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Trading objectives (help me calculate)

  • #1
  • First Post: Edited 3:27am Dec 17, 2009 3:13am | Edited 3:27am
Hi everybody,

I'm reading "Trade_Your_Way_to_Financial_Freedom" from Van Tharp, and it's been a revelation. this book made me realize that I have to develop my own trading strategy, and so i have begun.

Right now I'm writing out my trading objectives and I'm confused about a certain aspect of money management:

Firstly, my trading system will be scalping. The main reason I have chosen this system is because of my personal strength and weaknesses. I can, for example, look at a chart for hours without taking a trade, but once I get in it all should be over soon. Trades that last to long have a negative effect on my mindset (example, second guessing myself.)

Secondly, my bankroll is $5000. I'm willing to risk on average 1% of my bankroll on any given trade, (a 10 pip stop loss)which would make $5 p/p

Now, I'm keeping it simple without compounding...

If I was to clear an average profit of 10 pips a day x $5 = $50 a day, Lets say 200 trading days, I would make $10,000 a year.

I"m not trying to count myself rich here, but I'm merely trying to get some reasonable trading objectives on paper. 10 pips p/d sounds very reasonable as an average daily profit target, but $10.000 profit on $5000 account doesn't.

Could anyone please explain the mechanics here. Am i making mistakes in my thinking process? Are there different management rules for scalping?
It's my price or no price at all!
  • #2
  • Dec 17, 2009 4:32am Dec 17, 2009 4:32am
If you think you mastered the system, why dont start ? you should first start with lower lotsize where $0.5 p/p is enough to test it.

and if your confident, then go to $1 p/p. and further on...$5 p/p and $10 p/p



You need to remember, in these 200 days, there will be losses.

i wish you all the money in the world with this, hoping it helps!

mucho pipas muchachos
Never whishing, always trading.
  • #3
  • Dec 17, 2009 4:36am Dec 17, 2009 4:36am
It's impossible to get 10 pips every day for 200 days. You'll have losses and it will be good if you'll have profit more than losses and if it will be more than $500 on $5,000 account.
  • #4
  • Dec 17, 2009 5:05am Dec 17, 2009 5:05am
TNX for your input guys

Let me give some additional information because I might not have been clear enough.

First of all my trading system is not developed yet. I'm at the beginning of development and trading objectives will be a big part of the system.

Secondly, when I say an average of 10 pips a day for 200 days, I don't think there will be exactly 10 pips made on a daily basis. I am talking about average, so some days profit and some days loss. but in the end it works out to about 10 pips daily.

I understand that after demo trading i need start with a single mini lot and work my way up to that 1% i was talking about earlier.

I just want to know if it's reasonable to risk 1% of your bankroll while using a scalping system.
It's my price or no price at all!
  • #5
  • Dec 17, 2009 6:14am Dec 17, 2009 6:14am
Quoting 4extool
TNX for your input guys

Let me give some additional information because I might not have been clear enough.

First of all my trading system is not developed yet. I'm at the beginning of development and trading objectives will be a big part of the system.

Secondly, when I say an average of 10 pips a day for 200 days, I don't think there will be exactly 10 pips made on a daily basis. I am talking about average, so some days profit and some days loss. but in the end it works out to about 10 pips daily.

I understand that after demo trading i need...

the key is consistency.

you can risk 50% per trade if you want, the question is how consistent are you. assuming you're new to trading start small --- risk as little as you can, see it as an educational exercise. but build consistency, learn to make good trades, accept risk, and take losses. only then will you have the confidence to leverage up -- which is one of your major weapons as a retail trader.

when i first started trading, i started with a trend trading system. i also started with $5000. i protected my capital by risking 1.0% a trade, splitting my lotsizing into 3 position. t/p 2/3 at 1/1 Risk/Reward (at the time i figured my signals could give me 25ticks on GBPUSD atleast 2 or 3 times a day) and i let the remaining 1/3 run as much as i could shifting the s/l to BE.

my goal was to make 5% a week. i allowed myself 3 trades a day, 15 trades a week. if i got my 5% i would stop for the week, just let the extra 1/3 of trades in profit run. every week i would leverage up based on 1.0% risk if i made money and leverage down to match 1.0% risk if i lost money.

that was a while ago -- i eventually moved up to risking 2.5% a trade, as i got better at trading my system and learning as much as i could through the whole process. soon making 5% a week got more and more stress free, and when i got my mtf big picture right 30 - 40% months were not uncommon. but the key is surviving the learning process.

you have to protect your psychology - or as ed seykota puts it -- find a "workable ecology" with yourself. because if you get to the stage where you can consistently make 10 ticks on "high probability" trades that match every part of your system, that you've seen pan out thousands of times -- there is less fear in leveraging up and eventually making exponential returns - but protecting capital while you learn is key.

so pick a risk that you are comfortable with - that you can manage, learn, and not be affected psychologically. don't try to make money in the start -- just learn and survive, the big returns will come in time.

all the best in your trading.
  • #6
  • Dec 17, 2009 6:38am Dec 17, 2009 6:38am
Hi, it seems to me that your getting a bit ahead of the game, at the moment you have no way of knowing if you can take 10pips on average per day out of the market.
Only when you have a proven method can you start to build your business plan, and your plan will be based on a reality and not just wishful thinking.
Once you have found a method for extracting 10pips consistently on demo then think about trying a micro account or even a nano account for development purposes.
Before you start throwing $5 a pip at the market make sure you have confidence in what you are doing, and that means proof on paper that it works well enough to allow you to develop your ideas further.
  • #7
  • Dec 17, 2009 6:45am Dec 17, 2009 6:45am
Quoting pursuit_21
the key is consistency.

