# 10%, 15%, 20% - what is a consistent realistic expectation?



## damok (3 September 2006)

G'day everyone,
First of all many thanks to everyone for replying to my last post.  I've ordered a couple of books, downloaded ebooks, subscribed to podcasts and am all in all excited about the process I am about to undertake. The areas that I am particularly interested in is technical analysis with trend trading and CFD's.

So to my first question (sorry I have two):
What is a realistic consistent return?  A return that you can expect per year regardless of normal market fluctuations.  It appeared that my 40% expectation was a unrealistic... so what is?

Now my question is pegged to people who are 'proficient' traders that have proven their returns over a 'suitable' period of time.  By 'proficient' I mean someone who has confidence in a market and applies a strategy that gives them a certain amount of consistency.  By 'suitable' time, I'm not so interested in what someone has done over one month, but more what you achieved over an entire year... or even more.

So for those experience traders amongst us (I know your out there!), what do you consistently return.

Now to my second question:
Trading with CFD is it realistic to expect a relatively simple 20x return?  Before I get stomped on, here are my assumptions:
*5% Margin
*good money management limiting potential loss
*stop losses to manage the above

So whilst I accept that there is a much greater risk, using the above assumptions could you apply your normal trading strategy to CFD's to increase your return by about 20x?

Thanks again,
damok


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## swingstar (3 September 2006)

I'm not experienced enough to answer your question, but on leverage, see this thread. 

Well re: expectations, you won't know until you test your system/style, whether paper trading or mechanically. Even then it's no certainty. 

I'm not into "realistic expectations", and yes I'm a newb, but I don't want to limit myself by thinking 40% (or any figure) is the grail. There are many traders who return much more, some who lose everything, some who only just beat the market, etc. There are some who don't need to return much, because they have large banks, yet it doesn't mean they are poor traders. 

Test your system, work out how many opportunities you could find and trade realistically (you could paper trade historical data and find heaps of opportunities, but if you don't plan on constantly eyeing the market when you begin live, then you'll probably miss a lot), what you could expect to make per amount risked, and then you might have some idea.


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## nizar (3 September 2006)

damok said:
			
		

> G'day everyone,
> First of all many thanks to everyone for replying to my last post.  I've ordered a couple of books, downloaded ebooks, subscribed to podcasts and am all in all excited about the process I am about to undertake. The areas that I am particularly interested in is technical analysis with trend trading and CFD's.
> 
> So to my first question (sorry I have two):
> ...




Can u stop trying to be a hero and do things one step at a time?

I reckon without ever going near CFDs and the rest (because u will get burnt for sure) just try trading normal FPOs to begin with

Secondly, as somebody new to the game, trying to beat the risk-free rate would be a good start

Increase returns by 20x??

Do u think making money in the stockmarket is that easy??

U need to read and read and read and then u can start doing some more reading; trading stocks is what they call a zero-sum game, somebody wins, somebody loses. You are up there against professionals, and since ur new, the average would probably know more than u, wat makes u think that initiall u will win?

Many successful traders today lost heaps of money in their first few years...

Take your time and u may get there, but slow and steady wins the race, and nobody starts off at the top...


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## damok (3 September 2006)

I apologise for my heroic tendencies.  I'm just trying to ascertain of people far more knowledgeable than me, what at some point in the future (distant or otherwise) might be possible.

I'm sorry for being the type of person that might be motivated by the possibility of future success.  I don't expect to make a profit tomorrow, but I would in 12 months. I might also hope that in a couple of years I might know enough to pull profit consistently.  My questions are posed with a number of assumptions, and certainly do not reflect my immediate plans or expectations.

yours most humbly,
damok


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## Royce (3 September 2006)

Human nature to try and run before you can walk.

Good advise by nizar.

What return you accept .......depends wether your a Trader, Day Trader or Investor. And your financial  situation.

Good luck ....Hope you succeed

Royce


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## imajica (3 September 2006)

I only started trading in March of this year and have returned 250% - not just a one-off lucky punt but quite a few sustained returns. My tip is to thoroughly research the fundamentals of the company and then develop an instinct for market sentiment - its strange how sometimes u can get an inkling that a share is gonna run. Remember: just because its the hot topic of some sharemarket forums doesnt mean its a share worth buying. (ie-AEX, EXT, RRS)


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## clowboy (3 September 2006)

Damok,

Experience and success are two different things.

Returns are somethng that I have chased alot in the past especially when you here stories of this return and that return.

