollar return which is incorrect. Profits from trading aren't non-scalable, that's why the only significant number when talking about risk, reward, and return is % of trading account.