Hi guys, hi from Andrea Unger! Today, I would like to talk about performances, drawing a short comparison between discretionary and systematic trading. So, let's start and see how much money you can make with trading!
Making Money with Systematic Trading
Speaking of performances, I'm often asked how much money one can expect to earn if he adopts a systematic approach.
On a general basis, a good systematic trader who applies a reasonable risk approach can aim at a return on his invested capital of 30/35% per year.
Believe me, this is not a small return. It's really good, indeed, and I want to stress the fact that it can be achieved with a reasonable risk of about 1-2% per single trade, which allows the trader to keep the drawdown under a 10-15% maximum (maybe a 20% in very turbulent situations).
Perhaps you don't like this and are convinced that a good trader can make much more money, achieving a 500% performance.
Well, if I told you that you can aim to a 500% performance, that would be a scam.
I can't tell you I run a hundred meters in 9"60, just because Usain Bolt is able to do it. That would be ridiculous. So, I can suppose I could run them in 15", and that would be more reasonable (still, I am not sure I could do that!).
It is important to make a distinction between performance in competitions and performances in real-life trading, in which you aim at a reasonable growth of your account.
So, the key is to work with a reasonable risk. Of course, if you increase risk you can aim at higher performances. However, you can increase it only to a certain degree, because above a certain level you don't have an edge anymore. Moreover, you make more money by increasing risk only if the expectancy for your strategies is positive.
Discretionary Trading Performances
On the internet, you often find people who claim that they can get much better returns than those I mentioned. However, they probably trade in a way that is completely different from systematic trading.
But let's assume that what they say is true. The most likely explanation is that they are discretionary traders.
In fact, I am convinced - although I don't have any proof of it, that the best discretionary trader in the world will always make better performances that the best systematic trader.
Why? Because discretionary traders have something special. They have a talent that makes them able to beat the machine.
I am a systematic trader and I promote systematic trading... So, why do I do it, if I think that the best discretionary trader in the world will earn more money than me?
The answer is that I am far from being the best discretionary trader in the world. Probably I am not even the best systematic trader in the world, but my point is another.
You Can't Teach Talent, but You Can Teach a Method
In order to be the best discretionary trader in the world, you need talent, and I am convinced that it's really difficult to teach this to students.
Talent is something special within a person, so it cannot be taught. The rules you need to create good trading systems, instead, are something that can be taught to other people.
So, if you create a good set of rules on how to build procedures and infrastructures, you can teach it, and people can apply it.
Of course, there will always be those who still lose their money or make a disaster. This is not a shame, however. Some people are simply not good at trading, so they should forget about it. After all, nobody compels you to trade.
So, if you really feel that you are not good at trading, that's fine. There are a lot of things we are not good at.
So again: discretionary training might make you earn more money, but it's much more difficult to learn, because to be the best or to be good enough to beat the market you need something special.
Maybe you have it, fine, but normal people don't have it.
For instance, I believe I don't have any specific talent for discretionary trading. Systematic trading, instead, can be taught in a much more effective way.
30-35% a year is the return you can aspire to if you are really good at systematic trading.
I can't promise you more than that, because it would be a scam. However, you can still learn systematic trading and aim at that kind of returns, if you do things the right way.
This is more or less what I wanted to tell you today, so... meet you next week!
Ciao, from Andrea Unger.