I am slowly coming to learn that consistancy is far more important and leverage blinds you from reality.  Rather than trying to increase returns from leverage (and suposably improve my performance) I have come to realise that I should concentrate on my underlying performance.  If you set a target to make 40% Pa and use leverage at 4X then you are really only making 5% PA, which is really very lousy for all the risk that is taken.  I have come to realise that concentrating on the pre leverage (I have stoped using leverage for the moment) is far more effective at forcing improvement.

If you return 40% PA (leveraged) then you are likely to feel really good about your sucess but in reality you have only returned 5% PA.

To this end I have set myself a target of 15% PA return which is about 2.5% above the long term avg of most decent asset classes (shares, property etc etc)

You, as well as others may think that a rather small figure but I have come to realise that the turtle wins the race, not the hare.  When I am confident that I can return 15% Pa very consistantly (over a 5yr + period) no matter what the market as a whole or the economy etc is doing then I may look into leverage again.

At the end of the day if you can return 15%PA year after year after year then you are better than 95% of the market participants.  (how many managed funds can you find that have returned 15+% PA for 10 or more years?).


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## stink (3 September 2006)

nizar said:
			
		

> Can u stop trying to be a hero and do things one step at a time?
> 
> I reckon without ever going near CFDs and the rest (because u will get burnt for sure) just try trading normal FPOs to begin with
> 
> ...





Nizar,

Senior Member?

What is the bull**** mate? How helpful are you being here?

Dont respond without something constructive, whats the point in telling someone what they shouldnt do without telling them what they should? 

Flame away mate i really dont give a ****.

A response like Clowbosy's is helpfull, where yours is well what's the point?

Your annoying!

Stink


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## tech/a (3 September 2006)

Its a question that really has no specific answer.

Is running a 12 sec 100 meters realistic?
Is gaining a degree in Economics realistic over 3 yrs?
Is it realistic to run a business profitably in 1 yr--2 yrs--etc?
Is becoming a consistantly profitable trader realistic--in 1 yr--2 yrs---etc.

It depends on the individual, their resources, their PASSION,their ability to recognise the wood from the forest.

Not to mention the economic climate.

Profit wont come on its own---you need much more before you even think about profit.

*When you have the "Much more"-------Profit WILL come----Not before!!!.*


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## damok (3 September 2006)

thanks tech/a,
I'm not sure if this is too personal a question... what have you personally found to be realistic return expectations from your time as a trader?

Obviously will be affected by your philosophy, but what is your personal approach?


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## nizar (3 September 2006)

stink said:
			
		

> Nizar,
> 
> Senior Member?
> 
> ...




Brother i didnt label as myself anything, "senior member" title just came by itself (probably because of #posts)

Why dont we have a poll which posts are more helpful/knowledgable/constructive generally, yours or mine... ??

Damok and Royce saw the point in my post, tech and clowboy no reponse, but u gave that type of response, maybe you are the one with the problem..??

I replied in a manner which i saw fit; and just for the record; ur post wasnt that constructive either...



			
				Stink said:
			
		

> Dont respond without something constructive, whats the point in telling someone what they shouldnt do without telling them what they should?




Read my post again; I told him to read, and this is what i honestly believe to be good advice. I read heaps before i even opened a brokerage account and i think this was the best for me so this is how i advise others...



			
				Stink said:
			
		

> Flame away mate i really dont give a ****




Hmmm... ok then...


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## Julia (3 September 2006)

Hello Damok,

Your comments suggest you have decided that trading is going to bring you greater profits than longer term investing.  I'm just wondering how you came to that conclusion?

Julia


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## damok (3 September 2006)

Nizar,
Are my leveraging sums incorrect?  Will my profit/loss be magnified by a factor of 20 if using CFD's on the above assumptions?

Not assuming a profit, but if over a period of time I return just 1% in real terms but have that leveraged at 95% whilst securing myself with money management and stop losses..... that would work wouldn't it?

(don't worry, I'm not about to sell the house to do it)

damok.


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## Julia (3 September 2006)

Royce said:
			
		

> Human nature to try and run before you can walk.
> 
> Good advise by nizar.
> 
> ...




Royce,

Apologies for being off topic, but did you on another thread say that you were a teacher?

Julia


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## damok (3 September 2006)

Julia, 
I've haven't made any real conclusions, just interested in regular trading.... and if it brings returns similar or better than other strategies - then I've gotta be happy with that!   

damok.


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## MichaelD (3 September 2006)

damok said:
			
		

> could you apply your normal trading strategy to CFD's to increase your return by about 20x?



In short, no you cannot. The problem is that a combination of drawdown and maximum losses in a row will guarantee that you blow up your account.

