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July 2016 Trading Combine® | Summary Part 3

Lesson 9 Chapter 2

Setting and maintaining realistic expectations when trading is the key to achieving long-term, trading success.  All too often, either via email to me directly or through our support staff, I am faced with traders (especially new traders) who come to the table with unrealistic expectations about what to expect from their trading experience. The thought when a trader comes into the trading room is that because they have purchased a new trading tool, indicator, trading room etc that all of their financial troubles are over and that there is no impediment to the mountain of riches that await them.

The First Question:  “How Much Money Can I Make?”

I was talking with Dave last week and he relayed a conversation he had (typical actually) with a potential customer.  The first question was “how much money can I make, trading your system?”  And, while this may seem like a natural question to want to ask, it tells us, almost immediately, that this potential customer may already have unrealistic expectations.

“How Much Money do you Want to Make?”

Is the answer Dave gave.  Dave politely waited for what is the typical response.  That response went something like this “I want to make enough money to quit my job and trade full-time”.  Again another very legitimate desire.  Obviously, the reason we get into day trading is to be able to have financial independence and leave the “rat race” behind.  We will become our own boss, set our own hours and we will have more time to spend with family and friends.

“How Much Money Will it take to Achieve That Objective?”

This was Dave’s response.  The answer he received was quite typical for most traders.  I need $4,000 per month to be able to quit my day job and begin to trade full time.

“How Much Capital Do YOU Think you Need?”

So, for the sake of continuing the discussion, Dave asked how much trading capital this potential customer thought he would need to achieve that monthly return of $4,000 per month.  Eagerly, the potential customer said, “I have $20,000 with which to start trading”.

The Unrealistic Expectation has Been Exposed!

And so it begins…the process of beginning to educate this potential customers on the fact that there is an unrealistic expectation that needs to be adjusted before it ends up costing this trader his ‘seed” money.

Let me explain…

Investment Scenarios with $20,000 Seed Money to Start

I need to start this by saying that I am not a certified investment advisor nor am I a CTA or financial planner.  What I am telling you here is in my layman terms and is the way I understand it.

I am going to do some VERY basic ROI calculations based upon some standard investment vehicles.


Certificate of Deposit – Conservative Investment

If you put your money into a CD for 60 months at a 1.15% APY you could expect to earn $1,177 over the course of 5 years.


Mutual Fund Tied to the S&P 500 Basket of Stocks – Moderate Investment

According to Investopedia, the average rate of return for the S&P 500 from 1928 – 2014 was 10% per year.  Without factoring in the adjustment for inflation, after year 1 your initial investment would be worth around $2,000 (as an average).  CLICK HERE to read the investopedia article on the Average Annual Return on the S&P 500


Flipping Houses – High Risk Investment

This is an area in which I have some direct experience as I have invested in homes that were purchased, renovated and then resold.  As a general rule for every $100,000 invested you would expect to be able to purchase, renovate and sell in about 4 months time.  This is based upon the market in which we purchased and sold homes.  So, our expectation was that for every 4 months that we had $100,000 tied up in a house, we would be looking for a $15,000 profit.  If the plan worked as described, we could buy, renovate and flip houses with that $100,000 3 times per year.  Again, using very basic math and not accounting for anything else, we would expect to make a 45% return or $45,000 per year.


So, let’s say you and 5 partners invested in a home flipping business in the same scenario as described above.  If your $100,000 made $45,000 in one year, your 20% cut of that would be $9,000.

Now, Back to Our Trader Who Wants to Make $4,000 per Month

I hope that you can quickly see that compared to 3 types of investment choices, from low risk to high risk that the expectation to turn $20,000 into $48,000 at the end of one year is highly UN-realistic.  However, as unrealistic as this sounds and as realistic as people are in most areas of their lives, when it comes to day trading, greed can blind even the most conservative person.


In the final installment of this series, I am going to tie this all together with the “what does this have to do with trading combines”.


The Oil Trading Group. (“OTG”) does not hold itself out as a Commodity Trading Advisor (“CTA”). Given this representation, all information and material provided by OTG is for educational purposes only and should not be considered specific investment advice.


CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.


Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.


Risk Disclosure

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones' financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not indicative of future results.

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