Just to circle back to Earth for a sec, is consistently averaging (loaded word but take it at face value for a sec) 1% a day in the futures market doable? Yes , possible but doable? With a retail 25K account netting $250/day, etc? (I'll let you extrapolate your own math). Forget all the variables like scaling up, etc., --this is just for a baseline. It would be interesting to me to hear who says yea vs nay.
Anyone who says nay does not know how to trade futures, -OR- has a risk profile that does not consider leverage a usable financial tool.
This is not the way to trade. Making consistent gain every year is unacceptable performance. You need to dream big. You need to set higher target. As your confidence increases, you need to increase your trading lot size so that your profit can increase EXPONENTIALLY, not STAY CONSTANT.
Depends on the traders plan / comfort level. How many contracts will they leverage with their 25K (personal choice), and then the average ticks they can net per day when they trade their plan over a statistically significant period of time. I trade ES, so speaking for that, with 25K... 12500 margin/contract - 2 contracts ($25/tick). Net 10 ticks/day = $250 8333 margin/contract - 3 contracts ($37.5/tick). Net 6.67 ticks/day = $250 6250 margin/contract - 4 contracts ($50/tick). Net 5 ticks/day = $250 5000 margin/contract - 5 contracts ($62.5/tick). Net 4 ticks/day = $250 My opinion, those scenarios are "doable" for experienced traders (those who have developed a plan that has a positive expectancy, and of course the discipline to execute it). Hard "yea" from me.
Can't believe I just read through this whole thread. But I did. There are a couple (a couple) that made excellent, solid ... points. So here's the skinny. This isn't opinion. This is fact. It's what we know in the Professional world. And I'm going to give you third-party proof. You can dream, and delude yourself that people make routine 500% years, year after year. But that's all it is. It's a dream, and a delusion not even remotely approaching reality. And as I said, I'll show third party proof of this. Full disclosure? I'm the Majority Principal in one Closed Proprietary Firm (We do not accept Traders, we trade our own Proprietary Processes as the Managing Partners direct and agree in the overall Mandate. For regulatory reasons, we can't advertise, we're totally closed off, and trade the Firms capital). And I'm a Minority Principal in another Trading Venture, that soon will be open. And let me tell you, as a guy with interests in two different Firms? 1) We know Performance, and what people do. Why? Because this is a competition for money. Yes, some clients want exposure in an Arbitrage strat specifically in STIR's ... and that's where they want exposure, so they may opt for a LESS performing strategy, because of their own desire for exposure to a specific market (usually because they are trying to layer non-correlated strats for risk-adjustment benefits) ... BUT laying that aside for a second ... we know performance, because this is a competitive industry. We're competing for clients with MILLIONS to BILLIONS allocate. So we are acutely aware of what is considered "Great Performance". We have to. We want to be trading that money. 2) Competitions are nothing even remotely approaching reality. Even the guys who compete in them tell you that. Many say that they would NEVER treat their own funds, or client funds, the way they do in those competitions. Trying to say a competition is like trading, is like saying that Trading the WSOP is no different than playing a limit-game with the greats like Ivy and Brunson. But to understand that, you have to understand the above dynamic. So Mr. Pension fund has $1 B to allocate. You think he wants in a Strategy that has 50% years? ROFLOL. Uhm ... no. Their allocator would probably be fired, there would be an inquiry, and probably a few lawsuits. They want to find a fund that can annualize 6% with drawdowns under 3% (which is hard to do by the way, and I'll explain why). LOL ... Can you imagine the articles that would be in News Outlets around the world, of a Pension that has it's Pensioners funds down with 15% drawdowns? ROFLOL ... O M G ... It'd be a scandal right after Madoff and Corzine. Clients want ... SMOOTH. Which leads me to point 3 ... 