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The reality of trader returns…

Charlie discusses the reality of returns for traders plus looks at the key U.S. market indices

Transcript

Hi, this is Charlie giving you Monday’s commentary. I hope you’re very well.

I am going to cover today’s commentary based on an email that I have received. I’ve chopped it all down because there were various questions asked by this trader, but I thought this was quite an interesting question actually.

“I know of some traders that have just been consistently selling the EUR-USD almost daily. Whenever it rallies a bit they have been making hundreds and hundreds of pips each week. They have great results and I feel frustrated because I’m being disciplined and not blindly selling it but when I compare the results I look like a complete failure, fighting for my 15-20 pips a day when they are just easily racking up the pips for weeks now selling into the Dollar strength. Not sure if I really have a question here, just looking for some opinion and guidance really on moving forward. I’m tempted to just join the party but I want to be in this for the long term and become a professional, like yourself, and I’m unsure if to view these trades as either just good and successful traders or risk-takers that won’t likely be around in the years to come.”

That was from a trader who emailed last week with various different questions and I thought it was a really good point actually.

What is the reality of trader returns?

It makes me laugh that a lot of people out there think that it’s easy to make, say, 50% a year… That’s nothing. 100% a year? That’s nothing. People just have completely misguided views on what is achievable, what is easy and what is not.

I think it’s because out there a lot of traders will say that they’re doing X, Y and Z when in reality they may not be. So like this individual who’s emailed in saying he wants to be in this for the long-haul, are these guys actually really good or are they just being lucky?

I don’t know the answer to that because I don’t know who these people are, but I know from speaking to brokers over the years and long term relationships with other professional traders that if those results are true…

Because people do like to brag in the markets when all of it is not necessarily true, or it could be that they’re trading and it’s at 10p a point. It’s easy to take a trade when you’re trading at 10p/£1 a point but less so when you’re trading with proper money.

…If it is true, then it could just be that they’re having a lucky spell. All traders have good spells and then there will be spells where they just get completely chopped up as well.

I think this is the main message…

…No traders just makes money like that.

Making hundreds and hundreds of pips every week and just doing that all the time. If they did there’d be a lot more billionaires from trading, wouldn’t there? That’s just the reality.

It’s just not the case, and if they did I would know about it because I would hear about it from my relationships with market makers and brokers that I have. They’d be saying we’ve got loads of clients who are all banging out hundreds and hundreds of pips every week. It doesn’t happen, you have to trust us on this.

So what is the reality?

The reality is that traders have winning trades and losing trades. You’ve got different types of traders.

You’ve got traders like our friend here, who is grinding out his 15/20 pips a day but then you’ve also got the traders who are more swing traders who will be banking 100-200 pips on a swing trade, but what you have to do is put it into perspective because they’ll have those trades where they make 100-200 pips but they’ll also have trades where they’re losing 100 pips at a time because being swing traders their stops will be wide as well.

So there’s a bit of smoke and mirrors going on there.

So the reality of trading is somewhere in between. Those swing traders, the ones who are good, who get those nice wins of maybe even 400-500 pips, they will have nice spells of swings, but they’ll also have their losing trades as well.

The reality is, for the people who are successful at trading, they will be meeting somewhere in the middle as far as their results are concerned.

If it was a case that there are traders just banging out hundreds and hundreds of pips every week and it was that easy then we would be hearing about it… And we don’t.

We definitely hear stories of individual traders who occasionally hit a really rich seam. That does happen, usually where they get into a single trade and they just run it and run it and run it, maybe add to the position as well. We don’t here names, but sometimes brokers will say they’ve got a few traders who seem to be on the right side of the market at the moment and they just keep on taking money off us, but that runs through and then they have their draw-down periods as well.

So the reality of trading is that, yes you can make some very nice returns on it, and if you make 50% a year from trading you should be very happy with that. If you make 100% a year, you should be extremely happy with it, because that puts you in the top 0.01% of all traders.

Obviously making 100% a year on £1000 in your trading account is very different to making 100% in a year on £100,000 in a trading account.

So I think that a lot of traders have to have a dose of reality and accept that actually making these sort of returns is incredible, and of course you can go beyond that. That’s what I’ve been attempting to prove over these two years with my trading challenge and unless I go and do something completely wrong in the next month or so then yes, I will be in that 0.01% of all traders.

