Setting your thresholds is too prone to personal bias. Quick and dirty way is just extrapolate from how you did in the past, if you have a long trading history. I have been looking for an application to do most of the leg work in showing my profitability/Sharpe ratios from various accounts/trading methodologies. Afterwards, I set reasonable expectations. This seems promising and reasonably priced: http://www.tradingdiarypro.com/ Can anyone else post some examples? ( Yes, I can build my own. I just don't have that time+skill for now.)
Because hedge funds have large AUM and size is their major problem. A trader with a (sub)100k account doesn't have that problem. They're not like traders, as people in the field have mentioned - it's so much more about having the right contacts and pedigree, results are almost of secondary importance. The 1.5m number is ridiculous but I wouldn't even think about doing it with a 30-50k account, at bare minimum 100k is needed.
If a trader can consistently make at least 2% per month profit with less than 15% maximum drawdown he is already part of the tiny percentage of profitable traders.
2% per month underperformed the market this year. But ET loves the "per month" and "per day" thing, as if trading were a job with a salary.
The annualized return for the S&P 500 Index (and its precursor the S&P 90 Index) during the last 85 years is less than 10% (9.77% to be exact). If you make 2% a month on average, that means you are making close to 27% a year, or almost 3 times the S&P 500 return. Are you consistently making that kind of return, Billy? If the answer is yes then let me call Warren Buffet right away, he would love to have a word with you.
Speculative trading returns are subject to statistical variance. 0% in a bad year. 50% in an average year. 100%+ in a really good year. You can try and double or triple that with leverage, but drawdowns and transactions costs go up as well.
No, in a bad year you can theoretically lose 100% of your trading capital, and much more if you trade on margin. Remember, if the most you can lose in any given year is 0%, then you are set for life. 50% in an average year, eh? You are kidding, right?
More leverage requires more stable expectations. Journaling and attribution analysis will definitely show you how you are currently extracting money from the market. From there, you can set reasonable threshold and expectations. Then, you can decide if you want to leverage that ( perceived or imagined) edge even more. Sure you can back test, but the amount of data points needed to back test seems to take you back thru regimes that you would have traded differently or barely remember. Btw, traders have memories very similar to fishermen when it comes to trading performance.
Warren Buffett is an insurance industry executive. His job is to achieve consistent results and preserve capital. That's not a traders job. A trader should be taking advantage of asymmetric risk/reward opportunities. A trader looking to grind out 2%/month is thinking like an old man or somebody with a salary. Small traders that do stupid stuff like sell options are thinking like insurance companies. They don't have the bankroll or stamina to achieve results by piling up a thousand tiny small wins, 2% at a time. That misunderstands their role in the market. Buffett has also said that he could achieve 50% year with a smaller amount of money. He's probably being modest.