3) You make your money, not from trading. Most retail traders don't know this, but hear me out. You make your money, from your trading skill, that is SCALEABLE (as someone wisely, wisely pointed out early in this thread). You ever wonder why Sykes never has over a measily $10 Million? Which in the Asset Management world ... is about the equivalent of $3? Because he can't. He DOES trade. His strategy works, but it is NOT scaleable. Most retail traders have no concept of the problems of scaleability. Not because they are dumb or anything. It's just a problem they've never ... EVER had to face. How do you "put on" X size, for Y periodicity of your trade time-frame, in Z minutes? It's just a problem they don't have to consider. Ever wonder why big money migrates to the Interest Rate Markets? It's because those markets are not only liquid, but they are THICK, up and down the order book, which helps with scaleability, and for larger books. Regardless, as I was saying, you make your money, from your trading skill, that is SCALEABLE. Here's what I mean. If you have a $5,000 account right? Wonderful. You're never going to make a living from that, until you grind that to $800,000.00. Possible. But it's going to take you probably 15 to 20 years, if you don't add a lot of capital, constantly (more on that in a bit). So what's the shortcut? A) You have your strategy, that you have RELIABLY (without discretion and curve-fitting entering the picture, which is INSANELY hard to do) backtested. I cannot highlight this enough. You have to RELIABLY back-test it. Most don't have that skill. Even if code does it for you, you have to worry about your Noise Ratio, your E-Ratio and curve-fitting and 'regime changes' throwing off your results. Honestly, most don't know how to overcome these difficulties. But if you can? You need the thing back-tested ... like .... at LEAST 15 years. Preferably 20 years. Ok great. And let's just assume the strategy is scaleable. Ready to trade? No. All you have is in-sample data, which is only good, to take to the next step. It's not good to trade with. YET. B) Sim those results for at least 3 months. Seriously. Note issues that you encounter, and get a feel for executing it (I assume we are talking about Grey Box here, Black Box is a beast most, including myself, don't want to tangle with). C) Then, you take a little bit of money ... say ... $20,000, and you build a track-record on a scaleable strategy. And you run that track-record, without variating the strategy, for say ... 2 years. D) Then you take THOSE results, assuming they are good enough, and you raise $12 Million, and you make FAR MORE off the fees you can charge, than you WILL EVER make trading just your peasly little $5,000 account. That's why I say ... you make your money, from your trading skill, that is SCALEABLE. Because your skill, you use to raise money, and THEN, you make your money, from your skill, that you have built a consistent track record with; that you make MORE money ... trading OPM. And this is not that expensive to do any longer. Sure, you could go the Hedge Fund route. But who wants all that headache and expensive start-up? There are legally compliant, far easier ways to do it, that cost next to nothing to start. Sometimes, as little as $500.00 in startup costs, and sometimes, as much as $3,000, and you're good to go. Legally compliant, in the U.S., with the exchanges fully informed as to your structure, and what you're doing. Anyways, I got a little off-track ... as to my main point as to the utter nonsense that is repeatable 500% years, with third-party proof and some questions. I'll do that in the next post, as soon as this one is published ... (To be continued)
(Continued from the previous post) Ok, I must be clear to post now ... So, this 500% stuff? Uhh ... uhm ... No. There are few areas in trading, where new traders mess themselves up, more than this. Reasonable expectations. It’s something NO new trader wants to hear. But I promise you it’s the truth, and you can verify all of this for yourself, as I will provide you with some links. First of all? Small accounts? Eh, that really doesn’t matter. Seriously. If you take $5.00 to $10.00, you just made 100% return on your money. But it’s only $5.00. If you take $500,000 to $590,000, you made an 18% return on your money. Far under 100%. However, you also made NINETY THOUSAND dollars. So … yeah, just be careful when snake-oil salesmen out there offering you horrible information on trading, promise returns in the 1,000’s of %. As my Grandfather liked to used to say: “Figures don’t lie, but Liars should can figure …” So, what do some of the professionals make? What is considered a “reasonable return”? I’m going to give you a few metrics to follow. And I’m going to show you some AUDITED databases of what real traders do. Not what THEY say they do. But what an outside, third-party auditing software says they do. No cheating. No “do-overs”. No “if you would have”. What they actually do, with real money. As someone