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

[wayneL]

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.

Well put, Smurf.

Particularly the last paragraph. The only proviso being that ones risk control must be very tight so as drawdown doesn't blow one out of the game. Hence my thoughts on daytrading.

Folks do achieve it. Get on Mirc and you see it as people call trades live. (and the ones that don't )

Cheers

 

[Joe Blow]

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

Broadside,

You can find the 'Risk' thread here: https://www.aussiestockforums.com/forums/showthread.php?t=2982

 

[Broadside]

thanks Joe Blow, appreciated

 

[tech/a]

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

In some months yes consistently very difficult with such a small capital base.

 

[Milk Man]

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.

I hope youre not making assumptions about what I do or do not understand tech. I gave an example of the usage of risk reward. Im green but not that green : .

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.

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.

True; risk reward analysis of individual trades wont make you profitable (certainly not by themselves). I wasnt suggesting this but it is important to point out I guess.

 

[TheAnalyst]

I can do that and better in all markets.

 

[professor_frink]

Tech, bullmarket- you two should just get in the ring and get it over with. If you both don't mind me saying, just ignore each other- it's obvious you don't get along, and it makes the thread hard to read when you have to sift through pages of arguing to find the information! I for one would like to pick your brain a little on this subject tech(if that's alright with you of course!) and I'm sure I'm not alone. Bullmarket- if you don't agree with tech, maybe you should stop posting in this particular thread- you know whatever you say is going to annoy tech so please don't let this thread get as long winded and hard to read as the RISK thread- it had alot of potential.
Ok then, there is my whinge over with for the morning- now onto the good stuff-

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.

What do you mean by efficiency? I've got no idea about that one.

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.

As a shorter term trader would love to hear your views on this area. Because I'm not a purely mechanical trader, I know that any testing I do based on the systematic part of my trading is not going to give me a 100% accurate idea of risk/reward, but I know that it's pretty close(based on 5 years of trading live), so how would I use my risk reward ratio to improve my trading?

 

[tech/a]

In some months yes consistently very difficult with such a small capital base.

Having said that 3.5 yrs ago we started trading a method using Margin.
Its initial capital is $30,000.

If interested it can be followed here.http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic&f=74&t=000027

The last 3 mths return on starting capital is.

Jan $15,000 or 50%
Feb -$4000 or -26.6%
Mar $38,000 or 126%
Over the last year From March 2005 equity high of $240,000 to Last week
$326,000 thats $86,000 on $30,000 initial capital or 286% increase.

So it can be done infact well and truely,even with a longterm method.
Sure leverage and compounding do their thing but thats all part of sound investing principles.

Unlike here say here is proof it can be done.
Much more difficult infact probably impossible trading in a discretionary manner.

 

[tech/a]

What do you mean by efficiency? I've got no idea about that one.

Best return for $ invested.

As a shorter term trader would love to hear your views on this area. Because I'm not a purely mechanical trader, I know that any testing I do based on the systematic part of my trading is not going to give me a 100% accurate idea of risk/reward, but I know that it's pretty close(based on 5 years of trading live), so how would I use my risk reward ratio to improve my trading?

If you have hand recorded trades of 5 yrs you have a massive amount of very useful information.You can find out a great deal from this info.
The key here is you have results how they were/are derived is of no importance,but you can certainly see how your trading is going and you can benchmark it against other methods like T/T and Steves---even though they are weekly and you can do the same against itself so you can see if it is within its blue print. You have a very valuable asset in those results.

Have you any tabulation.

IE
Number of winners
Number of losers.
Average win
Average loss---blah blah.??

 

[professor_frink]

Best return for $ invested.

thanks- I'll look into the that one.

If you have hand recorded trades of 5 yrs you have a massive amount of very useful information.You can find out a great deal from this info.
The key here is you have results how they were/are derived is of no importance,but you can certainly see how your trading is going and you can benchmark it against other methods like T/T and Steves---even though they are weekly and you can do the same against itself so you can see if it is within its blue print. You have a very valuable asset in those results.

Have you any tabulation.

IE
Number of winners
Number of losers.
Average win
Average loss---blah blah.??

it's around somewhere- very messy office
straight off the top of my head its about
48% winners
av. win a bit over twice my average loss- that one is improving- not quite sure if it's because of the prevailing market conditions or because I'm becoming a better trader- only time will tell on that one.
Most consecutive losers-9(ouch!) Never like talking about that one!!
With that information, exactly how would I go about improving my trading?
Up until this point, my amateurish understanding of risk, was simply keeping my stops at a point where I was consistantly moving forward, whilst trying to keep my losing trades to no more than 3% of my total capital.

 

[tech/a]

There is quite a lot of information you can gleen from the results.

You need to collate them so that you can analyse results.
One of the reasons I trade mechanically is that I can test Ideas of many different methods over many 1000s of trades without having to wait years for the results to come in.
By then being able to tweek entry exis (particularly) and stops as well as parcel sizes and leverage all done with a few key strokes,and have the results in minutes not years.

All you'll be able to do with your results is see where your at now.All results that you have reported seem fine to me.
9 straight losses is no problem if whilst this is occuring you have open trades
cranking profit.

You have a long and exciting journey ahead and are well in front of the pack,having results you can tabulate.

To improve youll need first to have all your actual results and "Numbers" then you'll nned to be able to test with software your method and variants.

Its worth the time effort and $$$s
Amibroker is the cheapest and there is great help around (not from me I'm afraid I use Metastock and tradesim which is dearer and possibly not as flexible).

