Please Define "profitable"

[reset.no.regret 10]

I'm referring to the use of the word in the context of beginning traders and the 18-24 months to profitability standard. :haha: so please, no dictionary definitons.

 

What is meant by profitable:

1. If I start the month trading with $1000 and end the month with $1001
   
2. If I start the month trading with $1000 and my living expenses are $500 a month and I end the month with $1500
   

Mathematically both are profitable but I'm interested in what is generally meant with the 18-24 to profitablility I see all over the forum.

 

Thanks.

[Maelstrom 10]

I will take a crack at this, but preface it with my belief that "profitability" is subjective and means something different to everyone.

 

I am have never seen the point of traders who say that you need $50,000 per emini contract in your account, and then scalp a couple of points here and there to make $50-$100 a day per contract. Are they profitable? Of course. Is it worth it? To me, absolutely not.

 

Consistency and expectancy is key in my opinion. What is your R:R, you average win %, etc. With that knowledge, you can size an account appropriately, manage risk, and still get a respectable return.

 

As an example, I trade one contract (emini) per $2500 in my account, and have a goal of doubling my account every two weeks. Sometimes it works, sometimes not, but it averages out to that over time.

 

I guess if you have $10M in an account, a 5-10% annual return is pretty good - but for one of the "little" guys like me, I look for a 100-400% monthly return - otherwise, I would simply go work somewhere and make a paycheck.

 

M

[Pony 10]

that's a pretty good living. I don't know. It really depends on how much time you put into it. 40 hours a week? I would say basic living expenses would need to be covered. And it also depends on whether you consider it a hobby or job.

[SIUYA 11]

how long is a piece of string?

A better question as most people will likely come out with is - is it worth while?

(and for this reason % are irrelevant - you need to look at absolutes)

 

If I have $10,000 an make a return of $100,000 for the year, is this better than having $100,000 and making $200,000 for the year.

 

This clearly is dependent on what you require to live as well as what you want to spend you days doing in terms of a job, mix with a bit of reality that many will fail due partially to being undercapitalised.

Also take into consideration inflation.......unless you grow your account making $25,000 a year now is not going to be sufficient in ten, twenty years......

 

So profitability while a nice thing, and a vital element - the thing to focus on is longer term sustainability in both consistency to trading method and scaleability in absolute dollar amounts....as the focus to the 18-24 month learning curve.

[reset.no.regret 10]

...the thing to focus on is longer term sustainability in both consistency to trading method and scaleability in absolute dollar amounts....as the focus to the 18-24 month learning curve.

 

Thanks for the replies. What I'm trying to figure out is where I am in that learning curve. I've achieved #1 in my examples but not #2. Those numbers are completely arbitrary to illustrate my question.

 

As Maelstorm said "profitability is subjective and means something different to everyone", which is why I asked the question. I think Siuya's quote is the best advise I've read on the 18-24 learning curve and paints a clearer picture then the term "profitability"...for me at least.

[Pony 10]

in the long run I agree with him. But I would much rather make $200,000 off of $100,000 way more than making $100,000 Granted, with all things considered, that person will have a million the next year, where the other person would have $600,000. Basically, what I'm saying is I think it's better to making 100% of 100,000 than 300% of 10,000, especially when you consider living expenses.

[Maelstrom 10]

in the long run I agree with him. But I would much rather make $200,000 off of $100,000 way more than making $100,000 Granted, with all things considered, that person will have a million the next year, where the other person would have $600,000. Basically, what I'm saying is I think it's better to making 100% of 100,000 than 300% of 10,000, especially when you consider living expenses.

 

Pony,

 

I agree with you. I remember reading something along the lines of those who have money are most interested in keeping it versus making more. Smaller accounts definitely need to be more aggressive and make higher returns to make a suitable sum and living expenses, whereas someone with $500k, $1M, etc, is perfectly happy (or should be) with a 20-30% return annually. And why shouldn't they, that is $200-300k, with no doubt a lot less risk and stress than the guy trying to double his account every couple of weeks.

 

Believe me, I would absolutely love to be the guy with multi-millions in the bank or account, getting a measly return and still living the good life..... someday, my friend, some day :cheers:

[eqsys 10]

Trading 1 e-mini per $2500 in the account? That won't last long. You absolutely have to backtest your strategies to know what is the biggest loss you might sustain, then, you have to allow at least 5-10x that amount per contract so that when you do get the big drawdown, you won't go bust - you won't panic and sell at the bottom.

