Mark Wolfinger explains the difference between “reasonable” and “greedy”.

Lots of discussion lately on TK about what your target ROIs for trading should be. I thought I’d jump into the fray and respond to the latest of these, which comes from TradeKing client shake & bake in the post “Cutting to the answer about profits”. Shake asks: “I can make 5% to 10% on many trades in two days. Would ya'll take it? I'm wondering if it's a good average gain for most traders.”

Hey Shake,

It’s impossible to give you a complete reply without additional information, but let me begin with a comment:  You shouldn’t care whether it’s a good average gain for anyone else but you. Trading is a competitive game, but you are not competing with other traders; you’re competing with the part of your persona that does not understand risk, or how to manage it. Your goal should be to make money from your trading – and to make that money with a level of risk that’s acceptable to you. After all, if your name is not AIG, there is no bailout if you go broke.

Let’s assume you earn that 5% to 10% on 80% of your trades. I’d call that an excellent result - unless you lose an average of 80% on the other one-fifth of your trades. How are you managing risk when you don’t achieve a quick profit? Do you hold on forever, refusing to accept a loss? Do you have a stop loss order in place? Have you considered hedging your trades with options? And when you earn a profit, do you have a plan for knowing when to take that profit and exit?

That’s all part of risk management. If you don’t manage risk well, the rest of your trading skills become irrelevant.

Thus, I’d be more interested in learning what your P/L looks like per 10 (or 100) trades, rather than on the portion of trades you described. If you’re making money when all of your trades are counted, then you’re achieving that competitive result you seek – matching or beating the average gain for most traders.
   
There’s one more point to consider. If you are looking at profits over a couple of days, then you don’t want to compare results with those of either a day trader or an investor. You want to compare notes with other swing traders like yourself.


Regards,
Mark Wolfinger
Founder, MDW Options
TradeKing All-Star Commentator

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

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