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

[Milk Man]

How about with forex?

Use 3% of portfolio as risk per trade, positive carry, 60%+ winners, avg win larger than average loss...... how about now?

Is this higher risk than unleveraged stocks? Per trade, no; over a portfolio, depends how many positions (more leverage). Throw in high liquidity, almost no gaps, no brokerage (spreads- but hey....); how high risk is this?

My numbers are saying this is entirely possible, statistical significance wouldnt constitute a proper 'clinical trial' if you will, but are enough to satisfy me. But on the advice of a broker of all people: HELL NO !!! These people are vampires people, VAMPIIIIRRRREEEEESSSS !!!!!!

 

[Broadside]

tech/a Bullmarket may well have a very successful strategy that is perfect for him/her. Maybe you do too. I know I am very happy with how I manage my risk and choose my stocks. You can split hairs or surmise we don't understand risk but I would maintain in answer to the original question it is not realistic to expect a 10% return per month from a stake of $20k. Don't forget the question while you question the last 100 years of finance theory.

 

[tech/a]

Broadside.

That may well be the case.
There are possibly some here who would like to actually understand reward to risk and its use in trading.
It actually takes some effort but effort that is worth while.
Both you and bullmarket are happy with your interpretation.

Why go on about it.

Well there are many here who may take your interpretation as correct.

Perhaps I'm wrong but wouldnt it be benificial to know the correct use and formulation of Reward to Risk?


If no ones interested then I'll shut up.

To further make my point broadside,whats the Reward to Risk ratio of your method/s and how have you determined them?

(Let me guess---It varies on each trade it depends on a number of factors)
So over the last 100 trades what has it been?

Anyway your not interested so I'm wasting time and key strokes.


Original question.

Yes I agree with you.

 

[bullmarket]

no problem tech/a

as I said before I'm not going to re-hash what was probably said in the RISK thread

All I can do is post my views and what works for me and supporting arguments/examples and if they provide food for thought for someone then all well and good - if they don't, then so be it as it is of no consequence to me at all at the end of the day

We'll just have to agree to disagree.

cheers

bullmarket

 

[Broadside]

tech/a I do not have a quantative approach to reward and risk but I think it is a useful rule of thumb (not hard and fast, markets can be inefficient and opportunities can exist) that if one seeks a higher return there is a higher risk entailed in doing so. Now opportunities present themselves from time to time where high returns can exist with little or no risk, and they are gratefully taken. In efficient markets they rarely last long. I will read the books you have suggested I am always hoping to learn more. Cheers.

 

[Plan B]

Perhaps I'm wrong but wouldnt it be benificial to know the correct use and formulation of Reward to Risk?

If no ones interested then I'll shut up.

Please go on.....yes really....

 

[Milk Man]

Please go on.....yes really....

A good source of info for newb's is 'adaptive analysis' by Nick Radge (about the first 50 pages). Most of what tech or anyone else could tell you is contained therein. I'll give you an example of risk anyway.

You have decided to buy stock XYZ for $1 (for whatever reason) and have decided to place a stop-loss order at 95c (also whatever reason; support level etc) . Your risk is therefore 5c per share. Now say you think that the price will rise to $1.20 (again whyever; resistance etc) the potential reward is 20c. The reward is therefore 4 times the risk, and such the reward/risk ratio is 4:1.

Reward/risk can be used across a portfolio as well. Tech knows more than me about this. The most useful part of risk analysis is fixed fractional position sizing, I feel. Will post more on it if you want (when I get time).

 

[tech/a]

Actually I was thinking of using Plan "B" and low and behold!!

 

[twojacks28]

it has barely anything to do with the broker. the broker is there to buy and sell shares for you. also they cannot be experts in every company on the asx. thats why they will only follow a few stocks which they are advised on by there researchers and by what they know about the company. back to the question it is up to you and what you decide to invest in. stock selection is the key.

twojacks28

 

[bullmarket]

Hi Plan B

I agree with Milkman's example

It is one way of determining a reward/risk ratio. I posted a similar example in the RISK thread and I'll requote an extract to reinforce MIlkman's example.