 

I have been at this for decades and have experienced moves that will just take anyone that is overleveraged down in seconds. Remember the "flash crash" last May 6th, 2010?

 

The really bad whipsaws come from some unexpected news event - some Fed official gives a speech and says something, there is a currency devaluation from some foreign country, there is some completely unexpected report that comes out, or the Fed raises interest rates more than expected, or, some rogue trader hits the wrong button and dumps a couple of billion dollars with of SP futures by mistake....lots of fun.

 

When your account is small, you don't much mind moves that take your account value down by 30-50%, but as the numbers get bigger, believe me, you can't emotionally take these types of losses.

 

If you are trading 1 e-mini per $2500 in your account, and your account is valued at 100k, then you are trading 20 contracts. The e-mini (ES) currently has an average daily range of $910.97 - so 20 contracts would be $18,219. You can walk away from your computer to go to the bathroom, and come back and be down that much. Even if you have a stop in place, you can get whipsawed by 1 range easily and quickly, and your 20 contracts will be sold out at BELOW your stop price, and you'll wish you had stayed in the bathroom.

 

If you look at the profitability of the best hedge funds, and the best trading systems that are advertised, you'll eventually be beyond happy if you can consistently make over 50% per year in your account. Most of the best hedge funds can't even come close to doing that. The best trading systems that I see advertised are happy to make 3% per month.

 

A goal of 100-400% per year sounds exciting, but it requires a LOT of leverage, and that means periods of large drawdown. When your accounts get over 100k, and you get swings of 20-50k, how is that going to effect your emotionally?

 

My FIRST rule of profitable trading: know your max backtested system drawdown, then make sure that when this happens again, that this doesn't draw down YOUR account more than 10-20%.

 

Most traders don't know what their drawdown might be - they just come up with something that they think works, and they trade. This is like riding on a motorcycle at 100mph with no helmet. It works for a while and is a lot of fun until you hit that icy patch in the road, then it's all over.

 

Been there, done that.....

[Maelstrom 10]

Trading 1 e-mini per $2500 in the account? That won't last long. You absolutely have to backtest your strategies to know what is the biggest loss you might sustain, then, you have to allow at least 5-10x that amount per contract so that when you do get the big drawdown, you won't go bust - you won't panic and sell at the bottom.

 

.....

 

 

Eqsys,

 

I agree with many of your points, and certainly don't recommend my trading method for any or all. The 50% return you mentioned on a multi-million dollar account is and would be spectacular- heck, even half of that would be great. However, everyone has a different risk appetite of course.....

 

As an example - if I had a $10k account, and day trading 4 contracts on the YM, and averaging a 200% monthly return, my account would be approx $30k at the end of the month (not compounding and increasing contract size). Assuming only trading 4 contracts for the year, the return on that initial account would be $240k - pretty decent.

 

Now, looking at the dark side of things - if the market blows out one day, and I am on the wrong side (aren't we all when that happens), it would require a 500 point move against me to bring my account to zero. That is one hell of a move. Lets say it drops 200 pts before I can get out.....that's $1000 per contract. My daytrading margin is $300 per contract, which would leave me with $1500 per contract left in my account....still 5 times what I need to trade.

 

Would I still trade 4 contracts at that point? No way. But the point I am making is about probability. If I go 6 months achieving my return, giving me a banked profit of $120k, and then a crash occurs that takes me out for $4-5k, would it matter? Short term, I would be pissed, but long term, it is insignificant.

 

Trading styles and time frames are critical in risk management. As I said earlier, I agree with most of what you posted.....when you have buckets of money, the emphasis is on safe and reasonable growth, much longer time frames, etc.

 

I don't like losing money anymore than the next guy, believe me. But I employ reasonable precautions to guard as much as possible against catastrophic events ( multiple computers, UPS system, redundant internet connections, double stop losses on all positions) - my initial stop is 22 YM points, with another at 50 just in case. And no bathroom breaks with a position on!

 

Different strokes for different folks - have no doubt that ice patch will come up in the road someday, always does. I just don't think it will put me in the hospital.

