It’s no surprise that people email me asking what type of returns they can expect if they get a good futures, Forex or stock market education.
This is asked by those doing swing trading, day trading and long term investing alike. It’s asked by those trading Forex, futures and those trying to learn the stock market and doing stock market research.
It’s a natural question to ask. But trading is a bit different than getting a job that pays a consistent, reliable wage. So the first thing that must be said is that most people who start a trading business do not succeed. On the other hand that is actually true of any business, not just trading.
Of course we wouldn’t become traders if we didn’t think we could beat the odds and become successful. So the next question would be: “How much can a successful trader expect to make?”
I’m not aware of any universal statistics available on that topic, but I can guide you to some resources I know that track trading results. To the best of my knowledge they are objective and reliable.
The first resource is Barclay Hedge (www.barclayhedge.com).
They have statistics each month on the managed futures performance of the top 10 traders managing less than $10 million, and also those managing more than $10 million.
To get the statistics you have to register at the site, but registration is free. Also if you subscribe to Active Trader magazine, they publish the numbers every month.
The second resource is Futures Truth Magazine (www.futurestruth.com).
They track the results of automated trading systems and publish several “top 10” lists.
In observing the lists, one interesting fact is that only 1 out of the top 10 systems for the past 12 months is also on the top 10 systems list since their release date.
This is why everyone prints the disclaimer: Past results are not necessarily indicative of future performance.
That statement if found on every ad for a very good reason. It’s true!
A third excellent resource is the “Market Wizards” series of books. Reading even just one of these books will give you a realistic view of what successful traders have had to go through to reach their stature. [disclosure: this is my affiliate link to Amazon.com]
The “secrets” to becoming a successful trader are not secrets at all. They are well known and documented, but rarely followed. I’ve had many conversations with traders who have asked me the secrets of success, only to have the conversation end with them saying, “I know all that stuff already, but what’s the real secret?”
This supports my belief that “knowledge is NOT power.”
The “power” lies in the DOING.
Did you find any of these 3 resources helpful?
Do you know any other good resources about the reality of trading and what it takes to achieve trading success?
Please post a comment below.
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Great article, all traders, including myself need to always stay focused on the basic principals of trading, Market Wizzards is a very sobering read!
Barry, you never answer the question.
Sorry Barry, this article was not helpful at all. It doesn’t even begin to address the question posed in the title, What type of returns are realistic? I would at least have expected you to say something like, “it depends on your account size”, or “how many hours a day you have available to trade”, or the win-loss ratio of the system you are using. SOMETHING other than list a couple of references.
I did not know that Hedge fund results were published. I have developed my own methodologies after reading many methods but even today I trade in manner similar to the course I bought from you. For me your course offered me the basics of systems designs that work in the marketplace.
THANKS BARRY FOR THE LIST. I HAD NO IDEA ANYONE TRACKED THESE THINGS. YOU SHOULD BE ON THE LIST.
THANKS GOOD JOB.
Your differentiation between “knowledge” and “doing” is key. Barry Burns work is very helpful.
Once again Barry directs us to concrete resources with realistic answers. I remain a faithful newsletter subscriber because of his down-to-earth coaching. Thanks, Barry!
Hi Barry,
Stats from other resources are OK, but I believe the best estimator of a person’s expected return is to measure your execution performance during the practice trading period to establish benchmarks to use when you move to LIVE trading of your account.
The estimators used must be unbiased. I learned the unbiased estimators from Dr. Van K. Tharp’s book, “Trade Your Way to Financial Freedomâ€. I am using the Top Dog 3 exit strategy thus there will be 3 transactions per trade (one for each exit). For each transaction, record (preferably in a spreadsheet for the ease in making calculations automatically) the risk (R) and the gain(loss) (P&L) in ticks,. Next, compute the Reward:Risk (R:R) ratio (P&L/R) for each transaction. The average of this ratio is called the “expectancyâ€. I compute the expectancy over all transactions and the expectancy of each exit. At the same you can determine the average number of transactions per trading day and a forecast of the expected number of trading days in a year. From this data you will now know your estimated expectancy and opportunity rate for the year.
