How much money do you have? The larger the account, the less risk you have to take to get the same return. To make a $100,000, a $10M account only needs to generate 1% whereas a $200,000 account will need to generate 50%.
How much risk are you willing to take? What can go up 50%, can also go down 50%. Can you take a 50% loss?
How much effort are you willing to put in and what’s your skill level? In the, it’s not the stock that makes you money but what you do with it. The amount of money you can take out of the market depends on how good you are at trading.
But there are some reasonable assumptions one can make and historic results one can use to get some baseline numbers that Vitol described here :
– You have a good trading system in place and are willing to put in the effort to get really good at it.
– We exclude the mega-caps, which, by and large, have become a giant pool of losers in recent years; and the.OB/.PK junk that is subject to too much manipulation and is the domain of juvenile traders and starry-eyed desperados.
That leaves us with small and mid-caps, which over the past decade produced the bulk of the stock market gains.
First, you have to protect yourself on the downside. Even if you buy right, there is no guarantee a breakout won’t fail. So the rule is to limit your losses per position to 10%.
Great. We are now starting with (-10%)! You have to do better than 10% just to break even!
We all want to pick only ten baggers, Peter Lynch style. But the reality is: ten baggers are extremely rare and most become apparent only after having become ten baggers.
I recently looked at the zoomers of the 2003 – 2007 bull market (Trading Zoomers: The Time Element – October 10, 2008; Best of TradingZoom 2007 – 2008 – January 2, 2009; both can be found here). The average zoomer ran up anywhere from 20 – 50% after a breakout. Runs of 60-200% were rare.
In 2003 – 2008 the markets advanced 37 out of 69 months, or 53% of the time. Each new leg up produced a new crop of zoomers. The average run was 3-6 months. If you bought at the beginning of each new advance and sold when the market went into a correction, you would have captured the bulk of those zoomer gains. Securities selection and timing.
When it breaks out, stock does not tell you how high it will go. To capture some of that 100% + runs, you either have to be exceptionally good or buy as many zoomers as you can and let the market do the sorting. Portfolio size and skill level.
As you can see, there are no hard-wired rules as to how much you can make. But applying these numbers to your situation gives you some idea.