Edited June 30, 2011 by Maelstrom

[eqsys 10]

Last year during the "flash crash" the YM dropped 878 points in one hour. Really odd things happen all the time. Just this morning I saw the SF fall about $2200 in one hour, and the initial margin on that is $3375, no special margin for day trading.

 

These wild swings are often called "black swan" events. You may or may not know about the idea, but when this happens to you it can wipe you out.

 

If your account is 10k, and you fall into one of these unexpected potholes (or icy patches) then it's sad, but you can recover. It your account is 100k and this happens, the event takes on a whole new meaning. If you are living on trust fund money, who cares? But if that is money you earned the hard way - by working, then when you lose a years salary in an hour, it can set you up for a very bad headache.

 

My point about drawdown is that it's an emotional event as well as a monetary event. When you experience drawdown you may 1) panic and sell out of your position at the exact wrong time, 2) be unable to eat or sleep, 3) stop trading just when you should be in the market, 4) ditch your system and start all over, etc.....

 

It all looks easy on paper. Once you have real, spendable money (YOUR money) at risk in the market, equity drawdown takes on a whole new meaning.

 

It's been my experience that when anyone talks about making 200% per month return, they are not realistic - have not traded their system long enough with real money, have not gone through bullish and bearish and choppy trading periods with their system, have not yet experienced max drawdown with their system, on so forth...

 

I have studied the returns on countless systems that are advertised for sale, and tested tens of thousands of systems myself over several decades, so I think I have a fairly good idea of what's realistically possible, and at the same time, not get wiped out during some unusual event.

 

So, forgive me if I am a bit skeptical of 200% per month returns. There is always the possibility that you have a method that can achieve this, and if you do, I wish you the very best - I hope to read about you in the financial press one day.

 

I just think you should trade 1 contract over a multi month period, through the various ups and downs, to make absolutely sure that your system or method works in all types of market conditions. After you run your backtests, then trade in real time, you will have some idea of the possibility that your system will actually match theoretical results, and that you are able to trade it in real time with real money.

 

Over the years I have come up with and traded many systems that just looked fantastic on paper. When I actually traded them in real time, however, I found that real results did not always match theoretical backtested results (which is why there is a disclaimer on all systems to that effect).

 

Currently my minimum standard for trading any system is the following:

over the past 12 months of backtest results, what is the net equity gain of the system vs the MAX intraday drawdown of that system. Is this greater than 500%? if so, it is a possible, tradeable system.

 

And, by the way, if you believe you have a fantastic system or method and can really achieve the results you expect, and can do this over the long haul, then there is no harm to test this system with only 1 contract for a multi-month period, to make sure it works. And, if it really works, you have the rest of your life to trade it.

 

It has been my experience that almost ALL traders, early in their trading life, become too enthusiastic and too confident in their system or method, and then become over leveraged, then get wiped out. Perhaps this will not happen to you.

 

A very common reason for system failure is mistaking "brains for a bull market". In other words, the system works from the long side when the market is bullish, but fails in a bearish market or sideways market. If you try to go long in a bear market, the odds of making money are greatly reduced. So, you have to be sure that the results you are getting are really because of your system and not just that you are going long in a bull market, or short in a bear market.

 

Best of luck to you.....

[Maelstrom 10]

Last year during the "flash crash" the YM dropped 878 points in one hour. Really odd things happen all the time. Just this morning I saw the SF fall about $2200 in one hour, and the initial margin on that is $3375, no special margin for day trading.

 

These wild swings are often called "black swan" events. You may or may not know about the idea, but when this happens to you it can wipe you out.....

 

Lol..... we actually agree on many more things than disagree.

 

I am familiar with black swan events - they have happened, and they will happen again. Rare, of course, but it only has to happen once.

 

I have been trading in various capacities since '98, and am by no means an expert. I have my ass handed to me too many times.

 

I absolutely agree with your point on the emotional impact of draw down on a large account - it is a horribly numbing experience, and worse, in situations like last year, not a single thing you can do about it. Heck, it hurts even with a small account!

 

And the returns I threw out there are very specific to the way I trade, which is both long and short depending on what the market is doing at the time. I am the first one to say that my way of trading, or returns even half of that do not scale. Can it be done on a small account, 5,10, maybe 20 contracts per trade depending on the instrument. Yes, absolutely. I have been doing it for a decent amount of time now. On a $10M account? Absolutely no way. And as I have said before, why would anyone want to trade with any great risk with that much account.