 

[professor_frink]

thanks tech appreciate it. Bought Amibroker about 6 months ago- still trying to get my head around the programming language properly.
Personally It's helped me alot in my trading- Once I figured out how to code the systematic part of my trading and run it through all the data I have, it gave me a good base to work off, as well as a minimum standard to set. It's what's got me interested in learning more about the nuts and bolts of risk management, and all the math that goes with it.
As it currently stands, I could be profitable trading the systematic part alone, something that I didn't know for sure this time last year. Next step is to learn the programming language a bit more to see how much further I can code the system. It will probably have some element of discretion in it(which I know you will probably cringe at!) but it works fine for me, which is the most important thing I suppose.
Going to order 1 of the books you mentioned yesterday, so look out- you may have some more questions fired at you in a few weeks!
Thanks for your time mate

 

[Julia]

Having said that 3.5 yrs ago we started trading a method using Margin.
Its initial capital is $30,000.

If interested it can be followed here.http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic&f=74&t=000027

The last 3 mths return on starting capital is.

Jan $15,000 or 50%
Feb -$4000 or -26.6%
Mar $38,000 or 126%
Over the last year From March 2005 equity high of $240,000 to Last week
$326,000 thats $86,000 on $30,000 initial capital or 286% increase.

So it can be done infact well and truely,even with a longterm method.
Sure leverage and compounding do their thing but thats all part of sound investing principles.

Unlike here say here is proof it can be done.
Much more difficult infact probably impossible trading in a discretionary manner.

Is it possible to extract from the above result what you could have achieved using the same stocks/trades but without the leverage?

Julia

 

[Julia]

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.

Smurf:

Thanks for addressing the original question so appropriately.

Let's all remember that it's almost impossible not to do well in the present market. I haven't bought or sold anything for over three weeks and my portfolio has been up many thousands per day. Then, of course, it can go down by the same amount when the market drops, just to add some reality.

Julia

 

[Julia]

Well put, Smurf.

Particularly the last paragraph. The only proviso being that ones risk control must be very tight so as drawdown doesn't blow one out of the game. Hence my thoughts on daytrading.

Folks do achieve it. Get on Mirc and you see it as people call trades live. (and the ones that don't )

Cheers

Wayne:

What is Mirc?

Julia

 

[tech/a]

Is it possible to extract from the above result what you could have achieved using the same stocks/trades but without the leverage?

Julia

Julia.

As an approximation / by 2.2

However to get to the position where these sorts of returns and growth on capital are possible you need to trade with that sort of leverage.

Use of leverage and compounding are 2 aspects of investment that should be investigated to maximie returns on any investment.
Most shy away from their use as they dont understand them and have heard horror stories.
Again implementation of Risk from knowledge of
Maximum initial drawdown in particular will go a long way in sensible useage.

As an example Knowing the Maximum initial drawdown of a method you use can only be defined if you have a great deal of data like the "Prof" or you have testing software.Individual "risk" allocation does absolutely nothing in determining your overall longterm drawdown and string of losses.

When using leverage you must know this.

EXAMPLE

Lets say your initial drawdown is 15% which is acceptable in general terms.
If you were then to leverage using Margin at around 2.2x then your exposure is 33% which is bordering on rendering your method once depletion of initial capital by 33% close to 'under capitalised---you'll need a 66% increase in 33% less funds to return to break even!!!!


So perhaps the lure of CFD's is more to your liking at 10x leverage.
10x 15% = 150% chances are your generally accepted method will send you
broke!!

Thats without looking at string of losses.(not as obvious as you may think)

So what do you think? Is individual allocation of unknown risk important or is the correct use of allocation better to know??

 

[StockyBailx]

How realistic is that with a good broker?
seals139

$20,000 I wish I had $20,000 to play with, because at present I could of turned that into a 75% profit and then sum this month and still climbing. Instead I will just have to settle for my $5,000 which I have turned into $17,500 since late febuary.
I think it must be a bit hard to find a good honest broker to invest in and its best done by yourself, using the right share market software tools and equipment. To the best of your knowledge. Use your broker as a back up plan!

----STOCK'ie'BAILZ---- :goodnight

_______Invest for profit not game!________

 

[Julia]

Having said that 3.5 yrs ago we started trading a method using Margin.
Its initial capital is $30,000.

If interested it can be followed here.http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic&f=74&t=000027

The last 3 mths return on starting capital is.

Jan $15,000 or 50%
Feb -$4000 or -26.6%
Mar $38,000 or 126%
Over the last year From March 2005 equity high of $240,000 to Last week
$326,000 thats $86,000 on $30,000 initial capital or 286% increase.

Tech, sorry, but I'm confused about the above.
If you are talking about "the last 3 months return" then how can it be on a base of $30,000 if you began with the $30,000 three and a half years ago?
Re "286% increase" - that is over the 3.5 years, yes?

Julia

 

[tech/a]

Tech, sorry, but I'm confused about the above.
If you are talking about "the last 3 months return" then how can it be on a base of $30,000 if you began with the $30,000 three and a half years ago?
Re "286% increase" - that is over the 3.5 years, yes?

Julia

Julia

3.5 yrs ago we started with $30k so even today thats the INITIAL capital.

Today the Capital has grown considerably so all of it is now working for us.
Over the last 3 mths capital has grown by $86,000 so based upon our INITIAL capital of $30,000 it has grown over the last 3 mths by 286%

This illustrates the power of compounding and leverage.
Had we started with $300,000 then growth would still be the same but the $ value more impressive.

So while $2000 a month seems a tall order now---invested well the above illustrates that very high returns are more than possible. think long term rather than now--which is what most do.

 

[dennisll]

"2k a month from 10k, how realistic is that from a good broker?"

Considering that the original question was posted on the beginner forum and that the poster requires the services of a good broker to do it, I think the simple answer is: Not realistic at all. Had the original question been

"Is 2k a month from 10k possible?"

I would have to say, Yes it is possible. Obviously it depends on who's doing the trading.

Cheers,

Dennis