It's realistic to expect that your long term average value of "MAR Ratio" will be in the vicinity of 1.0. This is over a three to ten year period. MAR Ratio is (Compound Annual Growth Rate, in %) / (Max Drawdown Ever, in %). It is the measure of Reward/Risk (or, more generally, Gain/Pain) used by Managed Account Reports, a company that tracks professional managers like CTA's, hedge funds, CPO's, etc. Assuming you have a fairly good trading method, one with positive expectation, if you adjust your risk parameters to keep Max Drawdown in the 20% area you can expect to have a compound annual growth rate also in the 20% area. (CAGR / MaxDD) will be in the vicinity of 1.0. This is the long term average value. Obviously in the short term, it could be anything. For example, if your first trade is profitable then your MAR Ratio at that point will be Infinity. Just don't expect to keep it up there forever. On the other hand, if your first trade is a loser then your MAR Ratio will be a negative number at that point. It will take some time, and many hundreds of trades, to stabilize.
Hi Granville, When I got interested on trading my first exposure was forex (did some stock trading back in 1999 and 2000 but it does not count). I can only trade Europe morning session, and currently trade DAX and DJ Euro Stoxx futures. Getting more and more interested in DJ, it is less volatile and trades about 1 mil contracts daily. Regards, redduke
Greetings. RedDuke Could you please elaborate on this statement... 'retail market makers. Do you realize that by trading with any of them, you are just exposed to this broker platform and not 2 trillion $ market. CME currency futures has a much bigger liquidity then ANY FOREX MARKET MAKER. I was under the impression that forex has no MM's. Or were you remarking about stocks perhaps. thank you S5
Most of retail brokers call themselves market makers. But real liquidity is only in intra bank market.
Stockster, Spend a few hours and read through the FOREX threads that refer to brokers and I believe your questions will be answered. It may take more than a few hours but it will be worth the effort.
The ECN style FOREX brokers (CoesFX, IB, MB Trading,etc.) should in theory have significantly greater exposure to the interbank market and thus greater "instant" liquidity than a Forex MM. The ECN simply passes your order onto the Liquidity provider (bank). Perhaps one of the reasons why ECN style brokers offer less leverage than MM who trade against you. IF one is going to trade FOREX spot, one is best advised to trade with an ECN style one than a market maker.
Yes. I use variable yet rules-based position sizing, depending on several factors. At least in my (painful) experience, consistently making 200-400++ pips a month is relatively simple (as opposed to easy). Making the same 200-400 pips a month at 6:1, 8:1 or above is a heck of a lot harder, I found the hard way... The higher the leverage, the greater the challenge to 1) stay in the zone; mentally relaxed / somewhat detached, yet focused and 2) be consistently profitable. The higher the leverage, the greater the skill level required to survive -- let alone prosper -- everything else being equal. It may seem obvious, but I suspect too many retail traders fail to appreciate those basic facts, and so make it nearly impossible for themselves to succeed. Among other things, routinely higher, double-digit leverage loves to play psychological mind games with you. And often wins. (I hear some fellow named Mark Douglas has written a couple of insightful books on the subject...) One important clue is found in the heightened velocity and volatility of the unrealized P/L numbers on your screen. As your experience, your skill level, your confidence, your profitability and your consistency grow (if they do), you'll be able to increase your leverage as well. Of course, you want to increase it as high as justifiable by everything relevant, as soon as possible... but not higher and not sooner. A shockingly simple but probably hardly ever asked question, in trading anything, not just forex, is: "If I haven't yet found a way to be consistently profitable with no leverage, at 1:1, why do I think that I'll do better and see the light at N:1 ?" Especially if N > 5, 10, 15, ...
Jm73, Trading the ForEx is riskier than trading other instruments, including stocks, bonds and futures (though, trading futures may be somewhat equal, risk-wise - I don't know, never traded futures). If you take that into consideration, then trading currencies strictly by themselves (no other instruments) and making 20% per year (consistently) of your account balance is excellent, and no real waste of time. As others have pointed out, most "forex traders" get wiped out. Beating those stats... then making money... then making 20% of your account balance ($20,000 per $100,000 account cap) year over year.... See what I mean? Most cannot do this. Check average hedge funds returns. I think they were under 7% for 2005. I can make 20% a year trading money but the risk of loss is substantial. Nerves can get frayed. And, to make such sums, the work environment is harsh (read 10% to 20% of normal sleep time). More time required than I care to put in. So, I breeze along at 10%+ a year and don't have to be "in the market" (live) trading/tending to trades 24-hours a day. I can do other things in life except trade currencies. Though trading currencies is a blast. 10% on a million-dollar account is still $100,000 profit. $250,000 on a $2.5m account, for doing pretty much nothing besides clicking a mouse a few times a day to open and close trades. No boss. No employees. No overhead. No products to sell.... You can sit on the beach with a laptop and bring down this kind of money and more! And, if you have an account(s) opened at your broker(s) offshore... you pay no taxes on those gains. That's pretty easy money. Good luck, The DrawDown
10% a year, it is a joke. All you need to make this is to buy S&P 500 Vanguard index. It returned average 20% over the last 20 years, and 10% over the last 70 years. No trading/thinking required.
But, you have no control of your money. Trading currencies, I have control of my money - daily, hourly. Plus, no trading/no thinking is not what I call enjoyment or progress. Beating the global market is fun. Opening and closing trades is a blast! How much % on your account do you make a year, RedDuke, and what do you trade? If you call making 10%+ consistently "a joke," I presume you're clearing what, upwards of 30%, 40%... 50%+...? DD