 

I have no doubt we have very different trading styles, time frames, goals and experiences, and I appreciate that greatly, and I think that is the source of the few things I see that we can agree to disagree on. You have certainly caught my attention, and will keep an eye out for your posts - you obviously have a great deal of experience and insight, and I appreciate all the points you have brought up.

 

Good trading to you!

[eqsys 10]

I agree that we likely have very different trading styles. I have found that I am completely unable to sit in front of a computer screen and day trade. In the late 90's I filled my home office with computers and a satellite data feed, then spent a couple of days attempting to scalp the S&P market. This was before automated trading. By the time I got a trading signal and called it into my broker I was too late - or filled poorly. Not only was I unable to make money, but I hated the experience.

 

The first thing I found out was that I couldn't leave the room to go to the bathroom, then I couldn't go to the kitchen if I was hungry, or couldn't answer the phone or the doorbell, etc.

 

After a couple of days of nerve wrecking madness, I shut down the operation. I concluded I couldn't live like that.

 

Currently I use TradeStation to backtest my systems and trade with auto trading enabled. My systems trade day and night and I spend my time trying to improve them. Every day I try to come with new systems or improvements to current systems. I always trade my best system.

 

I also try to figure out which systems work best with which trading vehicles - for example, one system might work great with GC or SI and not at all well with ES. Each market has its own "personality". I experiment with different bar lengths - from daily to 5 min bars.

 

Bottom line - I am absolutely no good at "seat of the pants" day trading - can't stand it. I absolutely have to know the backtest results of any system that I trade - how much did it make, how much did it lose, what is the worst drawdown that might happen to me - and I have to make sure that if that does happen TODAY that I won't lose sleep over that loss.

 

For me, day trading is an emotional roller coaster - and I have motion sickness.

 

Happy trading!!!!

[jackb 10]

I agree that we likely have very different trading styles. I have found that I am completely unable to sit in front of a computer screen and day trade. In the late 90's I filled my home office with computers and a satellite data feed, then spent a couple of days attempting to scalp the S&P market. This was before automated trading. By the time I got a trading signal and called it into my broker I was too late - or filled poorly. Not only was I unable to make money, but I hated the experience.

 

The first thing I found out was that I couldn't leave the room to go to the bathroom, then I couldn't go to the kitchen if I was hungry, or couldn't answer the phone or the doorbell, etc.

 

After a couple of days of nerve wrecking madness, I shut down the operation. I concluded I couldn't live like that.

 

Currently I use TradeStation to backtest my systems and trade with auto trading enabled. My systems trade day and night and I spend my time trying to improve them. Every day I try to come with new systems or improvements to current systems. I always trade my best system.

 

I also try to figure out which systems work best with which trading vehicles - for example, one system might work great with GC or SI and not at all well with ES. Each market has its own "personality". I experiment with different bar lengths - from daily to 5 min bars.

 

Bottom line - I am absolutely no good at "seat of the pants" day trading - can't stand it. I absolutely have to know the backtest results of any system that I trade - how much did it make, how much did it lose, what is the worst drawdown that might happen to me - and I have to make sure that if that does happen TODAY that I won't lose sleep over that loss.

 

For me, day trading is an emotional roller coaster - and I have motion sickness.

 

Happy trading!!!!

 

I've seen similar responses by other unsuccessful discretionary traders that jump completely to the other end of the spectrum and cling hard to the "holy grail" of backtested results. Of course, it's not a holy grail and most don't even properly backtest anyway. Something as basic as running a system against multiple data feeds is a rarity for most systems traders. Most simply work off a single, unscrubbed set of data (i.e., the one provided by their broker which undoubtedly has more than one error) and then run out and start trading as soon as they find something looks promising.

[eqsys 10]

Some thoughts on backtesting:

 

I have been backtesting systems for 31 years. In the "old days" I had to enter the data by hand from the newspaper. I used to plot each data point on graph paper. Eventually I purchased a PC and wrote my own programs to test. In the early 90's I purchased System Writer (first version of TradeStation) to test, and have been using TS ever since.