..............but one simple example of measuring risk I can give (in keeping with KISS) is calculating the potential reward to risk ratio as part of whatever other criteria you might have that have to be met before a buy signal is generated.

eg...say on a chart the current shareprice is 106c and the nearest historical support is at 100c and the nearest historical resistance is at 110c.

Personally I like the current share price to have a potental reward:risk ratio of at least 2.0 before I would buy.

And so in the above case the potential reward is 110 - 106 = 4c
and the potential risk is 106 - 100 = 6c

So the potential reward:risk ratio in this case = 4/6 = 0.666 and well below my 2.0 minimum.

But of course all this depends on where you interpret support and resistance levels and what minimum reward:risk value you choose.................

The above and Milkman's are both valid examples although they are simple but a good starting point imo and you can then go on and complicate the determination of risk and reward as much as you like by including other factors (fundamental and/or technical). I posted a website in the RISK thread which contains much more detailed info on how to determine risk if interested.

hope this helps

bullmarket

 

[tech/a]

Ok Here is the problem.
All of the examples given by Milkman and Bullmarket are missing a very important part of Reward Ratio analysis.

They have no idea what the REWARD to RISK ratio is for their method of trading.

There is a vast difference in calculating as Possible R/R ratio and having a known.
I'll guarantee that Nick Radge knows the Risk Reward ratio of his Elliot method of trading, calculated over many many trades.

(A) To simply have an individual "potential R/R " calculated by setting a stop and a possible target is meaningless.

Lets take 100 trades where you do (A) Your stop will be hit X times.
Your Target will be hit Y times. Z number of trades will never reach the stop nor the Target.
So what then is your Reward to risk Ratio?
Is it the "Potential R/R " you calculate every trade?
Is it possible that you have enough losses in a row that you no longer have enough capital to trade?
Are you trading a method which actually has a positive R/R?
Could you have individually "potential positive Risk reward ratios" and still trade nett loss?
Is it possible that it takes so long for your target to be hit that you trade far more losses than Winners even with an individual positive expectancy?
Is it possible that the number of losses V number of wins renders your individual expectancy meaning less?

Positive expectancy isnt about individual trades!!

Its about the METHOD you trade!!

If you dont know the expectancy of your method of trading over a large number of trades, no amount of individual allocation of POSSIBLE Return to Risk will give you a positive expectancy trading methodology.

You're Deluding yourself and GAMBLING.

Long term traders can and do stumble on profitable methods by pure length of time holding in a bull market. Short term traders invariably dont.
The risk for those longterm traders who stumble on a profitable method is that.
(1) They wont know when its failing - she will be right it always corrects!
(2) They have no idea of efficiency.
(3) Their return can be spasmodic and their equity curve can be anything but smooth.
(4) They invariably make profit way less than that indicated by their "Calculations" and cant work out why particularly if they sell at a target.

For short term traders.
Well simply many fail and never work out how on earth they did when every trade they took had a positive expectancy.

Semantics Broadside?/Bullmarket?

Newbies/Traders deserve to know the correct use of R/R not one which has been misunderstood, and the pitfalls of misuse.
Most will ignore it as not important, but some will revisit and adjust/understand and perhaps begin to trade profitably consistantly,where consistent profit over long periods eluded them.
This is for those traders.

 

[Bobby]

Ok Here is the problem.
All of the examples given by Milkman and Bullmarket are missing a very important part of Reward Ratio analysis.

They have no idea what the REWARD to RISK ratio is for their method of trading.

There is a vast difference in calculating as Possible R/R ratio and having a known.
I'll guarantee that Nick Radge knows the Risk Reward ratio of his Elliot method of trading, calculated over many many trades.

(A) To simply have an individual "potential R/R " calculated by setting a stop and a possible target is meaningless.

Lets take 100 trades where you do (A) Your stop will be hit X times.
Your Target will be hit Y times. Z number of trades will never reach the stop nor the Target.
So what then is your Reward to risk Ratio?
Is it the "Potential R/R " you calculate every trade?
Is it possible that you have enough losses in a row that you no longer have enough capital to trade?
Are you trading a method which actually has a positive R/R?
Could you have individually "potential positive Risk reward ratios" and still trade nett loss?
Is it possible that it takes so long for your target to be hit that you trade far more losses than Winners even with an individual positive expectancy?
Is it possible that the number of losses V number of wins renders your individual expectancy meaning less?

