People wonder what type of trading returns and gains they can make. Some people ask the question even before they take the leap to commit to learning how to trade. They want “to see if it is worth it.” As if they believe they are going to make huge trading gains from the very beginning.
Other traders want to see how much they can make because they are already planning to create sudden needs that they plan to pay with trading gains.
Is it possible to have 5%,10%, 20% profit days?
Is it possible to have have trades where you make 50% or 100% return on your account?
They are all possible.
With knowledge of risk per trade, reward risk ratio, position sizing and volatility, and of course liquidity to make sure you can get out of your positions you can see how it is possible to generate all different types of returns.
5%, 10%, 20% profit days
How can you generate 5%, 10%, 20% profit days. Well, it depends on your trading system, win rate, reward risk ratio,etc. Assuming your trade is a winner, then you can structure it all sorts of ways.
If you risk 1% per trade, with a 40 pip stop loss, then you can generate a 5% return in one day if you capture 200 pips out of the market.
If you risk 2% per trade, with a 40 pip stop loss, then you can generate a 10% gain if you capture 200 pips out of the market.
If you risk 5% per trade, with a 30 pip stop loss, then you can generate a 20% gain if you capture 150 pips out of the market.
If you risk 10% per trade, with a 40 pip stop loss, then you can generate 20% gain if you capture 80 pips out of the market.
The question is how much risk are you prepared to tolerate? Most people cannot stomach large potential drawdowns.
If you remember in the Paul Tudor Jones documentary, there was one day where PTJ was down 5% in one day or $5 million dollars. Chances are there was someone on the other side of his trade that made that $5 million. Also PTJ talked to his buddy who was a trader as well on that day, and he had a “10% day” – aka a 10% trading return for one days worth of work. Looks like he captured a volatility explosion.
50%, 100% Return Trades
It is generally difficult to have 50%, or 100% return trading days, and you should definitively not expect it to happen every day. It usually only happens a few times over the course of someones trading career spanning a few decades.
Paul Tudor Jones doubled his money during the 1987 stock market crash. If the stock indexes dropped 30% and PTJ was leveraged 3:1, then he could of generated close to a 100% return within that one day.
Most of the time, however, you are not going to generate 50%, or 100% trading gains all within one day. They typically need to be some sort of swing trade or global macro move.
If you risk 10% on a trade, with a 100 pip stop loss, then you can generate a 50% gain if you capture 500 pips.
If you risk 10% on a trade, with a 50 pip stop loss, then you can generate a 100% gain if you capture 500 pips
If you risk 2% on a trade, with a 30 pip stop loss, then you can generate a 50% return if you capture 750 pips.
Who would be crazy enough to risk 10% per trade? You are right, that is extremely high leverage and trading risk. Which is why you do not use it on every single trade.
You need to earn the right to go for the jugular by racking up some trading gains from earlier in the year. Then if you spot a great opportunity using order flow, liquidity, sentiment, sensitivity, news, and global macro research, then you can go for the jugular and risk a larger percentage of your account.
When George Soros broke the Bank of England, he risked anywhere from 5-12% of his fund on that single trade. He had racked up some profit from earlier in the year, so if he lost the trade, he would of still shown a profit for the year or broken even.
The greatest traders and most profitable traders in the world are discretionary traders. Hence the reason why in the trading profit ladder I have the discretionary macro trader at the top of the list. There are some very wealthy quants of course, but I don’t like to use a lot of math. I like to keep things simple in ways that I can understand. And once you understand global macro, order flow and liquidity, and how people perceive the information, a lot of things start falling into place.
And that is one of the big benefits of being a global macro trader. You do not place lightning fast and numerous trades for small profit like the quants do.
One of the huge benefits of a discretionary trader is that you can experience the joy of having a few trades during the year where everything just seems to line up and you have a nice killer trade with a reward:risk ratio of greater than 10:1. Chances are that you are pyramiding into that position as well to juice the returns. Discretionary order flow and global macro traders have that ability because their trading systems are not just based on simple moving average crossover rules. They can analyze the market, sentiment, news, global macro, and of course themselves. The discretionary trader tends to be more involved with the markets and can therefore achieve a greater harmony with the order flow and information flow than other mechanical traders.
And if they nail a few nice trades during they year they can experience high double digit and triple digit percentage returns. Such are the joys of a discretionary macro trader that has a good year.