To forecast your expected return, a trader must choose their risk tolerance and the proper position size consistent with their account size. From this unbiased data, expectancy and opportunity rate, a trader can forecast their annual expected return. The challenge now becomes your ability to duplicate your practice trading execution performance in a LIVE trading environment.
In my opinion, this is the best and unbiased way to forecast your expected annual return.
Regards,
Steve Bowen
Steve – thanks for this. Very well said! This is a good comment for all to understand and embrace.
Great points about “success”. One constant theme through all courses and books is successful traders do everything to NOT lose money. If you are constant at not losing, you are setting yourself up for long term WINS. “Preserve Capital” is the main idea of all of the trading plans I have seen. Dr. Burns’ courses and system do just that, preserve your money so that you can keep trading, making you successful.
I agree with some of the other comments – this does not really answer the question posed.
Barry with your experience surely you can give some average worst/best case estimates of % returns per month/year etc. Even based on your own trading experiences.
For example i attended a course a while before i took your course where they were saying 4% per month was perfectly realistic.
Just some indication would be good.
thanks
Hi,
Interesting question and Barry in fact did give an answer – in that there is no specific answer. It very much depends on what you trade and how. I also heard from one ‘City trader’ (London, UK) that a good day trader could expect an average return of 15% per month. For myself I follow a ‘system’ pretty similar to Steve Bowen’s (above) and aim to make about 1.25 to 1.75 percent a day (average!) – this may not sound like much, but in the long run it adds up. It does require dedication and the time if you can afford to spend it! I still find the toughest part of trading is pulling the trigger on a bad call (loss) – but if one really sticks to the rules it does work – even with a 60/40 win/loss ratio you end up ahead. It may not make everyone’s fortune and indeed is not for everyone (mental discipline required can be too much) but still, a better return than on a basic ‘money in the bank’ savings account.
Just to under score the point – different markets offer different returns through out the year. For example I trade the London FTSE 100 index and through the summer months the moves on some days has been only a couple of points over 3 or 4 hours. Not enough to to cover the broker spread – so it was ‘flat’ – no trading day. Where as the currency markets were as active as ever over the same period. In fact more volatile! So it will be different for each trader – as you find what you are comfortable with. Good luck to all!
The one underlying foundation of successful conservation of profit in your trading account is keeping at risk ratios clamped to the minimum. Draw downs strapped in tight. If you are polarized to think in this way you will understand why no one is quoting percentages because they can be anywhere on the Bell curve. In other words, trade well and do not bleed your account dry chasing profits. The Market Wizzard books are screaming this on every page;everyone regardless of method, experience, trading account size or market – money management is king because when you don’t have anymore of it you are no longer a trader.
It is more important to keep the horse before the cart and stop dreaming of a Royles Royce or you will surely be ambulating on a bicycle…keep expenses in check!
Dreamers beware – write money management as many times as necessary until you getit turned around in your head what trading is and is not. It is expense management as in any business.
Have a great trading day,
JJ
Finally something I understand! I must be getting there, even if it is very slowly. What other good resources do you recommend?
Hi Barry,
Good article. If readers want a direct answer, I believe we should all stop thinking of how much we want to make, but rather how many PIPS a week and how many PIPS a month we want to make. When we focus on PIPS made rather than money it is much easier to achieve our target/goal. As your account grows, increase the lot size. This way your PIP target is the same but you are making more money without risking more. I made the very costly mistake of increasing my lots when my account wasn’t big enough. I have learnt a costly mistake and will NEVER be GREEDY again.
Happy Trading to Everyone
Morten
The landscape for this kind of trading has changed tremendously. Thirty years ago there was only 200 million professionally managed trading these futures contracts, today there is roughly 200 billion. When the funds ( managed futures ) pull the plug these days there is an avalanche of money hitting the exit door. As a result, volatility has increased. In addition, Commodity Futures Trading Commission growth has not kept up with the growth of the industry and they are consequently understaffed and unequipped to deal with today’s marketplace. Play at your own risk.