However, for a lot of traders making 50% a year is an incredible result. That’s still an average of 4% a month, that is really good.

So I think that when you’re grinding it out and you hear stories about other traders you have to put it into perspective, they may not be telling you the entire truth. Did they actually put money on that? Have you seen their accounts to show you evidence that they’ve achieved those results?

Even if they have they will have their losers as well, but traders are very good at not talking about their losers

That is what I’d say is the reality of trading and trading returns. For a good trader out there, you can make these sort of returns annually. Some traders outside of that can obviously make even more annually, but if you want to be a good trader, get really good at making 50% a year and you can then build on that. You are still way up there if you’re doing that.

Back to our friend there, if he’s trying to get 15-20 pips a day, that is absolutely brilliant because it’s all about consistency. That’s a different style of trading to these traders who are doing swings, they will be having their losers as well, much like this individual will be having his losers.

Don’t worry about the amount of pips that you hear about, trust me, a lot of it is nonsense. You hear of traders making hundreds of pips on trades, they will just forget to tell you about the hundreds of pips that they’ve lost on some swing trades as well.

Hopefully that’s of use. These are the sort of returns that you should be looking at and should be proud of the fact that you’re getting yourself into the top 0.01% of all traders.

As far as the markets are concerned for this week…

I’ve pulled up the Indices again, if you remember last week I highlighted the weekly charts and the weekly key reversals. We can see the NASDAQ’s pulled off from that. The Russell hasn’t too much, it came down a little bit and has gone all the way back up. If we have a look at the S&P and the Dow, they’ve come down a little bit off of that as well. So they have reacted from that.

The thing with key reversal weeks is that you don’t know how much follow through you’re going to get from them. We have seen some follow through from them now.

If we go back to the daily charts then what we have done is put this really nice candle in. We sold off heavily again on Friday, but then we have closed off the lows. So it wouldn’t surprise me to see this thing bounce a little bit more.

So we’ll see what’s going to happen here. If we do bounce I think we’ve got the capacity to bounce back up into this zone, and then the market’s going to be starting to think about it and what it wants to do.

Does it want to then break up and go to new highs again or is it going to attempt to have another rollover? I don’t know the answer to that but those are going to be the levels to look at if it does bounce early next week. We will find out.

I’m recording this Sunday night, that’s why I’m talking about next week.

It’s the FOMC on Wednesday, so that should get the markets moving around, so we may see a little bit of chop until then.

So remember, FOMC, Wednesday evening. That will probably help with future market direction.

For me personally, I’ll carry on trading on Monday and Tuesday when I’m around, but I’ll then be looking to really get positions after FOMC, depending on how we’re going to be moving. What I mean by that is if the markets come up into FOMC and then it starts selling off then I would short it. If it’s really gaining after FOMC then I’d have to be looking at buying it.

I shall leave that with you and see you on Friday for live trading.

 

 

18 Comments

  1. James-Reply
    March 15, 2015 at 8:58 pm

    Hi Charlie,

    Long time lurker but first time poster. Agree with the advice here. Heard many people tell me they were taking thousands out of the gold market when it was rocketing, they probably lost as much in the shakeouts a long the way though. None of them have Ferraris in the driveway anyway.

    Do you take out or teach daily or weekly chart strategies in your course as well as the day trading? Good job on posting the losing trades as well as the winners. Nice to see honesty in the FX industry!

    James

    • Charlie Burton-Reply
      March 15, 2015 at 9:25 pm

      Hi James and thanks for posting. Yes the mbt course is swing trading but I’m considering doing even bigger timeframe work too at some point. Glad the video struck a chord.

  2. Ben-Reply
    March 16, 2015 at 10:16 am

    Hey Charlie, Ben here from Australia.

    Love your stuff as always, but I had a question in regards to correlations.

    Do you ever trade two negatively correlated pairs, or two positively correlated pairs at a time?
    I’ve found myself with trades like AUDUSD and CADUSD for example, where I’ve been tempted into setups, which in some cases have worked out, but more often than not the trades end flat. It had me thinking, am I really just doubling my risk?

    Would love to hear your thoughts!

    Again, keep up the great work.

    Ben.