Positive expectancy isnt about individual trades!!

Its about the METHOD you trade!!

If you dont know the expectancy of your method of trading over a large number of trades, no amount of individual allocation of POSSIBLE Return to Risk will give you a positive expectancy trading methodology.

You're Deluding yourself and GAMBLING.

Long term traders can and do stumble on profitable methods by pure length of time holding in a bull market. Short term traders invariably dont.
The risk for those longterm traders who stumble on a profitable method is that.
(1) They wont know when its failing - she will be right it always corrects!
(2) They have no idea of efficiency.
(3) Their return can be spasmodic and their equity curve can be anything but smooth.
(4) They invariably make profit way less than that indicated by their "Calculations" and cant work out why particularly if they sell at a target.

For short term traders.
Well simply many fail and never work out how on earth they did when every trade they took had a positive expectancy.

Semantics Broadside?/Bullmarket?

Newbies/Traders deserve to know the correct use of R/R not one which has been misunderstood, and the pitfalls of misuse.
Most will ignore it as not important, but some will revisit and adjust/understand and perhaps begin to trade profitably consistantly,where consistent profit over long periods eluded them.
This is for those traders.

HeY Tech,

This is a Great post ! Needs to be locked in somehow.
You hit it with this, well done.

Regards Bob.

 

[Joe Blow]

I have removed a few off topic posts from this thread.

Play the ball, not the man please gentlemen. I know I've said it before and I'll probably say it again but it is the only way we can keep things civilised here.

Carry on.

 

[bullmarket]

Hi tech/a

Ok Here is the problem.
All of the examples given by Milkman and Bullmarket are missing a very important part of Reward Ratio analysis.

They have no idea what the REWARD to RISK ratio is for their method of trading.

The assumption you make in the above extract is not correct - in my case at least.

I have a formula I use to quantify my risk/reward for my investments and so I know exactly what it is.

I will not disclose the formula I use in a public forum like this because I don't want anybody to use it blindly without them understanding fully what I do and how I do things.

Also, if you look at my signature below you will see that I am not a trader. That signature has been there from post 1

I won't be around tomorrow so I'll see you in the soup next week if you would like to discuss further.

cheers

bullmarket

 

[tech/a]

I have a formula I use to quantify my risk/reward for my investments and so I know exactly what it is.

Good for you.
For everyone else the calculation of Reward to Risk is no mystery.
There is no special exclusive formula that makes one method better than another,it is simply the same for everyone,there are not multiple ways to calculate it.There is no confusion and every trader blind or otherwise can calculate it.

Implementation and understanding take a little longer---infinitely for some it seems.

 

[Broadside]

tech/a using adaptive analysis or whatever your method is can the original poster achieve a 10% return per month?

 

[bullmarket]

no problem tech/a

re your:

There is no special exclusive formula that makes one method better than another,it is simply the same for everyone

If you look back through my posts you will see that I never suggested that what I do is any better than what anyone else does - and your comment above is basically saying that what I do is the same as what you do so I don't see what you were on about earlier

take care and try to relax over Easter

bullmarket

 

[Smurf1976]

The original question is a bit like asking if someone with a good suit, nice shoes and a BMW can earn $250,000 a year from their job.

A few CEO's and the like earn that sort of money whilst dressing smartly for work and driving a nice car. But there's a cause and effect question here since it's knowing the right things, knowing the right people and having the right luck which has lead to the high paying job. Simply buying an expensive suit and a BMW won't get you a $250K income.

Likewise simply opening an account with a particular broker won't turn you into a trader earning 120% per year. Aqcuire the right skills and with some luck (just happening to own a junior exploration company that makes a big discovery will help...) you MIGHT make that sort of money trading. But it's unlikely and has nothing to do with the broker in the context of a $20K account and most will not succeed. Likewise most people aren't high paid CEO's.

So realistically I would say "no" to the original question. You might do it with some form of leveraged trading (eg forex) but in that case you're still not making 120% on your 20K. You're making 40% on 60K leveraged etc.

 

[bullmarket]

Hi smurf1976

I generally agree with you - but I think Eddie's on a little more than $250k a year

cheers

bullmarket

 

[Broadside]

bullmarket where can I find the thread on risk please? thanks in advance