Returns and Drawdowns in Trading

[tyrant]

I am interested to know what kind of annual % returns you are happy with assuming you have at least a $100k account and are free to trade whatever you want using any time frames you like, and assuming reasonable leverage such that you are not taking too huge risks? Please also state your expected drawdowns and a brief description of what you trade and time frames.

I will start : I aim for 30%-50% consistent annual returns with expected drawdown of up to 30% trading futures, forex and options with a longer term (> 1 day) view.

 

[ecritt]

Quote from tyrant:

I am interested to know what kind of annual % returns you are happy with assuming you have at least a $100k account and are free to trade whatever you want using any time frames you like, and assuming reasonable leverage such that you are not taking too huge risks? Please also state your expected drawdowns and a brief description of what you trade and time frames.

I will start : I aim for 30%-50% consistent annual returns with expected drawdown of up to 30% trading futures, forex and options with a longer term (> 1 day) view.

The most successful CTA's in history haven't come close to those numbers despite having every advantage (experience, infrastructure, structural advantages, 24 hour trade desks, etc.). What is it you have that they don't?

 

[EricP]

Quote from ecritt:

The most successful CTA's in history haven't come close to those numbers despite having every advantage (experience, infrastructure, structural advantages, 24 hour trade desks, etc.). What is it you have that they don't?

One thing that I'm sure he doesn't have is a huge pile of capital that must be 'put to work'. This is a big disadvantage for the CTA's / fund managers, since they incur increased slippage on filling their orders in less liquid markets.

I have had annual returns of 50-150% per year for many years running (with DD's below 7%), but I couldn't imagine trying to put 10x or 100x as much capital to work. That increased level of capital would devastate my annual percentage return, I suspect, as I would be unable to find good opportunities to put this additional capital to work.

-Eric

 

[tyrant]

Quote from EricP:

One thing that I'm sure he doesn't have is a huge pile of capital that must be 'put to work'. This is a big disadvantage for the CTA's / fund managers, since they incur increased slippage on filling their orders in less liquid markets.

I have had annual returns of 50-150% per year for many years running (with DD's below 7%), but I couldn't imagine trying to put 10x or 100x as much capital to work. That increased level of capital would devastate my annual percentage return, I suspect, as I would be unable to find good opportunities to put this additional capital to work.

-Eric

Thanks for giving your figures. I have to say that 7% drawdown is amazing considering your returns. May I know what you trade and your timeframes?

 

[tyrant]

Quote from ecritt:

The most successful CTA's in history haven't come close to those numbers despite having every advantage (experience, infrastructure, structural advantages, 24 hour trade desks, etc.). What is it you have that they don't?

As Eric alluded to, size is a big disadvantage. The others being agency costs like fraud or unwillingness to divulge what they know best, management pressure which is often short sighted and follows the crowd, inability to cut loss for fear of looking stupid etc.

Anyway, care to share your figures and what you trade and timeframes?

 

[momoneythansens]

Hmm..."many years" at "50-150%" most likely means you are now putting 10x or 100x capital at work.

Quote from EricP:

One thing that I'm sure he doesn't have is a huge pile of capital that must be 'put to work'. This is a big disadvantage for the CTA's / fund managers, since they incur increased slippage on filling their orders in less liquid markets.

I have had annual returns of 50-150% per year for many years running (with DD's below 7%), but I couldn't imagine trying to put 10x or 100x as much capital to work. That increased level of capital would devastate my annual percentage return, I suspect, as I would be unable to find good opportunities to put this additional capital to work.

-Eric

 

[Dantheman]

Original Poster,

I would not bother with trading if I thought I couldn't avoid drawdowns in total equity.

it is a myth that market risk is a "risk vs. reward" thing.

YOU bring the proportional amount of risk to your money with respect to your level of skills, experience, and knowledge of how everything works.

thus... to go at trading with the mindset of "i'm willing to lose this much - to gain this much" is a fallacy.

