tech/a said:(9) Simply means if its worth buying or selling sell at market dont place limit orders just buy at market.Many a trade I would have missed and much profit would I have sacrificed had I not adopted this rule!
tech/a said:Hmm there would be many successful Fundamental traders who have never heard of any of these technical "experts".I'm sure they would agree that knowledge of these writers teachings is NOT required.
While I trade technically I dont believe that this sort of knowledge is "The " secret to profit---the way you trade,(Technical,Fundamental,Dartboard) has little to do with return.
Knowing "What" guarentees profit is the edge 95% never find.
Knobby22 said:We are in a bull market, If you made less than 15% this last financial year then you are doing badly.
Knobby22 said:Daytraders lose their capital.
100% profit per year??
Often traders talk about making 50%, 60%, 100% profit per year. When these figures are quoted we often get the compounding arguments thrown at us by investors more used to 10-20% per year on average. People say things like; “yeah sure, if you started with $10,000 you’d be a billionaire in x number of years!” with mocking disbelief.
They do have a point. But 100% per year is possible, so why aren’t there hundreds of Warren Buffets running around?
Two reasons:
1/ Traders who achieve this are invariably full time traders. This means it’s their job! This also means that they are subtracting living expenses from their profits, severely reducing the amount of profit available for compounding purposes.
2/ Such performance is only possible with a relatively small account as with very large sums, one would soon run into liquidity and slippage problems, reducing returns. Indeed the type of trading required would be impossible with a huge account.
So if you have a billion-dollar account, I’m sorry, but you will have to settle for a hundred million dollars or two a year of profit. J
So lets have a look at how we can do what so many think is impossible, using a day trading strategy.
Firstly we need an instrument to trade. Then, we need a trading plan with a positive expectancy, obviously. Lastly, we need money management rules.
The instrument we use can be anything, but for this example, I am going to have a look at the Euro futures contract, which trends nicely intraday and has lots of liquidity and leverage. I won’t go into the trading plan, but for the purposes of the mathematics of the expectancy calculations, we will use a 20 tick stop loss.
Also for the calcs we are only going to trade 230 days a year to allow for holiday,etc.
For money management, we will use the standard 2% fixed fractional method. (i.e. we never risk more than 2% capital loss in any one trade.)
OK! Euro futures have a tick value of USD$12.50, which mean that for each tick movement there is you can add or subtract USD$12.50 per contract to/from your account. That’s about AUD$16.00. We have already said our stop loss is 20 ticks, so using our money management rules, we can work out how much capital, in Aussie dollars, we need to trade each Euro contract. In this case we need AUD$16,000 capital per contract. {(AUD$16.00 tick value X 20 tick stop loss)/ 2% maximum risk}
So, $16,000 per year is what we need to make, daytrading each Euro contract to return 100%. That is 1000 points profit per year. So if we are trading 230 days (presuming we take one trade per day) that boils down to an average of 4.35 ticks profit per day on average, after expenses. Lets round that up to 6 points net to account for brokerage.
The Euro has an average daily range of greater than 100 ticks; so do you think with a positive expectancy trading method, that you could capture just 6 of those ticks on average per day, over the course of a year?
Using the old expectancy calculations, lets have a look at how that might pan out. {Expectancy=((1 + reward/risk ratio) * win/loss ratio)-1}.
We can work out that with a stop loss of 20 ticks, that we need a positive expectancy of the magnitude of 0.3 for a 100% profit/year to become a reality. From there we can work out what our winning trades may have to be.
If our win/loss ratio is 60%, in other words we win only 6 trades out of ten and lose 20 ticks the other four, we need to make an average of only 24 ticks profit on those winning trades…from an average daily range on the Euro contract of > 100 ticks!
If our win/loss ratio is 50%, we need to make an average of 32 ticks profit on the winning trades.
If our win/loss ratio is miserable 40%, we need to make an average of 45 ticks profit on the winning trades…
…from an average daily range of greater than 100 ticks!
Still think it’s impossible?
tech/a said:No----but.
Wayne how many Forex traders actually turn a decient profit?
Over 50% more than 10%?
More than any other traders?
tech/a said:The capital issue.
I notice Radge (Nick) is returning to fulltime trading.His choice of instrument being CFD stock trading.
I find that a strange choice for a fulltime trader---although not wanting to be up when everyone else is asleep could be a motivation. He has traded futures extensively---but choose CFD's.
I agree that leverage is a very important key and perhaps 10xCFD leverage wasnt available when he last traded futures.---I'll ask.
Anyway as a fulltime trader what initial capital is required in your opinion?
Knobby22 said:If day trading worked there would be some rich daytraders around, I have never met any.
Knobby22 said:The great traders e.g. Soros were not day traders. Can anyone name me a rich day trader? I bet many of you could name a lot of failed very short term traders. To be a day trader you need to be on your computer all day in any case, a not very good way to live your life and as you said Wayne, meaning you can't earn your living another way forcing you to eat your capital. You also have to pay more taxes and brokerage. I think there are daytraders that get by but I bet it is a very few who manage to increase their capital after expenses who would not have been better off going to work and investing with a more long term view.
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