 

About multiple data feeds: TS only has one data feed. I realize there are many data providers out there. I have enough on my plate with writing and testing systems to have to worry about the various data feeds. I just have to assume that my TS data feed is adequate. I don't use highs and lows, only closing prices, so this minimizes most odd spikes in the data due to bad data points.

 

I have learned a LOT about backtesting over the years. The main thing is that a backtest is only the optimized result of a series of buy/sell rules over a particular set of data. If the set of data changes, the results will change. If the system works in a bull market it might not work in a bear market and vice versa. If a system works with gold it might not work with the dollar index, etc.

 

The worst "sin" of backtesting, in my opinion, is overcomplicating the systems - too many variables. I have found that the more variables, the better will be the backtest results, and the worst will be the forward (or real time) results. This is because of "curve fitting".

 

So, my system development rules are:

 

1) the system must be logical and based on an obvious, observable pattern

2) the system must be simple, and have no more than three variables, preferably 2 and ideally 1

3) the system must work for everything, in all types of markets (not easy) - doesn't have to work great, but must still generally work

4) system profit over a one year period must be 4-5x max intraday drawdown to be tradeable

5) system profit must exceed buy and hold result over the same time period - this avoids simple error of thinking you have a winning system, when in reality you are just going long in a bull market or short in a bear market and it's really the market that's carrying you and not your system

 

A backtest will tell you what didn't work in the past and might work in the future.

 

Finally, I look for CONSISTENTCY. I want to see the daily, weekly and monthly results over a long period of time. The ideal system would make money every day - never have a losing day. This is impossible, but it is possible to have 10-11 out of 12 months show a profit in a backtest. This tells me that the system works in different market environments.

 

Also, I always trade my best system. Any new system that I come up with is only a potential system, until I can show that it outperforms my current best system in different time periods, then I monitor it in real time, then I might make it my best system and trade it.

[gotrade786 10]

"]Profit is something that is different for different people. But the common profit for all is to left with some extra money after you have spent on your all expenses and also deducting the principal amount one invests. If after all this calculation you earn some extra money then it is profitable but by how much it depends upon the thinking of different person. But if you are not left with any money rather had to add some more money form anywhere else to support your life, then this is total loss.

for instance: investment= $1000

after some days= $3000

expenses= $2000, then no profit no loss.

But when expenses= $ 1500, then $ 500 profit

when expenses= $ 3500, then total loss.

[ahimsa 10]

I'm referring to the use of the word in the context of beginning traders and the 18-24 months to profitability standard. :haha: so please, no dictionary definitons.

 

What is meant by profitable:

1. If I start the month trading with $1000 and end the month with $1001
   
2. If I start the month trading with $1000 and my living expenses are $500 a month and I end the month with $1500
   

Mathematically both are profitable but I'm interested in what is generally meant with the 18-24 to profitablility I see all over the forum.

 

Thanks.

 

very,hard to being a profitable traders at the beginning,the word profitable isn't a word only for trading but is in use for all kind of job.wow new member have you a particoular allergy for the dictionary definition,why?i like so much look and learn new words and way of speak from dictionary,are you born with all the languages and definition inside like a machine that never look the dictionary,if you learn chinese you never see:) neither definition for increase your language.:.:.

[cornixforex 10]

It depends on the strategy nuances (probably not optimal to sit all day in front of screens to make little profit), but anything that beats inflation and yields something on top of that is definitely profitable IMO.

[wanr 10]

Very interesting discussion between Maelstrom and Eqsys. 2 opposite way of trading. I am a newbie interested in both...

 

What instruments are you respectively trading?

What are your results (I am not sure if it is taboo to talk about results but let's break the ice...)?

 

Ideally I would like be able to have a few systems auto-trading low risk / low return strategies and day trade live a few hours per day with higher risks/returns strategies, that is why I was particularly interested in your discussion.

 

By the way, asking what is profitability in general doesn't make sense and is the same kind of question as asking what does it mean to be rich. Some would say that people earning 10k salary per month can be considered as rich whereas other would say that these are poor people that have to work for a living and cannot rely on their capital.

 

In fact, you don't have to be profitable (earning 1 USD in 1 year would do) you have to reach goals that you have to define by yourself. Trade for a living (you need to ensure a short term profitability which can be expressed in terms of P&L per month, week or even day), sustain the buying power of your capital though years while minimizing the risks, take reasonnable risks to increase your capital (then long time profitability could be measured in ROE or a return/risk)?

