A bucket of cold water for newbies...

siki13 · Jun 28, 2008

Quote from lilduckling:

The vast majoritty of money managers vastly underperform the S&P. A few elite are consistant in 10% av return year per year.

I really would like to know how can a successful trader earn 10 % per year.
Lets say you have 5 trades a day which makes around 1000 trades per year.
If you truly know how to trade than 10%
is ridiculously small number.

c.chugani · Jun 28, 2008

Quote from siki13:

I really would like to know how can a successful trader earn 10 % per year.
Lets say you have 5 trades a day which makes around 1000 trades per year.
If you truly know how to trade than 10%
is ridiculously small number.

I think the point to take home is that the 10% return is ON AVERAGE. You might have some better years and some worse years.

Are you telling me that all the 1000 trades in a year, for the next ten years, are going to perform well? Surely not, and therefore a 10% average annual return is a realistic and notable achievement.

Look up the term "ergodicity".

siki13 · Jun 28, 2008

Quote from c.chugani:

Are you telling me that all the 1000 trades in a year, for the next ten years, are going to perform well? Surely not, and therefore a 10% average annual return is a realistic and notable achievement.

lilduckling · Jun 28, 2008

In 1849 to 1850 people from all over the globe flooded into California with a feverish determination of getting their share of gold..... gold that was supposably just lining the ground and rivers.
Soon, there were a vast amount of shops that catered to these miners.... selling everything from picks and pans to ropes, bags, and other camping items to aid in getting your gold. New arrivals would look around and see all these shops and thought how surely it meant the majority of the masses were striking it rich.
Soon after they resistered their claim .... they soon found out the the only people who would help them "find" all of this gold that was laying about were the shop owners... who were all to happy to sell their equiptment to them. (sound familiar).
As far as the gold.... the very very rare few that did stike it rich... well, they werent going around asking others to help them carry out the gold from their claim site. Locations_ that produced gold were (beleive it or not) not advertised. Rumors...... and misimformation is what the inspiring prospectors went by. And a few that got too close to the wrong claim were killed.... especially if they were none white.
In the end ... the vast majority more than 90% , left worse off then when they arrived..... completely broke._ Lucky ones still managed to be able to get back to their countries.... many could not afford it.Whats this have to do with trading today?Well, we certainly still have the "shops" tailored to the prospectors, and we still have people coming in thinking that the money is just there.... waiting to be picked up.

ElCubano · Jun 28, 2008

Quote from lilduckling:

Well, we certainly still have the "shops" tailored to the prospectors, and we still have people coming in thinking that the money is just there.... waiting to be picked up.

technically the money is there it's as simple as a click of the mouse.....1 account, 1 screen, 1 internet connection...

now the easiest way to make it and keep it is in one shot one gamble....

in "Why Flip A Coin?" the author states...that one would stand a better chance at one shot one killl; than dying by 1000 cuts.. I concur...picking a side, putting on a trade for all your marbles and never watching the intrument again until 1 of 2 things happens would most defintiely bring the "98% of traders fail" theory to a screaching halt....peace

shortie · Jun 28, 2008

Quote from NY0BScalper:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1906262&highlight=percentage#post1906262

The way I see it is as that the daytraders make their living off of the natural inefficiencies that come when large orders are entered, especially fearfully or greedily. The orders come from all the various institutions that are trying to chase after a 25% (or 15%, or 10) annual return on vast sums of money.

A good daytrader can consistently profit on a monthly basis by getting in front of institutional orders and profiting off of natural intraday inefficiency. With a $10,000 deposit he can make several hundred thousand dollar in one year - a return of perhaps 2000%. However, that percentage is meaningless because the daytrader can only take so much size, and the more size he takes the more he becomes crippled and prey for other daytraders and market makers. A daytrader who makes $500,000 in a year is a superstar.

Let's say you have a way to fully and without error program precisely the strategy that a trader uses to make $500,000 per year. Because that trader only can monitor limited information and thus can't trade all the setups, let's assume there is $3,000,000 in that strategy if it's traded by a computer.
The strategy only utilizes $500,000 BP, but just to be cautious you use $1,000,000 with a $100,000 deposit, thus your return will be 3000%.

Someone with $100,000,000 to manage can do better putting his money in the bank than he can with a daytrading system that makes 3% per year.

You can bet your ass whatever $3,000,000 that is left on the table is being fought for by hundreds - perhaps thousands - of daytraders and investment banks, hedgefunds, market makers, market manipulators, and all the other various participants.

