Time Horizon and profitability.

[Gwhiz]

I'm a novice investor/trader (6 months) and I've done alright,(better than broke even) so far. Just wondering how long it takes to reach a plateau in terms of profitability, in other words how long will it take before my increases in % return start diminishing from month to month or year to year. Also, what is a rough estimate of % return per year to expect once I get there?

P.S. In my high school there is a business club investment contest that I am a part of, and I noticed that it is extremely easy to make a lot of money when the money is not real(I'm winning the contest). Any tips for making real $$$ feel more like fake $$$ so I can make more of it?

[skiracer]

I'm a novice investor/trader (6 months) and I've done alright,(better than broke even) so far. Just wondering how long it takes to reach a plateau in terms of profitability, in other words how long will it take before my increases in % return start diminishing from month to month or year to year. Also, what is a rough estimate of % return per year to expect once I get there?

P.S. In my high school there is a business club investment contest that I am a part of, and I noticed that it is extremely easy to make a lot of money when the money is not real(I'm winning the contest). Any tips for making real $$$ feel more like fake $$$ so I can make more of it?

The trick is to develope a system of trading that allows you to keep your gains consistent year over year. That might take you a lifetime. You should be reading everything you can about the markets and the different types of disciplines and trading stratagys to see which one works best for your style. The difference between paper trading and the real thing is the pressure. When there are thousands of dollars on the line the pressure is alot different and emotions come into play. There is no timeline for your question. In all probability your success can be attributed to luck at this time.
You should also be reading everything that you can here and paying as close attention to what these guys are posting about their trading as you can. It takes lots of time and hard work. You're lucky that you are starting as early as you are. That much more time to read and absorb.

[Runner]

Gwhiz, like anything else trading takes time to learn. I agree with what Ski has posted. It is important to get a grip on money management early in the game. If you begin to trade use very few shares. Don’t concern yourself with making a bunch of money. Focus on the trade. Learn a system and stick with it. I think this is where many traders go wrong. They try this and that and never find anything that works because they try to move with the markets. Here is an example one might try buying breakouts but the timing is off and breakouts are not working very well. They then try buying bottoms and this fails. Then they try a moving average crossover and the market is trending sideways, thus causing whipsaws.

Many different systems and styles out here. Find one you feel comfortable with and stick with it for a good 6 months to a year. Start small in your positions and most important is honoring your rules. Nobody could tell you how quickly you will become good at the game, as this is different for each trader. Nobody can say with any degree of certainty how much return they will make in a given year. Once you master your style you will get an idea of what to expect going forward based on your hit rates and expediency. Learn about position sizing as this might greatly help achieve your longer-term goals. Most traders do not make it in this game and I think it is around 90% failure rate in the game. Why is this? Well most bet to much and if they get into a losing streak they bet more because they feel a win is just around the corner. Don’t chase good money on a losing bet. Why is it that most hold the losers to long and sell the winners to fast? Many interesting facets of this game and prior to entering a position have a plan in place and follow it. Before getting in know where you will get out if wrong. This will help you in the long run. Try to trade well and the money will follow. The more I realize this the more money I make. Last thing is use caution to whom you listen to. The Internet has millions of forums and links to try to take you of the path. CNBC has the talking heads that spew BS on a daily bases. Yahoo has forums that IMO lack any substance.

Best with your journey and those who learn this game may be rewarded nicely for the efforts they put forward…..

[JohnHenry]

If you begin to trade use very few shares. Don’t concern yourself with making a bunch of money. Focus on the trade. Learn a system and stick with it.

Hi Runner

So when you said trade few shares and don’t be concern about making bunch of money. How can I put this in writing…let’s say if I purchased 10 shares at $10 each plus $7 fees, totaling $107.

Now the stock made a 20% gain to $12 and I sell it. My profit after fees is $6…I should be happy that I made a 20% gain or should I be disappointed that I only made $6?

I think this is what you are saying but I’m not clear? Thanks

[Gwhiz]

Any books about investing/trading that are must reads?

[Runner]

Hi Runner

So when you said trade few shares and don’t be concern about making bunch of money. How can I put this in writing…let’s say if I purchased 10 shares at $10 each plus $7 fees, totaling $107.

Now the stock made a 20% gain to $12 and I sell it. My profit after fees is $6…I should be happy that I made a 20% gain or should I be disappointed that I only made $6?

I think this is what you are saying but I’m not clear? Thanks

Well I guess it all boils down to your objectives. Since you used the 10.00 examples let me give you a different angle.

100 investment into a 10.00 stock will allow you to buy 9 shares. 2.00 broker fee round trip. You buy the stock and set a stop for a 50% risk or around 5.00. You will exit the trade with a 50% loss should it drop to 5.00.

the stock moves to 15.00 This is you 1R since 5.00 was your initial risk. You leave everything alone because your plan was to set your stop to break even at 2R or 20.00.