you can risk 50% per trade if you want, the question is how consistent are you. assuming you're new to trading start small --- risk as little as you can, see it as an educational exercise. but build consistency, learn to make good trades, accept risk, and take losses. only then will you have the confidence to leverage up -- which is one of your major weapons as a retail trader.

when i first started trading, i started with a trend trading system. i also started with $5000. i protected my capital by risking 1.0% a trade,...
Thanks for for your advice. I get what you're saying. This will help me finish my trading objectives without goals that are unreasonable.
It's my price or no price at all!
  • #8
  • Dec 17, 2009 7:53am Dec 17, 2009 7:53am
Quoting Quidsey
Hi, it seems to me that your getting a bit ahead of the game, at the moment you have no way of knowing if you can take 10pips on average per day out of the market.
Only when you have a proven method can you start to build your business plan, and your plan will be based on a reality and not just wishful thinking.
Once you have found a method for extracting 10pips consistently on demo then think about trying a micro account or even a nano account for development purposes.
Before you start throwing $5 a pip at the market make sure you have confidence...
this is some good advise - paper trading can be a good way of testing out a new system. there's a good interview of mark douglas (trading in the zone, disciplined trader) floating around somewhere where he says the difference of your real acct and your paper acct is the deficit (assuming ur real acct doesn't do as well as your paper acct) of your psychological and emotional discipline skill.

also - don't forget to factor the spread you pay for the pairs you trade into your calculations for your profit targets and s/l.
  • #9
  • Dec 17, 2009 11:31am Dec 17, 2009 11:31am
Quoting 4extool
Firstly, my trading system will be scalping. The main reason I have chosen this system is because of my personal strength and weaknesses. I can, for example, look at a chart for hours without taking a trade, but once I get in it all should be over soon. Trades that last to long have a negative effect on my mindset (example, second guessing myself.)

.....

I just want to know if it's reasonable to risk 1% of your bankroll while using a scalping system.
The law of averages'll doom you. Expect to lose all.

Most moves all day are 20 pips wide anyhow. Study between trades for bigger moves and you can then drop your leverage and increase your stops.
Also, few people have the temperament to scalp; it's much more rare than you think. Mostly, banks do this. Those that do trade a lot -- Think 'cloud computing' and trading algorithms the banks use.

An important issue with trading is dealing with emotions and snap decisions. If you've traded extensively, demo only, since it's easy to recall former pains of trades. (That's my case.) If you've never traded, put $100 or so in an account and trade for pennies, working your way up to where you feel comfortable; at the same time, also trade demo, simulator and paper, to work your technical method into shape.

Comfort, you said, is 1%; a better way to think of it is in terms of usable, or free, margin. Recently I found that it's how many pips from margin call that count, that is, % of the highest leverage allowed. So, that 1:100 would have to be in a 1:200 account, to allow 85 or so (g/u) pips of freedom of movement in case you're wrong and think price may return, until you've improved your intraday trading skills.

Best of luck in your months and years of study.
  • #10
  • Dec 17, 2009 12:05pm Dec 17, 2009 12:05pm
Quoting enivid
It's impossible to get 10 pips every day for 200 days. You'll have losses and it will be good if you'll have profit more than losses and if it will be more than $500 on $5,000 account.
Agree with you, it's impossible to get 10 pips every day. With such a tight sl, the chances of lossing is bigger than winning.
Face both Win and Lose bravely
  • #11
  • Dec 18, 2009 2:11pm Dec 18, 2009 2:11pm
I think you are starting in the right place and Tharp's book is very good. There are 6 numbers that matter when you begin to evaluate your trading system. How those 6 numbers work in conjunction with one another will determine the success of your system. For example you may risk 1% of your capital on every trade and maybe your stop on average will be 10 pips. If so you should at a minimum require your system to produce 3:1 Reward to Risk. If you had a 50% win ratio and traded then 400 times in a year you could expect to turn a $4007.00 profit in 12 months.
Once you have your system you should convert it to an EA so that you can test a variety of optimizations that will change the 6 numbers above and hopefully provide even better results. Changing one of the 6 numbers above will change your results so you need to understand and see how they all work together.
Paul
  • #12
  • Dec 18, 2009 2:29pm Dec 18, 2009 2:29pm
4extool, right now you don't even have a "method". How about taking that $5000 and stuffing it under your mattress? Read this forum for another couple of weeks, find a broker that allows allows you trade micro or nano lots. Take $100-$250 (whatever their minimum is) and trade that developing your method. Trade that account for 12 to 18 months. If you double or triple that account in that time consider opening a larger account.

Don't be in such a rush to throw $5000 out there, right now you have a greater than 90% chance of losing it all. Obtain your edge, prove that you're consistent, then take the leap into the fiery pits of forex.

On the other hand, if all you want to do is prove that you can lose $5000, PM me and I'll give you my Paypal address where you sent it.
  • #13
  • Last Post: Dec 19, 2009 1:24am Dec 19, 2009 1:24am
i appreciate all you comments and I'll take from it what i need.


cheers
It's my price or no price at all!
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