It would be wise to NOT approach making money in the market the way 95% of people (re. ET) do.

so I would suggest a few things, start searching for knowledge, skills, and abilities. Try to learn the language of the market. (in fact this is a MUST...if you don't learn to speak the language....)
If you can't seek out a mentor or someone who knows what's what, then at least do very limited size in your quest for trading skills and abilities. (there is no time limit on how long this will take...some get it quicker than others.)

when you lose money in the market (RE. drawdown) you IMPRINT in your brain HOW TO LOSE MONEY. it is important to not do this.

to begin: look at the places (times) where prices appreciate the fastest and examine the interplay between price and volume. Note also, the interplay when price ISN't appreciating or depreciating quickly.

that is a foundational excercise. If you have a rational mind, you will come to a conclusion about REWARD vs. RISK this is very different from what 95% of failed traders believe.

please don't PM me. good luck.

 

[tyrant]

Quote from Dantheman:

Original Poster,

I would not bother with trading if I thought I couldn't avoid drawdowns in total equity.

it is a myth that market risk is a "risk vs. reward" thing.

YOU bring the proportional amount of risk to your money with respect to your level of skills, experience, and knowledge of how everything works.

thus... to go at trading with the mindset of "i'm willing to lose this much - to gain this much" is a fallacy.

It would be wise to NOT approach making money in the market the way 95% of people (re. ET) do.

so I would suggest a few things, start searching for knowledge, skills, and abilities. Try to learn the language of the market. (in fact this is a MUST...if you don't learn to speak the language....)
If you can't seek out a mentor or someone who knows what's what, then at least do very limited size in your quest for trading skills and abilities. (there is no time limit on how long this will take...some get it quicker than others.)

when you lose money in the market (RE. drawdown) you IMPRINT in your brain HOW TO LOSE MONEY. it is important to not do this.

to begin: look at the places (times) where prices appreciate the fastest and examine the interplay between price and volume. Note also, the interplay when price ISN't appreciating or depreciating quickly.

that is a foundational excercise. If you have a rational mind, you will come to a conclusion about REWARD vs. RISK this is very different from what 95% of failed traders believe.

please don't PM me. good luck.

At the very least, please answer my question of what is your average annual return % ( or what you expect ) and what kind of minimal drawdown ( however minimal ) you do experience in the normal course of your professional trading.

No offence but your advice about interplay between price and volume is as good as having said nothing because market IS, of course, about interplay between these factors during period of trend and congestion and every possible study is about extracting any possible causal relationships.

 

[EricP]

Quote from tyrant:

Thanks for giving your figures. I have to say that 7% drawdown is amazing considering your returns. May I know what you trade and your timeframes?

I mostly trade stocks, but some futures, with timeframes of a few minutes to several hours.

Quote from momoneythansens:

Hmm..."many years" at "50-150%" most likely means you are now putting 10x or 100x capital at work.

That's true, and I already do put well over 10x as much capital to work these days, versus the late 1990's. However, after a number of years of minimal account withdrawals (taxes and small living expenses) I reached the point where I struggled to find sufficient trade opportunities for my level of capital. As a result, during the past several years I have withdrawn monthly profits and don't compound my returns, thus the answer I gave to the original poster. I could not imagine having to trade an additional 10x to 100x my current level of capital. I simply cannot think about how I would put that much capital to work. I'm certain that I would have to move to longer timeframes and more liquid markets (futures, currencies, extremely liquid stocks), but this is currently not my style of trading.

-Eric

 

[ElectricSavant]

I have removed myself from this way of thinking in the this thread authors opening post. .

You need to compare the yield to the Drawdown when evaluating your system.

Tradability of your system and the ability to trade it with a disciplined & consistent approach is far more important. There are good days and bad days and it comes down to what you can live with.

As far as OPM, well there are benchmarks that the industry places on you that are limiting.

Michael B.

Quote from tyrant:

I am interested to know what kind of annual % returns you are happy with assuming you have at least a $100k account and are free to trade whatever you want using any time frames you like, and assuming reasonable leverage such that you are not taking too huge risks? Please also state your expected drawdowns and a brief description of what you trade and time frames.

I will start : I aim for 30%-50% consistent annual returns with expected drawdown of up to 30% trading futures, forex and options with a longer term (> 1 day) view.