Trading Returns: What Is Realistic?

Oct 16, 2023

In the fast-paced world of online trading, the allure of quick profits often overshadows the reality of consistent success. We've all seen the flashy posts on social media, showcasing traders apparently making a fortune overnight. But is this portrayal accurate, or is there more to the story? To demystify the world of trading, I delved deep into the strategies of the best in the business, focusing on traders with verified track records on platforms like Darwinex. Here's what I discovered.

The Quest for Reality:

Last week, I embarked on a research journey to uncover the truth behind successful trading strategies. The goal was to understand the methods of traders who had stood the test of time, separating fact from fiction and debunking the myths perpetuated across social media platforms. Everyone always preaches how easy it is to make X % a month and I believe we have a warped perception of what successful trading actually looks like. 


I meticulously examined the top 15 of earners on Darwinex, collecting a myriad of data points, including risk-reward ratios, win rates, assets under management (AUM), trading timeframes, and the number of trades, amongst other now. My analysis aimed to uncover patterns that could shed light on what truly makes a trader successful in the long run. With a focus on trying to understand how they are trading and what realistic trading actually is.

Top 15 earners in Darwinex

Key Takeaway 1: Frequent Turnover of Edge

One of the most striking revelations was that successful traders don't sit back and wait for opportunities; they actively seek them out. These traders consistently turned over their edge, focusing on high trade volume. Imagine having a rigged coin in your favor - the more you flip it, the more you stand to gain. This analogy perfectly encapsulates the approach of these traders: they maximize their edge by taking frequent trades, making the most of every favorable opportunity that comes their way. 

Key Takeaway 2: Smaller Returns, Longer Timeframes

Contrary to the popular narrative of instant wealth, the successful traders I studied made smaller returns over longer periods of time. Their strategy was built on the foundation of consistency rather than quick gains. Instead of aiming for a home run with each trade, they focused on base hits, accumulating profits steadily over the years. This patient and methodical approach proved to be a winning formula, emphasizing the importance of endurance and resilience in the world of trading.

Key Takeaway 3: The Edge Isn't Enormous

Intriguingly, none of the top traders boasted a 50% win rate coupled with a 2:1 risk-reward ratio over extended periods. This  challenges the common misconception that a massive edge is necessary for success. Instead, these traders honed their skills, finding edges that, while not enormous, were consistent and reliable. It's not about hitting the jackpot; it's about making informed decisions and turning the odds in their favor, even if it's by a modest margin.

Incorporating Collected Stats:

My analysis revealed that the successful traders I studied had some eye-opening statistics:

Risk-Reward Ratios: Only 2 of the top 15 had a risk reward ratio > than 2 (THA & PTK). 8 of the 15 actually had a risk reward ratio < 1:1. As an average of all 15 the risk reward is 1.26:1 - skewed heavily due to THA with a risk reward of 4.4:1. If we remove the top and bottom 2 the risk reward is just 1.05:1

Win Rates: 10 of the 15 Darwins had a win ratio of > 50%. As an average across the 15 the win rate is 55.2%, if we remove the top and bottom 2 this increases slightly to 56.3%. 

The relationship between risk reward and win rate is 1:05:1 and a 55% win rate. I found this remarkable as we often hear that you NEED a 50% win rate and a 2:1 risk reward ratio to be successful. This really isn't the case when looking through these stats. 

Assets Under Management (AUM): They manage substantial AUM, proving that patience and consistent performance attract investment capital. Combined the top 15 are currently managing > $60,000,000.

Number of Trades: They took more trades than anticipated, emphasizing the importance of frequent turnover of their edge.

Some further statistics

Now, let's delve into some revealing statistics that provide a realistic perspective on trading:

Realistic Trading Statistics:

From a monthly perspective:

  • The average monthly return among these top traders was a modest 0.94%.
  • Winning months averaged a 2.76% return, while losing months averaged a -2.10% loss.
  • There was a 63.8% chance of having a positive month.

From a yearly perspective:

  • The average yearly return was 11.39%.
  • Winning years saw an average return of 16.96%, while losing years experienced an average loss of -8.58%.
  • Out of 111 analyzed years, there were 89 winning years and 22 losing years, representing a 79.34% probability of ending the year profitably.
Monthly and annual stats

These statistics provide a clear picture of the trading landscape. While there are opportunities for monthly and yearly profits, there's also a significant chance of encountering losing periods. In fact, there's roughly a 20% probability of experiencing a losing year. As a trader, it's crucial to have alternative means of income to cover expenses during these down periods.

Conclusion: Redefining Success in Trading

In a world inundated with get-rich-quick schemes and overnight success stories, the truth about trading is refreshingly pragmatic. Successful trading isn't a sprint; it's a marathon. It's about the frequent turnover of a reliable edge, making consistent but modest returns over the long haul. The myth of the high-risk, high-reward trader has been debunked. Instead, the spotlight now shines on those who approach trading with discipline, patience, and a deep understanding of their craft.

As aspiring traders, we can learn valuable lessons from these insights. It's not about chasing after elusive fortunes but about building a sustainable and enduring trading career. By embracing the strategies of these successful traders, we can navigate the complexities of the market with confidence, knowing that real success is a product of consistency, resilience, and a deep understanding of the game.