said earlier? Many are still struggling to break even. But for some reason, new traders fall victim to the Dunning-Kruger Effect ( https://en.wikipedia.org/wiki/Dunning–Kruger_effect ) , and though they can't break even in a single year, for some reason, dream of 500% years. First of all, a month, is meaningless. If someone came to me, wanted to trade my Firm’s money, and said they had a track record, and they showed me seven months of returns? Once again, like I said in another post, I’d be thinking to myself: How can I politely figure out a way to ask this kid to lose my phone number? I need to have some idea of their process, they have to be able to talk about WHY it works (not some indicator, but WHY they feel they have a REAL EDGE). And bare minimum? I want to see their returns for 3 years (bare minimum, 5 years is preferable). Then, I will have some sense of their annualized return. So Annualized Return. Then I want to see their MAXIMUM DRAWDOWN (Max DD). Also called, the MAXIMUM ADVERSE EVENT. (MAE) In other words, ALL trading programs … even the best ones out there, have drawdown periods. Periods of loss. Just as a successful poker player, has losing hands. Sometimes a losing night, and many losing hands in a row. But over time, they GRIND out an edge. But that’s over time. So now that I can see a large sample size of their trades? I want to know what their maximum drawdown was. So Maximum Drawdown (Max DD) If you are new? And you can grind out anything over 5% a year? You should consider yourself improving. Most can’t do that. Oh sure ... they'll talk about how "some guy they know" does 500% years. It's always that. A guy they know. "Oh I know plenty of people who..." Sure ya do. Most can’t even do 2% in a year, when they are learning. No, I am not joking. I’ve seen people constantly delude themselves, and blow up account, after account, after account, for a DECADE or more, trying to learn to trade. So at first, try to get 5%. Now, let’s marry the idea, of Maximum Drawdown, to Annualized Return. Most average traders? Their Maximum Drawdown is 3x their Annualized Return. So, let’s say that a Trader can annualize 16%. That’s excellent by the way. The databases I’m going to show you in a little bit, prove that. Probably, at some point? Using that 3x rule, they were down -48%. That’s an average trader. Now a good trader? Let’s take that same 16%. If they can keep their maximum drawdown under 2x their annualized return? You’re dealing with a really good trader. That means that at some point? They were probably down -32%. Now an EXCELLENT trader? Let’s take the very same 16%. An excellent trader can keep their maximum drawdown around 1x their annualized return. There are very, very few traders on this entire planet, that can annualize 16%, and only have a maximum drawdown of around -16% Then, there is a rare, rare breed of trader. These “Rock Stars of Trading”? They have 16% returns, and their maximum drawdown is UNDER 1x their annualized returns. So they return 16% (ANNUALIZED, there will be lean years, and there will be HUGE years of 29%, but annualized out over more time, it tends to go down) … and their maximum drawdown, for years on end? Is like -3% or -5%. That is a literal … rock-star of trading. Think about it. If you gave someone your money? Which one of those traders do YOU want to go with? A guy that you give your money to, and he can annualize 16%, but you know at some point you’re going to be down 50% on your money? Or do you want to find a guy that can keep that to -16% on your money? That is why knowing Drawdown numbers is so INSANELY important. Humans desire smooth returns. Traders do. BUT ESPECIALLY outside money, desires smoothness. Plus, it shows skill. Now earlier, I said you could check these numbers of audited databases. There are myriads of such audited third-party databases out there. What used to be Altegris, and is now Coquest Traders Research. IASG. Barclay Hedge. Fund Seeder is a new option I just checked out, because they're free. Regardless, Company’s that third party audit, to see if a trader is LEGIT. Ones with either Read-Only Access to the account with Live money ... or is audited statements by an outfit like Coquest Traders Research. I’ll give you a link to one of them. Coquest Traders Research. Here’s what I want you to notice? These are some of the most talented traders in the world. The database will show you (and remember, there are many such databases in the world) … that these traders have TENS OF MILLIONS to BILLIONS under management. Why do new traders think they can beat the best of the best, that is managing billions? Oh, and if they could (You always hear