For anyone trying to make a living off of fees on asset management, it is not worth it to try to make $3,000,000. They must instead try to make $30,000,000 on $200,000,000 for a hedgefund, or manage $1,000,000,000 for a mutual fund. Because the positions required to achieve such returns are so large, it makes it very difficult to freely get in and out of a position in response to short term market action - something daytraders can do - so as long as thousands of institutions are fighting to make $20,000,000 or $300,000,000 on huge sums of capital, we daytraders can fight for our $150,000 - and if we keep $10,000 up at our firm, we can call it a 1500% return, even though whoever is making 15% on 100,000,000 laughs at Joe Daytrader's huge % return number.

Conclusion: percentage return comparisons of daytraders vs. asset managers are completely useless because of the way the markets work.

NY0BScalper,
Excellent analysis! One thing I disagree with is that there is only 3M/year in inefficiencies. 3M is enough to feed ~50 daytraders, but there are more than that on ET alone. Unless the success claims I hear 10-100X exaggerated.

NY0BScalper · Jun 28, 2008

Quote from shortie:

NY0BScalper,
Excellent analysis! One thing I disagree with is that there is only 3M/year in inefficiencies. 3M is enough to feed ~50 daytraders, but there are more than that on ET alone. Unless the success claims I hear 10-100X exaggerated.

I agree there are more than 3m/year in inefficiencies but for one trader to be catching that is unlikely... but even if he does and his return on capital is exceptional, it would be totally useless to many institutions that achieve much smaller returns on capital on vastly larger sums.

Quote from lilduckling:

In the end ... the vast majority more than 90% , left worse off then when they arrived..... completely broke._ Lucky ones still managed to be able to get back to their countries.... many could not afford it.Whats this have to do with trading today?Well, we certainly still have the "shops" tailored to the prospectors, and we still have people coming in thinking that the money is just there.... waiting to be picked up.

While I agree many won't have the skills, patience, or quickness to pick it up, the money in this case actually is sitting there waiting to be picked up...

joeb8822 · Jun 28, 2008

If you say to someone you want to be a millionaire and they have never made a million in their lives they will be negative and bash your hopes.

If you say to someone who has made a million and is wealthy
the same thing ( I want to be a millionaire) they will encourage
you and try to help you get to your dream

So when you make a statement like you cannot take money out of the market at over a certain % it should set off an alarm that
your point of reference is such that you have either never met
anyone who has been successful in the market or you yourself have found it hard to take money from the market.

Now that being said do you feel you are doing a service to the traders here ?

Not being a wise guy but being negative never has helped
anyone it any endeavor

Please think of all the people that have done great things !

You feel they would have made it if they consulted with you first?

Take Care,

Joe Baker

Hubert1635 · Jun 28, 2008

Quote from joeb8822:

If you say to someone you want to be a millionaire and they have never made a million in their lives they will be negative and bash your hopes.

If you say to someone who has made a million and is wealthy
the same thing ( I want to be a millionaire) they will encourage
you and try to help you get to your dream

So when you make a statement like you cannot take money out of the market at over a certain % it should set off an alarm that
your point of reference is such that you have either never met
anyone who has been successful in the market or you yourself have found it hard to take money from the market.

Now that being said do you feel you are doing a service to the traders here ?

Not being a wise guy but being negative never has helped
anyone it any endeavor

Please think of all the people that have done great things !

You feel they would have made it if they consulted with you first?

Take Care,

Joe Baker

Thanks Joe, that was needed.
-H

lilduckling · Jun 28, 2008

Quote from joeb8822:

If you say to someone you want to be a millionaire and they have never made a million in their lives they will be negative and bash your hopes.

If you say to someone who has made a million and is wealthy
the same thing ( I want to be a millionaire) they will encourage
you and try to help you get to your dream

So when you make a statement like you cannot take money out of the market at over a certain % it should set off an alarm that
your point of reference is such that you have either never met
anyone who has been successful in the market or you yourself have found it hard to take money from the market.

Now that being said do you feel you are doing a service to the traders here ?

Not being a wise guy but being negative never has helped
anyone it any endeavor

Please think of all the people that have done great things !

You feel they would have made it if they consulted with you first?

Take Care,

Joe Baker

I never said it couldnt be done..... i just factly or maybe coldly stated that the odds are greatly agaisnt you. Anyone who says otherwise is a liar, pure and simple.

As far as being negetive, i've been on this board a few years now and i have for the most part helped out and encouraged brand new traders. But i believe in showing both sides of the coin... i dose of reality once in a great while in this trading world can be like a rudder on a ship.......