[eqsys 10]

"Very interesting discussion between Maelstrom and Eqsys. 2 opposite way of trading. I am a newbie interested in both..."

 

I believe you are referencing two different styles of trading. The first is often called "discretionary trading" or as I call it "seat of your pants" trading, and the other is system trading.

 

Most traders do the former. I used to do it, but it was not profitable for me. I found it to be emotionally draining, and only occasionally profitable. Stats show that almost all "day traders" fail to make a profit over time. Either their emotions or some market event wipes them out.

 

Profitable trading is much more difficult than it initially appears. You look at almost any chart of any stock or commodity and you can instantly see the waves - how hard can it be to buy the dips and sell the tops? Well, turns out, very hard to do on a consistent basis.

 

So, what I do is this: I get up every morning, study the market, look at the charts, and try to come up with new ideas that I can code into TradeStation. I then backtest the ideas to see if they work - improve what I am doing.

 

It's similar to "natural selection". You keep experimenting - disgard what doesn't work and keep what does. Eventually your systems, methods, "learn" - they get better through this process. Also, you find out what works for YOU - in other words, some techniques do work, but they are not suitable for your style of living, your personality, your risk tolerance.

 

For example, I had been trading silver futures this spring and doing well as silver was surging upward. However, a few months ago the moves became huge and silver spiked to near $50, then plunged into the low 30's - just a huge move in dollar terms.

 

The minute by minute moves, in dollar terms, became too large for me to handle emotionally, so I stopped trading for a while and came up with a system that traded very small moves - in quickly, out quickly. This reduced the volatility and after much testing I started trading again.

 

Personality plays a big role in what you can trade and how you trade. Some people just can't and won't trade with a system, preferring to day trade on their own wits. Others, and I am included in this, have found that this doesn't work for them.

 

I'm sure there are day traders that are profiitable, but I believe it's very difficult to achieve success this way because of human emotion and fallibility. I prefer to have all of my work coded into systems that auto trade for me.

 

Futures and stocks can be auto traded, but not options. The exchanges will not allow this.

 

By the way, the best trade I ever made and the worst trade were made exactly the same way - seat of the pants.

 

In the late 1980's I built up a 35k account to 225k in short order trading Eurodollar futures, then lost 135k in a few days on a surprise hike in interest rates by the Fed.

 

About a decade later, using the same technique, I did the same trading AOL but was able to hold the gain - when AOL peaked out around 160 I got scared - as I was holding 4000 shares, so I sold it all over a couple of days - couldn't take the pressure. Turns out that was the exact top (spring of 1999).

 

I am much more conservative these days - just can't take huge intraday moves, so I am under leveraged - very conservative.

 

My suggestion is that you try both methods and see which one works for you. If your trading account is small, and you don't mind losing much of that amount, then go ahead. Try simulated trading for a while. However, you'll find that trading "play money" is NOT the same as real money.

[steve46 12]

I thought I would take a moment to post on this very important topic

 

My class has been open for about two months. Prior to opening the class I backtested for two account sizes. One trading conservatively, under 10K. The other trading aggresively at 20K

 

The expected drawdown for the conservative account was less than $1,000 per month with a 16% "probability of ruin".

 

The expected drawdown for the aggressive account was just under $1,800 per month with a 11% "probability of ruin".

 

At first glance this seems counterintuitive until I went back through the data and really looked at the distributions. As it turns out, if you are very conservative (trading the ES market for example) and you pass on many of the trades because they are considered "aggressive" entries, you also miss many significantly profitable opportunities. Even over a short period of time this can make a big difference in your profit and loss numbers.

 

For me this became a lesson in risk management more than it was about profitability...Because stop size and therefore risk management on a individual trade basis is determined by "the trade"...each student has to ask themselves "can I afford to take this trade"

 

The students with bigger accounts are able to take most of the trades while those with smaller accounts (and those who are more risk averse) have to pass on some of them

 

Long story short, profitability depends...not only on the system and the trader's ability to execute with discipline, but on each traders risk tolerance and ability to manage risk on a per trade basis (meaning the ability to maximize profit/minimize risk when they are wrong)...

