Outrageous Rates of Return - Are any of them real?
By The RobeGuy | August 11, 2008
Q: I see so many advertisements for services and systems claiming anything from 100% to 10,000% return on your investment. With so much mumbo jumbo out there I don’t know where I should start in terms of setting a goal as to how much I can make and over what time period. What can I expect as a reasonable rate of return as a beginning trader?
-John
A: Well John I’ll hit you with the bad news first. If you are a new trader and manage to trade for one year, more like survive the first year, then just covering your trading costs and breaking even will put you in the top 10% of traders.
Trading is a business and therefore should be treated as such. Most businesses fail in the first year of operation and many, up to 95% according to some statistics, never see their 5th birthday. Death in the trading world is usually happens quicker as many traders take the dreaded plunge risking too much and wiping out their account.
So the first year consider startup costs, your losses, slippage, brokerage fees a price for learning and a cost of doing business. Any profit beyond that should be viewed as a bonus and an opportunity to compound the business.
The good news is that those traders who are disciplined enough to survive the initial stages and stick with trading reap substantial rewards.
Now, is it actually possible to achieve a 100% or greater return on your money within a short period of time? Absolutely yes. However, there might be some creative accounting at work.
Let’s take a recent trade in the corn market as an example to see how we can play with the numbers.
Here are the details:
| Market |
December Corn |
| Margin | $2000 |
| Entry Position | Short at 695 |
| Current Price | 518 |
| +/- in points | 177 |
| Dollars/Point | $50 |
| Current Profit | $8850 |
In this trade corn dropped 25.4% from entry point to current position. Which doesn’t really indicate much in terms of how much of a return there was on our money. It just indicates how much the price of corn dropped. So don’t get fooled into thinking because a market gains or drops a certain percentage that that’s the percentage return on your money. Totally untrue.
The return on margin (ROM) percentage will be the most extreme rate of return because it measures your return against the minimum required investment. ROM is derived by simply dividing your profit by the required margin for the contract. In this trade our ROM was 442%. Sounds pretty impressive doesn’t it?
Return on investment (ROI) is a truer measuring tool for determining yearly rates of return because it’s based on your total amount of investment capital in your account. So even though we only needed to have $2000 in our account for our corn trade, the percentage return on our money is based on the total capital in our account including the unused portion. If for example we have a $100,000 account then our account would have generated a 8.9% ROI year to date. If your account size was only $50,000 then your ROI for your account would be 17.8% YTD.
Now keep in mind this excludes your fees, slippage, other costs and taxes. In this case we traded only one contract so the fees were relatively inexpensive at $18 round turn. This would knock our current profit down down to $8832. The slippage on this trade was 4 points or $200. Our order was to sell short at 699 and we got filled at 695. The other costs could include any of the following, computer software, charting services, live quotes, newsletters, advisory services, trading systems. You should subtract between 10-15% from your ROI for all these costs. Taxes are relative to account size, how much you make and where you live (and is a whole other topic for another day).
I’ve found the best way to come up with a realistic rate of return on your investment is to go back and test the market(s) you’re looking to trade and see what kinds of returns it generated in the past based on your trading system or method. Then apply the gain/loss from those past returns to the amount of capital needed to trade them. From there you can subtract 10-15% for costs and get a pretty good idea of what you can expect in terms of a real rate of return when you trade those markets - excluding the taxman’s share, of course.
So if you’re looking for ‘real’ Buffet-like rates of return on your money (i.e. 20% annually after all costs) then look to generate 35% ROI per year in your trading business.
To ask The RobeGuy a question visit
http://www.trgclub.com/members/Contact-Us/The-Robe-Guy.html
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August Forecast
By The RobeGuy | August 6, 2008
So what am I looking for during the month of August:
Currencies - Mid month rally expect in Aussie.
Energies - Similar to currencies, looking for a mid-late month rally.
Financials - More up/choppy. Staying away.
Topics: Forecasting the Future | No Comments »
July Recap
By The RobeGuy | August 5, 2008
The July collapse of the energies and grains headlined the month. Natural Gas (September) was our big dipper in the energies dropping from the high of $13.72 per million Btu’s on July 2nd to $9.12 per million Btu’s on the close of July 31st - In dollars that’s a whopping $46,000 drop per contract in just under 1 month.
The gravity effect hit the corn (December) market hard knocking it back $2.17/bushel from the contract high, closing the month at $6.07/bushel.