Let's say you decide to risk 2% of your capital on each trade, no leverage. 10 losses in a row will see you down 20%. Painful, but recoverable.

If you leverage to the max using CFDs (x20) you increase the risk to your money from 2% to 40% per trade. With this degree of risk, you need 3 losses in a row and you're finished. It won't take long to rack up 3 losses in a row.

CFDs are expressly designed to transfer money from mug punters (us) to the bookmakers (the CFD providers). They can only be used safely if the risk is understood and planned for. Using them at maximum leverage is fatal.

Never, ever approach trading with the question of "how much will I make". Approach it with "how much could I lose". If you control your losses, a reasonable ballpark guesstimate for how much you will make is 2 x your drawdown. The profits come as a side effect of trading well.

The average successful trader will;
1. Lose money in year 1
2. Break even in year 2
3. Start making profits in year 3

The key is to SURVIVE until year 3. The great majority don't.

I was like you when I started - I just had to jump in there and make LOTS of money NOW. Not tomorrow. NOW. Be patient. The market will reveal itself to you if you survive long enough.

I'm not sure who said this, but - "The market will always be there". It'll be there tomorrow. It'll be there next week. It'll be there next year. The profits will be there for the taking when you understand where they come from.

Nizar's words, whilst harsh, are very true.


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## Royce (3 September 2006)

Julia said:
			
		

> Royce,
> 
> Apologies for being off topic, but did you on another thread say that you were a teacher?
> 
> Julia




No Julia I am not a teacher, though few of the  members seem to think I am.

Royce.


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## tech/a (3 September 2006)

Well,when I first started out(12 yrs ago) I completed the Technical Analysis E101 with the Securities institute.I was top of the State and thought I was a genius.

Well the genius then proceeded to lose $20k in 6 mths.

So in all honesty I would say *the first target * should be to make "A" profit---"Any Profit".

Back to the loss. Was it poor analysis? Was it that technical analysis doesnt work?
After another 4 yrs (around 6 yrs ago) I finally understood the Mechanics of Trading as a business.I understood the *NUMBERS* of trading--what REALLY gives you an opportunity to make *CONSISTANT* profit and analysis plays a very small part.

ANYONE CAN MAKE A PROFIT but very few can make a CONSISTANT PROFIT.

If you can make a consustant(Thats the New Zealand equivilant to consistants!!) profit of over 20% a year then your pretty good---you could then leverage that and make 40-60-80-100%.

Personally I'm happy with the 32-38% the 3 mechanical methods I trade return and margined that equates to Around 90% Compounding that they return.

I'm no genius Trading/investing is just a part of my investment planning.I've not spent a great deal of time refining and improving the way I trade since the success of the mechanical methods.
Ive been happy with a Round Wheel!!

But for me what *could* be realistic if I did spend that time.

Well I think it could be doubled.

*Back to a newbie*---staying in the game is THE most important first step--to be able to get through that learning process---some take years like I did.
Some *NEVER "get it"*

But once they do they will know the return they can achieve and that will be clearly defined in their methods* "EXPECTANCY".*

Add leverage and compounding (Like any good business would) and seemingly impossible figures become possible---for some consistantly (While the market is favorable) Some futures traders dont even need favorable markets!!


*Its a long road and choice of Correct path can mean years cut from the apprenticeship--indeed even survival!*


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## nizar (3 September 2006)

Excellent posts tech/a and Michael D

I appreciate u taking the time...

Cheers


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## MichaelD (3 September 2006)

Just as an aside - a blog which should be extraordinarily enlightening for anyone wanting to trade CFDs is this one;

Read the first post;
http://traderandy.blogspot.com/2006_03_01_traderandy_archive.html

Then read the most recent post;
http://traderandy.blogspot.com/2006_05_01_traderandy_archive.html

Then ponder on the message contained therein.


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## mime (3 September 2006)

40% is very ambitious especially now that the market has slowed down. You will find that even though some people make bumper profits they have also made some serious losses too or will in the future and will even out their earnings. Don't get carried away from other peoples hyped stories and write your own.

Sorry about the crappy english.


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## IGO4IT (3 September 2006)

To be very frank, I see that even very experienced proffessionals lower their expectations in bad market conditions.

My golden theory is that if you could achieve a positive return as a start then & only then you can start counting your eggs & try to increase it.

As many said in here...this is not easy & in most cases its not fun, especially if you lose many times in a raw.

a lot of studies & a nice system with ANY positive return is what you're after in the begining. 

CFD will be self destruction for a beginner. Know your roles & IF & ONLY IF you could say that your formula is returning little money & the only thing missing is funds then probably you still need few years of expereince before you touch CFD.