that ... oh, those Money Mangers? I heard a news blip that says they can't beat the Stock Market?) Oh really? Then why do all of those managers, especially a guy like Dunn? DESTROY the Stock Market returns? Audited? And new guys think they can beat them? Oookkayyyyy. Then why aren't they running a $3 B AUM fund? The more time a program / firm has? The more that Annualized Return % per year, is going to go down. Notice guys like Dunn, that have been kicking out returns since 1977. Any idiot can come along and have a big year. And as you peruse that database? You’ll see these programs DO have 80% years. They happen. But what about the next year, and the year after that? You will tend to notice, that with more data, and more time? The return usually settles around 16%, 18% if the trader is REALLY good That’s why we as traders could care less about some one-off guy, that had a good seven months. Who cares. That can happen to anyone. We know with more data? The truth comes out. You see it in these databases. Notice that EVERYONE has losing months, and lean years. Everyone. Even the best of the best. No one, not one program in these databases, makes money, every single month. And keep an eye on those metrics I mentioned above to you. Notice the 3x, 2x, 1x drawdown to annualized return rule of thumb. In fact, I’d say I am personally MORE impressed with a guy that can annualize 16% with -16% maximum drawdowns (DD) than a guy that can annualize 25%, and has 75% maximum drawdowns. So here’s the link: Coquest Traders Research Notice the AUM's. And then compare that to Barclay Hedge. They people who ignored the above statements? Yeah, Barclay Hedge will show you there are TWENTY THOUSANDS dead ... liquidated CTA's who are out of the game, because they tried to beat the above rules of thumb. And lost. TWENTY THOUSAND
nice post, thank you. when you said "There are legally compliant, far easier ways to do it, that cost next to nothing to start. Sometimes, as little as $500.00 in startup costs, and sometimes, as much as $3,000, and you're good to go.", what is the legal name of structure for such activity? pooled fund?
Honestly, you could: A) Go the rough everyone knows about, do it with Futures (difficult, and those processes you use should B) Do what I did. Get a Lawyer in your state as your partner. Mine just happens to be a personal friend. Make him responsible for knowing all of the legislation / reqs, etc. Form an LLC. Next to nothing to form. I'd recommend doing it, and having the registrant in a state, that does not disclose the names of the LLC. There are a few States that do this. Have THAT LLC, trade, ITS funds (Funds you pool for people you know, or money you can raise, once you show them your track record, the results of your Quant Programs, etc) ... that the MEMBERS of that LLC each are paid, NOT ON A SECURITY BASIS (There is a regulation for that), but on a pro-rata basis for the Capital they have contributed and the work they contribute to the LLC. Then, everyone is receiving how the COMPANY is doing. They are NOT clients, and they can't be Silent Partners (that's also a no-no) There are a NUMBER of exemptions you can qualify for, so you don't have to register as an Investment Holding Company. For example, keep it under $20,000,000.00 (So don't allow it to go over $15,000,000, and then you're safe). Keep it UNDER 15 people. Make sure you know these people, or have SOME SORT of developed relationship with them (why maintaining contacts is so important). Make sure the LLC never advertises, nor propose to make any advertisement in any way for interest in the company, nor a “public offering” for investment in the Company. That's a no-no. Make sure it has NO public website. That's another no-no. Make sure the Partners can see the books at any time. If you want to go the extra route? Then have that LLC spend $200.00 and sell something online. Doesn't matter what it is. Could be a Spotify store. Doesn't even have to do well, just has to do something. Then? You are a PRIVATE COMPANY, that simply has an Investing Arm Operations, the same as any other Company has. All of the funds come from either revenue? Or from your Partners contributions. No outside clients. No advisory. Just make one guy (you, if youre the trader) responsible for trading the Company's funds. Have your lawyer make sure everything is legit, and that you qualify for all of the exemptions (there is probably more that I haven't thought of here). Then wa-la, just have your Accountant do everyone's K-1's, and you're good to go.
You're more than welcome mate. Only way I got to where I'm at? Is the help of other guys doing the above, and helping me out.