Soybeans also kicked back some nice profits from it’s major bull run dropping over 330% ROM.
Besides the US Dollar index climbing back from monopoly money territory the only other gainer for the month was the October Lean Hogs closing at just over 74 cents/lb.
Topics: Sizzlin & Not-So Sizzlin' Trades | No Comments »
Challenge Your Thinking, and Reap the Rewards
By The RobeGuy | August 1, 2008
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As many of you know a couple of months ago I attended the 2008 MasterWealth retreat in beautiful Banff, Alberta hosted by my good friend Greg Habstritt. At the event there were seven world class speakers that delivered amazing content in their areas of expertise. |
One of the highlights for me was getting to meet and talk to Dr. Stephen Covey who is probably best known as the author of The 7 Habits of Highly Effective People. It was obvious from the second he spoke why he is one of the world’s leaders in the area of human development and achievement.
His message revolved around making the paradigm shift from the Industrial age to the Information age. He talked about trying harder using an older (Industrial) model and how it’s NOT the solution for growth and achievement in this new era - but that changing the way we think is.
Topics: Letters from the RobeGuy | No Comments »
Three Key Questions
By The RobeGuy | July 15, 2008
Q: I have three questions to ask you because I am getting confused about what contracts we should be analyzing for potential trades. As a rule of thumb, should we trade the closest to expiration contracts or not? I have read that a trader can carry a position from one month to another, what does this mean? What does first notice day mean and last trading day?
-Paula
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June Recap
By The RobeGuy | July 1, 2008
Our featured lack of sizzle has to go to the September indexes this month. Down Down and more down was the sentiment across the DOW, Nasdaq and S&P 500. The DOW dipped over 1400 points while the Nasdaq and the S&P followed dropping 189 and 116 respectively.
Topics: Sizzlin & Not-So Sizzlin' Trades | No Comments »
Doubting Fear and Failure
By The RobeGuy | July 1, 2008
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I was recently intrigued by Andrew Waitman’s Money Talks column. In it he talks about a disease that inhibits growth of people in our society. A disease that does not kill the host but rather “actively works to infect all who come in contact with the host.” He says the disease works by “corroding the fabric of ambition and accomplishment.” He calls this the doubt disease. |
Has it ever happened to you?
Has anyone ever tried to corrode your fabric of ambition? Have you ever heard comments like “that will never work”, “that’s a stupid idea” or a sarcastic “good luck with that, let me know how it turns out” just after you shared your dreams, hopes or ideas?
Topics: Letters from the RobeGuy | No Comments »
July Forecast
By The RobeGuy | June 30, 2008
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Currencies - A dip in the Canadian dollar especially if Crude Oil comes back.
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Energies - A short term retracement in Natural gas.
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Financials - More short-term strength in T-Notes, T-Bonds and Eurodollar. Looking for Buys.
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Grains - June held. July shouldn’t. Sells all around for the grains.
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Metals - Choppy for Gold, Silver and Copper. Staying out unless something distinct takes place.
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Softs - Looking for retracements in Cocoa and a positive month for Sugar.
For more details and weekly updates on the Future Forecast visit http://www.trgclub.com/members/July/Week-28-TMT-July-6.html
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Which Markets to trade and Why
By The RobeGuy | June 30, 2008
Q: One of my problems as a trader is trying to determine which markets to trade. I find myself jumping from stocks to forex to futures and not being really successful at any of them. I have two questions for you: Do you only trade futures and if so why?
-Jenny
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June Forecast
By The RobeGuy | June 1, 2008
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Currencies - Weekly MOM Bearish Divergence in Aussie & Euro, dip in British Pound first half of June following a nice rally into August.
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Energies - Looking for a sell signals first two weeks of the month then buying dips in latter half in Crude and Heating Oil.
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Financials - Watching for buying points in T-Notes and Eurodollar strong seasonal up.
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Grains - Important month for Grains. Weak June usually means weaker July. Bias to short side.
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Metals - Another month of decline before Silver bottoms end of June. Also looking for Gold weakness. Watch for a copper rally end of June.
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Softs - Looking for weakness first half of June in Cocoa and strength last half. Watching for huge coffee dip in June especially is there’s a break below 131.00. Looking for buy signals in sugar strong seasonal up.
For more details and weekly updates on the Future Forecast visit http://www.trgclub.com/members/June/Week-23-TMT-June-1.html.
Topics: Forecasting the Future | No Comments »