Making $2000 per month from $20,000???

[tech/a]

because it is a tried and true rule of thumb to chase higher potential returns you need to take higher risks....

It is??

I wouldn't advocate to a newbie taking punts on one or two stocks at a time even with tight stop losses you can get caught out...each to their own the risk/reward equation holds for me

I dont advocate punting either to anyone newbies included.
But with all due respect I think you should be having a look at your understanding of risk reward.
IE that you currently believe higher risk equates to a potentially higher reward.

Higher return comes about at exit not entry.
Greatest risk is at entry and this is where initial capital is at risk.
Once price moves away from the purchase price (positively) risk to initial capital deminishes.
You need to be right immediately and the only time you should be sitting in a trade which still has upside potential while in a corrective phase is when you have open profit---not at initial purchase.

 

[tech/a]

I didn't say he/she intended to take on higher risk

I simply posted what I say to others when it comes up in conversation

If you don't agree with or accept the risk/reward thing then that is fine by me.

How I determine the risk/reward for my investments is a personal thing and I assume the various ways of determining risk and reward should have been covered in the RISK thread.

cheers

bullmarket

From what I see you dont determine your Reward to Risk.
What you do is quantify it in your own mind by evaluating it with your own criteria.
Its nothing more than a feel good rating system for stock selection.
A far far cry from Reward to Risk analysis.

But hey if you think you have it by the horns so be it.

There arent various ways of determination---only one.
Perhaps I could recommend some good reading.

 

[professor_frink]

I wouldn't agree but that's fine....let's get back to the original question from what I assume is a newbie investor? is it realistic to achieve this return? no it isn't, even a "good" broker won't always have good tips

no worries broadside, no point in arguing about it. Don't think there is such a thing as a good 'tip', so I'm going to have to say no- no broker is going to help you make 10% a month- but you can sometimes do it yourself when the conditions are right.

 

[professor_frink]

There arent various ways of determination---only one.
Perhaps I could recommend some good reading.

What books would you recommend? Always looking for more info

 

[bullmarket]

no problem tech/a

as you say, you can only go by what you have seen which is very limited and by no means everything I do

cheers

bullmarket

 

[Broadside]

tech/a sure....you enter a stock at very low transaction cost, tight stop loss, your downside is limited assuming it doesn't gap down so you limit your risk, or you have a guaranteed stop loss in place but of course you pay more for that.....in a rapidly rising market or if you select the right stock SOMETIMES you may get a 10% return + per month, I would not say it is typical or realistic in an average market which I believe was the intention of the original post...is it realistic? was the question.

You can pick the right stock but sometimes for months it does nothing, trades sideways, if you only had one or two stocks as you suggest do you sell them at cost or a small profit chasing the next one in order to achieve your 10% target? I would say transaction costs would blow you out of the water unless you target the right stock month after month after month.

If you want to use derivatives, options, cfds you can amplify your returns but even you would concede using these derivatives is higher RISK would you not? and certainly higher transaction costs.

I understand how risk / reward works with all due respect, if you choose not to agree with that premise that is fine with me.

 

[tech/a]

What books would you recommend? Always looking for more info

Understanding Risk
Peter Lally

The Trading game.
Ryan Jones.

2 must have's.

 

[professor_frink]

Understanding Risk
Peter Lally

The Trading game.
Ryan Jones.

2 must have's.

Thank you sir, most appreciated.

 

[professor_frink]

If you want to use derivatives, options, cfds you can amplify your returns but even you would concede using these derivatives is higher RISK would you not? and certainly higher transaction costs.

I understand how risk / reward works with all due respect, if you choose not to agree with that premise that is fine with me.

Put simply, if you trade derivatives, you just need have a very good idea of where your risk lies and at what point you would be in serious trouble. Wont comment on cfd's as I've never traded them, and probably never will, but with options there are many strategies that can be implemented to lower your risk during a trade- sometimes eliminate it completely.

 

[happytrader]

Put simply, if you trade derivatives, you just need have a very good idea of where your risk lies and at what point you would be in serious trouble. Wont comment on cfd's as I've never traded them, and probably never will, but with options there are many strategies that can be implemented to lower your risk during a trade- sometimes eliminate it completely.

Hi Professor Frink

Totally agree with your post.

Cheers
Happytrader

 

[wayneL]

my point is to chase a return of that size massive risks must be taken....the higher the potential return the higher the risk that must be taken, seems pretty straightforward to me

That's not actually true all the time. If position trading, that is certainly true.

But if daytrading futures it's not true at all. I trade one contract per $15,000k of capital dedicated to daytrading.

My risk per contract is around $150 Maximum with NO chance of overnight gaps. Risk per trade = 1% MAXIMUM.