Sometimes you may get a kick out of a nice return & you feel invencible.....  ....... you're not. 

Tech/a said a very wise word: STAY IN THE GAME! to achieve that, you'll have to learn a lot, read a lot, win a lot & of course lose a lot.


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## swingstar (3 September 2006)

With regards to CFDs, they can be very benefical if starting with a small account, as most new traders do. Using the leverage of CFDs allows you to free up equity to trade more positions and consequently diversify.


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## It's Snake Pliskin (4 September 2006)

nizar said:
			
		

> U need to read and read and read and then u can start doing some more reading; trading stocks is what they call a zero-sum game, somebody wins, somebody loses. You are up there against professionals, and since ur new, the average would probably know more than u, wat makes u think that initiall u will win?
> 
> Many successful traders today lost heaps of money in their first few years...
> 
> Take your time and u may get there, but slow and steady wins the race, and nobody starts off at the top...




Actually, it is a minus sum game.

Good words re: the patience.


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## ducati916 (4 September 2006)

*damok* 



> The areas that I am particularly interested in is technical analysis with trend trading and CFD's.




This is the logical starting place; viz. *strategy selected* 
The second factor to consider is *timeframe*

As an example; 
An investor who can earn a return of 15% in excess of the Treasury rate, with 10% volatility. Calculated via standard deviations;

Probability of making Money
Scale...................................Probabilit y
1yr.........................................93%
1Quarter.................................77%
1month...................................67%
1day......................................54%
1hour.....................................51.3%
1min......................................50.7%

In the short-time frames, it is a 50/50 proposition, but stretched out to the longer time frames, the probabilities rise very high.

The combination of the above should provide the following; *strategy + timeframe = expectancy* 

Now that you have a handle on your strategy, timeframe, and expectancy, only now can you start to consider *leverage* 
*amount of leverage
*type of leverage
*cost of leverage

Is the type leverage selected compatible with; 
*strategy
*timeframe

Is the amount of leverage compatible with;
*strategy
*timeframe

Is the cost of leverage compatible with;
*expectancy



> Now my question is pegged to people who are 'proficient' traders that have proven their returns over a 'suitable' period of time. By 'proficient' I mean someone who has confidence in a market and applies a strategy that gives them a certain amount of consistency. By 'suitable' time, I'm not so interested in what someone has done over one month, but more what you achieved over an entire year... or even more.




As a daytrader, I returned 87% over a 9mth period.
Now come the caveats;

*the risk I took was very high
*the day-to-day stress was very high
*psychologically I hit a wall in terms of risk I could effectively trade.
*the win/loss ratio was almost exactly 50/50
The result, I switched strategies, and lowered my requirements on return.



> Now to my second question:
> Trading with CFD is it realistic to expect a relatively simple 20x return? Before I get stomped on, here are my assumptions:
> *5% Margin
> *good money management limiting potential loss
> *stop losses to manage the above




I shall echo the good advice already proffered;
*do not trade CFD's in your first 2/3yrs trading
*do not trade any leverage in your first 2/3yrs trading
*if you cannot make money in common stocks going long in any market, you will blow up your account with leverage
*do not go short, until you consistently can return a profit long unless you are an arb.

To answer your question directly, as to your expectation of returns on CFD's;
*You will return [-x%]* 
That is the reality.

jog on
d998


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## tech/a (4 September 2006)

IGO4IT said:
			
		

> Tech/a said a very wise word: STAY IN THE GAME! to achieve that, you'll have to learn a lot, read a lot, win a lot & of course lose a lot.





Actually to be fair I nicked that from Nick Radge.


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## nizar (4 September 2006)

Snake Pliskin said:
			
		

> Actually, it is a minus sum game.




Do u mean as in: because of brokerage expenses, u have to actual make a profit just to break even?

That in itself already gives traders an unfavourable edge...

For those that havent already:

"Winner take all" by William Gallacher (1994) is a really good read...


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## It's Snake Pliskin (4 September 2006)

nizar said:
			
		

> Do u mean as in: because of brokerage expenses, u have to actual make a profit just to break even?
> 
> That in itself already gives traders an unfavourable edge...
> 
> ...




HI Nizar,

Yes the brokerage ensures it is a minus sum game. Yes there is someone who takes from someone else, but they both lose more, or, win less.

Winner takes $600
Loser loses $600
WRONG!

The winner takes $565
The loser loses $635
An example of one way commisions and the brokers laugh all the way to the bank with $70.
$1200 -$70 = a minus sum

Thanks for the book title.


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