 

Wherever you are on that curve, what you have to do is to look carefully at several factors

 

Do you take all the trades that your system provides or do you "cherry pick" because you think you know which setups are likely to be winners....be aware that if don't take all the trades, your system is not going to perform as well as it should

 

Do you manage your risk properly....meaning...not only do you keep your stops in place, but when you are fillled....do you stay in the trade long enough for your edge to kick in...or do you get flushed out when the market starts to go against you...

 

and finally, does your system continue to provide an edge....do you know how many consecutive winners you are likely to have, and how many consecutive losers...at what point do you decide that your system is "within parameters" or in need of evaluation?

 

Just a couple of thoughts.

 

Best to all

Steve

Edited July 13, 2011 by steve46

[eqsys 10]

You MUST have some realistic idea of the risk, in dollar terms, of your expected worst case drawdown, then determine what this would mean to you.

 

For most beginning traders this calculation prevents them from trading most futures contracts.

 

I take a very conservative approach and allocate about 10x the backtested max drawdown to trade 1 contract. My expectation is that this drawdown will happen again and when it does I don't want to be down more than 10% or so.

 

Drawdown always hurts, but I want to be able to sleep at night and not allow fear to cause me to make some stupid trading mistake.

 

Most novice traders focus on the potential gains, but forget to prepare for the losses.

[nakachalet 10]

I will take a crack at this, but preface it with my belief that "profitability" is subjective and means something different to everyone.

 

I am have never seen the point of traders who say that you need $50,000 per emini contract in your account, and then scalp a couple of points here and there to make $50-$100 a day per contract. Are they profitable? Of course. Is it worth it? To me, absolutely not.

 

Consistency and expectancy is key in my opinion. What is your R:R, you average win %, etc. With that knowledge, you can size an account appropriately, manage risk, and still get a respectable return.

 

As an example, I trade one contract (emini) per $2500 in my account, and have a goal of doubling my account every two weeks. Sometimes it works, sometimes not, but it averages out to that over time.

 

I guess if you have $10M in an account, a 5-10% annual return is pretty good - but for one of the "little" guys like me, I look for a 100-400% monthly return - otherwise, I would simply go work somewhere and make a paycheck.

 

M

 

:haha: are you or are you not being a little tongue in cheek in your response?

 

perhaps, you are one of those brokers or brokerage associates or seller of certain trading wares.... trying to promote yourself, your wares, your company or your services....?

 

your response is outrageous and misleading to those learning how to trade profitably....?

 

yae, you idiot, you like many others.... are all looking for 100-400% or more in your monthly or yearly returns.... and that is all you can do.... looking and dreaming for 100% returns in your scheme....

 

traders lab should really ban all those who fallaciously trying to mislead traders into joining and paying for something practically useless toward learning to trade profitably....

 

yes, i call you a bluff.... and afford you an opportunity to rebut....

 

most successful traders are very guarded in what they say and do, especially when they try to advise others.... how to trade to profitability.... there is never any assurance that anyone's trading day or session would be profitable reaching the r/r ration set in their trading plan and strategy.... all we can do is.... trade according to our plan and strategy.... and that the market would oblige and would go along.... LOL

 

which only an idiot would shoot for 100% return as you shamelessly proposed and claimed....

 

shame on you Maelstrom;121947....

Edited July 24, 2011 by nakachalet

[nakachalet 10]

You MUST have some realistic idea of the risk, in dollar terms, of your expected worst case drawdown, then determine what this would mean to you.

 

For most beginning traders this calculation prevents them from trading most futures contracts.

 

I take a very conservative approach and allocate about 10x the backtested max drawdown to trade 1 contract. My expectation is that this drawdown will happen again and when it does I don't want to be down more than 10% or so.

 

Drawdown always hurts, but I want to be able to sleep at night and not allow fear to cause me to make some stupid trading mistake.

 

Most novice traders focus on the potential gains, but forget to prepare for the losses.

 

you are on the right path to trading profitably....

 

most profitable traders are already taking it as a given when they initiate their opening positions, long or short, that if and when the market turns against their positions, they are willing to accept that pedefined, precalculated and predetermined risk of whatever dollars amount.... according to their plans, strategies and risk management....

 

great insight.... eqsys.... cheers :missy: