Realistic Account Growth?

All good stuff.... I wont say I stand corrected .... but very interesting ...

I guess for all of us, the proof is in the doing ... and doing ... and doing .. untill you get it right.

In this month till now, I totally made 16 deals. lost 5, win 11. Accuracy rate: 69%.
Total Profit: 655.26 USD; Increased 29%

Yes, 29% - that's good, I think anything up to 100% is possible, but after 50% you are really pushing it, if you can't make 15%+ a month, you are doing something wrong.

Hanover (who gives so much on this forum) quoted some very well respected traders who are basically issuing words of warning to the uninitiated.

Hard work in this game pays off. The danger can lie in being over-confident and the best traders in the world have blown their accounts. The key lies in capital preservation and that is why money management is so important. Mathematical formulae based on past results are going to skew our expectations. That is why I like "ramping up" where I've made my 10% and now I'm going to risk the excess on a few more "sure fire" trades. That's the way forward to dynamic gains in my opinion.

This is turning into a very good thread

I think if you have a true real EDGE one can make some serious returns. I've seen one trader that is on this forum say that he made around 35% a week and it was growing. But the key is having a TRUE EDGE. Not chart reading stuff. But sadly the true edges aren't available on public forums .

Good post!

IMO, there is at least one other reason why one trader's performance should be irrelevant to another. Among other things, return depends on (1) proficiency of entry/exit methodology (which ultimately expresses itself as expectancy, edge, or profit factor - call it what you will); (2) frequency of trades; (3) risk per trade (position sizing); (4) consistency of execution (includes psychological factors); and (5) capitalization.

Firstly, every trader's psychology (point 4) is different. I have come to realize that we're not all created equal in this regard. For example, some folk are naturally risk averse, resulting in fear of pulling the trigger, while others enjoy the thrill of 'gambling', making it difficult for them not to overtrade. These kind of traits will ultimately have a huge bearing on trading performance.

Capitalization (point 5) isn't necessarily significant if one talks about % return, but it's very important if one wants to trade for a living. Being undercapitalized can lead to overtrading (taking inferior quality trades) and overleveraging, in order to meet the monthly targets needed to pay one's bills.

Proficiency of entries and exits (point 1) ultimately comes down to market knowledge and experience, and one's ability to convert knowledge into a profitable strategy..... entries and exits.

Now, the two mathematical biggies:

Risk per trade (point 3) - this has arguably the biggest single bearing on bottom line. If I double my risk per trade (e.g. from 1% to 2%), then my returns for any given period will more than double, assuming I use fixed fractional compounding.

For example (and to keep the math easy, let's assume 1 trade per week):
0.5% per week compounded (over 50 weeks) = ~28% return per year;
1% per week compounded = ~64% return per year;
2% per week compounded = ~169% per year;
and so on......

Identical entries and exits, identical trade expectancy, identical execution....... yet we can increase annual return by 131% p.a. by merely increasing position size.

But quadruple risk more than quadruples the risk of irretrievable drawdown, should we get a losses outnumber wins for any long enough period.

My point is this: one trader (says that he) makes 28% p.a., another claims 169% p.a. So which trader is the more skilled? Answer: it's impossible to tell.

Conclusion: Quoting return without directly referencing risk is completely meaningless.

Frequency of trades (point 4). Similar concept. Let's say I average 1% return per trade. If I trade twice a day, that's ~2% per return daily. If I trade once per week, that's 1% weekly. Do the math as before, the end result is a massive difference in annual return. The returns (and risk) of a day trader are going to be significantly different from those of a position trader.

I believe these are compelling reasons as to why any apples-to-apples comparison of trader performance, and a response to "what returns are realistically possible?", are essentially meaningless.

_______________________________


@smikester: many thanks for the kind words. Something for you to consider: is it worth "ramping up" simply because you've met a monthly target? The market cares nothing for your recent performance; everything else being equal, the probabilities of a trade's success or failure remain the same. IMO, position size should (if at all possible) reflect the probabilities being offered by the market. Hence I would respectfully suggest that all A+ setups ("sure fire" trades) are equally worthy of "ramping up", regardless of account balance. Just a thought.


@poundforex: I guess I must be doing something wrong..... very, very wrong. LOL. I could easily increase my risk per trade though, to meet any desired monthly target, but for me risk management is paramount.

Compounding is key to more profits, a 4% increase on 4% on 4% is one heck of a lot more than 2% on 2% on 2% etc. yes risk is important just as money management is, but I think that's another thread just as how much time you spend trading, if I spend 2 days trading rather than 1 I would simply expect to be doing twice the profits otherwise what would be the point trading on the second day.

I tend to think that for a day trader to average 0.5% a day is good. $50 on a 10K account may not sound much but over a year that is still 100%+ return. In practice that would be something like making $200 one day and losing $100 the next giving you a $50/day average.

In trading consistency is everything. %risk and compounding only come in to it after you are consistently profitable. Until you are consistent you should make the smallest possible bet sizes i.e. pay the lowest cost while you are learning.

Anything above 30% per year if it's consistent year on year is excellent.

I've attached a spreadsheet so that we can see exactly what's possible, jzw is bang on, consistency and compounding, the thing with getting consistency is it takes all the stress out of it.