The stock hits 20.00 or 2R you now move stop to break even on the trade. You now come back and look at it once a week on Friday. Well the plan was to capture a 10R. Over the next year the stock bounces around and then finally hits your 10R or 63.00 you then sell everything, as your objective has been meet. You started with 100.00 and sold at 475.00. This is an increase of 530%. Not bad on a 50% risk investment with only 9 shares…. The hidden Power is in how one sizes positions and how then plan the trade.

Here is another tip that does not sit well with many. In order to capture huge gains one must be willing to give profits up.

[JohnHenry]

Well I guess it all boils down to your objectives. Since you used the 10.00 examples let me give you a different angle.

100 investment into a 10.00 stock will allow you to buy 9 shares. 2.00 broker fee round trip. You buy the stock and set a stop for a 50% risk or around 5.00. You will exit the trade with a 50% loss should it drop to 5.00.

the stock moves to 15.00 This is you 1R since 5.00 was your initial risk. You leave everything alone because your plan was to set your stop to break even at 2R or 20.00.

The stock hits 20.00 or 2R you now move stop to break even on the trade. You now come back and look at it once a week on Friday. Well the plan was to capture a 10R. Over the next year the stock bounces around and then finally hits your 10R or 63.00 you then sell everything, as your objective has been meet. You started with 100.00 and sold at 475.00. This is an increase of 530%. Not bad on a 50% risk investment with only 9 shares…. The hidden Power is in how one sizes positions and how then plan the trade.

Here is another tip that does not sit well with many. In order to capture huge gains one must be willing to give profits up.

Hi Runner

It took a while for me to understand but I'm clear with it now. Ok...Thanks!

[IIC]

Any books about investing/trading that are must reads?

This book is pretty basic...I have the original 1962 edition....It is well worth reading IMO:

[skiracer]

This book is pretty basic...I have the original 1962 edition....It is well worth reading IMO:

I sent Stky a disc on Martin Pring's "Introduction to Technical Analysis" and he was able to burn a copy of for himself. If he can't provide you with a copy of it then let me know and I would send you my disc of it and you can burn one for yourself or use it for as long as it takes you or your friends to go through it. Or buy the book of the same name. He is considered an authority on the subject matter.

[Runner]

It is all about what you are comfortable with. Some traders like tight stops to limit risk and because of the tight stops they buy more shares. This allows the possibility of large rewards. It also allows the possibility of being kicked out before the move. They then might stalk the stocks and try again. Others like to give the stock some wiggle room. This method is good for those who do not watch the screen all day. Now they will purchase fewer shares but allowing the same risk as possibly the guy with tight stops. I feel this method allows exposure to be spread out over the market as one could have several positions going at one time. Selection of stocks would need to be dispersed. My thought process behind this is that you use the get rich slow method to the markets. In fact getting rich quick can often lead to disaster down the road.

Say you have 10 small positions running. Each has a plan for entry stops and targets. When we initiate any trade our capital is at its most vulnerable point right after entry.

Example:

You buy a stock and determine you will risk 500.00 of your capital on this trade. This is 1% of your trading account. After a few days the stock begins to run up. Your first priority might be to begin to reduce your risk on the trade. Now you do this through your stops. So you adjust your stop. After this you now realize your open risk is now 200.00. Yea the stock is profitable but you still have the stop set as per your plan. Say your 1R is 5.00 and this actually equals your 500.00 risk. If your plan is to capture large returns then you continue to adjust your stops as price increases. Some will sell ½ position at the 1R this locking in a profit. Or you simple let it run. Say now the stock continues to bounce around and reaches an 2R. Now you’re in the money and so you might want to tighten stops as per your objectives or trading style. You’re now about 1,000 to the good side.

You do this with all positions. As price increases you’re lowering the amount of risk. Risk management for me always takes priority over profits. What this means is I’m more concerned about the risk on the table then I an about making a killing on the trade.

Others will not place any stops in the market and they let the stock do what it may. These folks mainly do much fundamental study and believe in the company’s ability to generate money going forward. They believe in the stock so much that they will allow a 50% drop and will stick it out. I do not recommend this method unless you have a large account. Even then I would only recommend this for a small percentage on the account. This is just my take on the no stop approach. It just does not sit well with me. Anyway we have many facets and styles out here. One needs to find what works best for them and stick with it.

What most traders fail to accept is that you do not make a dime on your entry. It will always be where you exit that determines the outcome of any trade. In fact most spend more time on finding new entry techniques and very little time on exits. You can have a perfect entry into a position and still sell for a loss. Imagine if we spent as much time on exits as on entries. Point to make is don’t overlook exits. It is a huge facet of our success or failures

[Gwhiz]

runner,
I've been strugglinh with the issue of where to put my stops since i started trading.
Right now Im in grow, iaac, and asvi, all w/o stops.
I was in sons but got stopped out at 4.99.

Is there a way to determine the appropriate place to put stops based on past behavior of a stock?
I imagine that if a stock hs recently been volatile one would put a much looser stop, but I don tknwo that specifics.