Tech,

$1000 per week with 20k is actually ~250% return

A "good" broker doesn't mess with $20,000 accounts and I have a mate who isn't even good (although he is a brilliant relationship builder) who earns several hundred thousand per year.

Cheers

 

[tech/a]

Its pretty evident that most here have a flawed veiw of reward to risk and its use.

Many believe that by evaluation of a stock or an individual trade,by whatever method,technical or fundamental or even feel good thats all I can bear,that this quantification allocates risk.

In some quantifiable situations eg a 10% risk of traded capital from initial purchase price there is a clear allocation to that trade.
If its a fundamental look at ratio's and they indicate a strong balance sheet then this is a percieved risk NOT an allocated risk and not even close to being quantifiable. There is uncertainty.

On the reward side looking at a chart and determining a possible high value or fundamentally allocating a market value on a stock doesnt quantify reward either.

To base a trade on Risk as many seem to using similar to the above and estimation of potential reward again as seen in the above,is not even close to correct use of Risk Reward analysis and its correct implementation.

Might make the user feel good but has little practical use.

$1000 per week with 20k is actually ~250% return

Was refering to the $2000/mth not Nizars post

 

[It's Snake Pliskin]

Understanding Risk
Peter Lally

The Trading game.
Ryan Jones.

2 must have's.

Tech,

I think you mean Mike Lally, Mastering Risk.

 

[It's Snake Pliskin]

I would have thought that all this should have been covered in the RISK thread and so I'm not going to re-hash what might have been said in there.

It's relevant Bullmarket. It's not your position to tell us where to post and what to post.

Enjoy your day.

 

[tech/a]

Tech,

I think you mean Mike Lally, Mastering Risk.

Thanks Snake.

absolutely correct.

 

[wayneL]

Was refering to the $2000/mth not Nizars post

Yes, my bad, got my figures muddled

 

[bullmarket]

Hi wayne

maybe I am wrong but I am getting the impresion that some people are taking the views expressed in here on risk/reward too literally.

Sure, those who are experienced and so hopefully know what they are doing and understand the concept of risk can reduce the risk of loss and the amount of loss by various strategies discussed elsewhere.........that goes without saying

But there are many out there who for whatever reason purely punt on pub/cabby/chatroom/hairdresser/cleaner or whatever tips and imo it is in these type of scenarios where someone has effectively thrown a dart at a newspaper listing of ASX companies that the concept of higher risk = only potential higher reward is more relevant.....ie....as in some spec miner making a huge discovery etc etc

Another way of thinking of it is in the case where a punter walks into a casino and puts $100 on red. He has just under 50% chance of winning, allowing for the zero and if he wins he only wins $100 or 1:1.

But if he puts that $100 on say number 5 then he is taking a much bigger risk because he has only a 1 in 37 chance of winning (including the zero) but his potential reward is much higher if 5 comes up as he gets paid 35:1

I think what you and others are getting at in your posts when you talk about reducing the risk in trades is similar to the way the roulette punter can reduce his risk of loss and/or amount of loss by effectively hedging his bet on #5 by placing bets on other possible outcomes on the table as well.

I hope this clarifies earlier posts

cheers

bullmarket

 

[It's Snake Pliskin]

Hi wayne

maybe I am wrong but I am getting the impresion that some people are taking the views expressed in here on risk/reward too literally.

Sure, those who are experienced and so hopefully know what they are doing and understand the concept of risk can reduce the risk of loss and the amount of loss by various strategies discussed elsewhere.........that goes without saying

But there are many out there who for whatever reason purely punt on pub/cabby/chatroom/hairdresser/cleaner or whatever tips and imo it is in these type of scenarios where someone has effectively thrown a dart at a newspaper listing of ASX companies that the concept of higher risk = only potential higher reward is more relevant.....ie....as in some spec miner making a huge discovery etc etc

Another way of thinking of it is in the case where a punter walks into a casino and puts $100 on red. He has just under 50% chance of winning, allowing for the zero and if he wins he only wins $100 or 1:1.

But if he puts that $100 on say number 5 then he is taking a much bigger risk because he has only a 1 in 37 chance of winning (including the zero) but his potential reward is much higher if 5 comes up as he gets paid 35:1

I think what you and others are getting at in your posts when you talk about reducing the risk in trades is similar to the way the roulette punter can reduce his risk of loss and/or amount of loss by effectively hedging his bet on #5 by placing bets on other possible outcomes on the table as well.

I hope this clarifies earlier posts

cheers

bullmarket

More like poker, not roulette.

Poker is the only gambling that may have a positive expectency.

 

[professor_frink]

Thanks Snake.

absolutely correct.

no wonder I could only find info on the other one.

 

[tech/a]

Bullmarket.

Your post clearly illustrates my point.
You have the same veiw as most I have seen discuss this topic.
While people feel they have a handle on reward to risk and the ratio's derived and its implementation---clearly they dont.