The spreadsheet is based on a 50:1 leverage.

Thank you for this post, hanover!

Hi all
I'm so sorry for my bad english but i think its so important for everybody.
actually the answer is depend on your margin and your trading style.but I want
to share very secret case.if you are a normal day trader with 1000$ standard
account and approximately make a 3 trade daily on majors you need to make
% 2500 in annually basis for making your balance zero meant no profit .
yes %2500 meant 25000$ there is no mistake here.think about it!

Got some insights,
Thanks for sharing!
shunfengcn

It is better not to look at mere returns as leverage can turn 3% a year to 30%, but rather Sharpe ratio which takes into account how much return is achieved given the amount of risk taken.

Return/Standard Deviation of Returns

Correct me if I'm wrong but I am under the imposition that you are trading on a margin(leverage) account. Let's say your leverage is 1:100 and you have an account with a balance has a 1000$ technically you have a purchase power of 100,000$. So I suggest that you base your growth on that and you will find the answer realistic.

Risk per trade is strictly related to the frequency of trades.

If I open 1-4 positions/ month, it wouldn't make sense to risk 1%/ trade.. lol probably 3%.

We can not talk about what is realistic and what is not. There is such a thing as statistics and deviation from statistics. If we take the average between all points, we get the profitability of the average trader, but this will not be correct for 2 reasons:
- 99% of traders lose sooner or later
- The market has different periods, everything should be taken into account in statistics.

Any earnings is possible. This is forex!

It depends on many factors. The first factor is how much good you are at trading. How mich capital you have. Making 1000$ double and making 1 million double is not the same thing. How good you manage your account. So it actually depends on one's capabilities. Be realistic. Think how much you would make if you were doing other business.

Discussion with chatGPT
******************************
if I invest 1000 usd and make 10% yield every month with compounding what will be balance after 10 year

ChatGPT
To calculate the balance after 10 years with a monthly compounded yield of 10%, we can use the formula for compound interest:
A=P(1+rn)ntA = P \left(1 + \frac{r}{n}\right)^{nt}A=P(1+nr)nt
Where:

1. AAA is the amount of money accumulated after nnn years, including interest.
2. PPP is the principal amount (the initial amount of money, which is $1000 in this case).
3. rrr is the annual interest rate (which is 10% per month, or 1.2 annually).
4. nnn is the number of times that interest is compounded per year (12 times, since it's compounded monthly).
5. ttt is the number of years the money is invested (10 years).

Plugging in the values:

1. P=1000P = 1000P=1000
2. r=1.2r = 1.2r=1.2 (since 10% per month is equivalent to 120% annually)
3. n=12n = 12n=12
4. t=10t = 10t=10

The formula becomes:
A=1000(1+1.212)12×10A = 1000 \left(1 + \frac{1.2}{12}\right)^{12 \times 10}A=1000(1+121.2)12×10
Let's calculate this step by step.
After 10 years, with a monthly compounded yield of 10%, the balance would be approximately $92,709,068.82.




4o
can you say... its corect 92 mil ?

ChatGPT
Yes, the calculation is correct. With an initial investment of $1,000 and a monthly compounded yield of 10%, the balance after 10 years would indeed be approximately $92.7 million.




4o
Tel me please theare traders that claim that they made even more than 10 % mountlhy. But is any probability that a trader can reach a long period strike with such a results?

ChatGPT
Achieving a consistent 10% monthly return over a long period is exceptionally difficult and highly improbable. Here are several reasons why:
Mathematical Extrapolation

1. Exponential Growth: As illustrated, a 10% monthly yield compounded over 10 years results in astronomical growth. Consistently achieving such high returns is extremely rare and would place an individual or fund's returns far beyond typical market benchmarks.

Market Realities

1. Market Volatility: Financial markets are inherently volatile and unpredictable. Even the most skilled traders experience losses.
2. Sustainable Strategies: Many trading strategies that generate high returns are often high-risk. Such strategies can yield significant short-term gains but are unsustainable over long periods due to inherent risks.

Historical Evidence

1. Historical Benchmarks: Historically, the most successful investors, such as Warren Buffett, have achieved annual returns of around 20-30%, which translates to less than 2% monthly on average.
2. Hedge Fund Returns: Top-performing hedge funds rarely achieve sustained monthly returns of 10%. Most aim for annual returns in the range of 10-20%.

Practical Considerations

1. Capital Size: Managing larger sums of money becomes increasingly difficult. Liquidity issues and market impact can hinder the ability to achieve high percentage returns.
2. Regulatory and Operational Risks: As funds grow, regulatory scrutiny and operational complexities increase, which can impact performance.

Psychological and Behavioral Factors

1. Consistency and Discipline: Maintaining the discipline required for such high returns is challenging. Emotional and psychological factors often lead to inconsistent decision-making.

Survivorship Bias

1. Selective Reporting: Success stories often receive more attention, while numerous failures go unreported. This bias can create the illusion that high returns are more common than they are.

In summary, while some traders may claim to achieve more than 10% monthly returns, doing so consistently over a long period is highly improbable. High returns over short periods are possible, but sustaining them without significant risk or loss is extremely rare.