    • Charlie Burton-Reply
      March 16, 2015 at 10:28 am

      Hi Ben, to an extent you may well be trading pairs that are both against the dollar but there is the other side of the trade which is the other individual pair which may have its own story. So yes to an extent you may be over exposed against the dollar but if there was a strong individual story then a pair may still work even if the other is not. But if I had to commit, then yes you are effectively doubling up. I would still trade them but just put half your normal size into both positions in future.

      regards

      Charlie

  3. David Baker-Reply
    March 16, 2015 at 12:20 pm

    Hi charlie, thanks for the video.

    Do you apply the same technique to trading S&P as you do to Forex?

    Thanks, David

    • Charlie Burton-Reply
      March 16, 2015 at 2:21 pm

      yes david….

  4. Manoj-Reply
    March 16, 2015 at 1:08 pm

    Hi Charlie,
    Very useful to know; ow scaleable are these srategies ? for example if the questioner is making 15 to 20 pips daily on a major pair (s) and trading 1 lot each time then they are making circa $150 to $200 daily.
    On a bigger account, could they trade 10 lots or even 100 lots on the same strategy and make much bigger dollar returns ?

    • Charlie Burton-Reply
      March 16, 2015 at 2:21 pm

      Hi Manoj,

      You could do 10 lots yes but not 100 lots….

  5. David Baker-Reply
    March 16, 2015 at 8:24 pm

    Out of interest why not 100 lots? I’m guessing 10 million is too much to get matched or will move the market to much so 20 pip gains arent feasible,or maybe most brokers just won’t accept such big stakes?

    Regard, David

    • Charlie Burton-Reply
      March 16, 2015 at 9:14 pm

      If you were in and out at that size, you’re stops will get noticed

  6. Raj-Reply
    March 17, 2015 at 9:51 pm

    Hi Charlie, can you please explain why trading a large size is a bad thing. If we put the effort into building an account with sound money management risking 1-2%, naturally we would want to continue just with a bigger account. When you say our stops will be noticed, can you explain who would notice and why it’s a bad idea to trade a large size???

    • Charlie Burton-Reply
      March 17, 2015 at 10:03 pm

      I doubt any individual trader is going to have an issue with size. The size I have been talking about would require an account size of well over seven figures and at that size account you simply don’t need to be risking 1% per trade. Most individual traders with large accounts, myself included trade at less than 1% as you simply don’t need to take that risk to make good returns anyway. But back to the point of stops. Yes if you are trading at£1000 per point then of course your stop will get noticed in the market and the market can find a way of moving towards a large stop order that’s only 10 or 20 pips away. So, you don’t try trading that size if tight intraday trading with small stops. It’s not a problem with wide stops that are further away from current price. Anyway, this is not a problem that most traders need worry about as they won’t need to trade at that size anyway.

  7. Raj-Reply
    March 18, 2015 at 7:06 am

    Thanks for the reply Charlie. Just out of interest what size trade would you consider too risky with small 20 -25 pip stops. You mentioned 100 lots. Wouldn’t this equate to around £65 per point on euro? Would this trade size be to much?

    • Charlie Burton-Reply
      March 18, 2015 at 8:04 am

      No, 100 lots is $1000 a point (roughly £600 per point). Your question is not easy to answer as it would depend on liquidity and time of day of the trade. At £50 per point you are absolutely fine, probably still fine at £100 per point so nothing to worry about…

  8. Karl-Reply
    March 18, 2015 at 10:10 pm

    I’m now feeling like I’m trading too small, I’m attempting to get 10 pips a day out of the market and at £10 a pip if I can achieve that I make a bonus £100 a day, which makes me very happy! 🙂

    At that level I am using a 10 pip stop and 10 pip limit for most trades… Just wondering if this seems too conservative or if in terms of a stop this seems too small for most strategies?

    • Charlie Burton-Reply
      March 18, 2015 at 10:25 pm

      Different strategies will require different parameters and stops and targets. If what you’re doing is working then that’s perfectly fine. Good for you

  9. Karl-Reply
    March 18, 2015 at 11:20 pm

    Thanks Charlie – I’m still learning so whether or not its working remains to be seen!

    • Charlie Burton-Reply
      March 19, 2015 at 8:05 am

      There is no set rule so something with 10 pip stop and limit is perfectly acceptable as a strategy…

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