In our last lesson we learned how a trader's need to be part of a group with a strong leader can be detrimental to one’s trading success. In today’s lesson we re going to switch from learning about the psychological effects of trading with a look at how much traders can expect to profit from the market.
The first step in understanding and building a solid money management plan, the key component in successful trading strategies, is setting realistic profit expectations. All too often I see people open trading accounts with balances of $10,000 or under expecting to make enough money to support themselves from their trading profits within a short period of time. After seeing all of the hype that is out there surrounding most trading education, trading signal services, etc it is no wonder that people think this is a reasonable goal, but that does not make it a realistic one.
As most any truly successful trader will tell you, the stock market has averaged somewhere in the neighborhood of 10% a year over the last 100 years. What this basically means is that if you would have invested in the 30 stocks that make up the Dow Jones Industrial Average, the index which is designed to represent the overall market, you would have earned about 10% on your money on average over the last 100 years. With this in mind, what most any truly successful trader will also tell you, is that if you can consistently double that return, on average, over the long term, then you will be considered among the best traders out there.
So does this mean that if you are a new trader starting with a small account balance that you have no chance of earning a living or even becoming rich from trading? No it does not. But what it does mean is that in order to be successful your expectations need to be in line with reality, so you can develop a stock, futures or forex trading strategy that will allow you to succeed over the long term, instead of following the path of most small traders who swing for the fences on every trade until they eventually blow their entire account up.
With this in mind lets look at a couple of scenarios. What most successful traders will also tell you, is that as a small trader you have much more flexibility regarding what you can put money into as your small trade size is an advantage in the sense that you do not move the market or catch the attention of other traders who may try to profit off what you are doing at your expense. With this in mind I think that most successful traders will tell you that it is not unreasonable to target 30% a year while you are small. Now, assuming you left your profits in your trading account at the end of each year so that you could compound your returns and averaged 30% each year (with obviously some years being worse than this and some years being better) your returns and account balance would look something like the following assuming you started with $10,000.
Now depending on where you live and what your financial requirements to live are, you may be satisfied with this. If you are not however does this mean that you are doomed to never live your dream of being a professional trader? No it does not. If you can produce those types of returns consistently what most successful traders will also tell you is that there will be people lined up at your door to offer you money to trade, and after the 3rd year or so with a successful track record, you should be able to raise enough money to make a very good living trading other people’s money.
Most successful money managers charge management and performance fees somewhere in the neighborhood of 2 and 20 (that is 2% of assets under management yearly and 20% of net new profits) as their compensation for managing other people’s money. With this in mind if you were able to produce a track record similar to the one above for two to three years running and then raised $5 Million (what should be an easy feat with that track record) then your yearly management fee would amount to $100,000. On top of this if you were able to return 30% on that $5 Million then your performance fee would be $300,000 earning you a total compensation of $400,000.
With this in mind, contrary to popular belief which is if you have a small account the only way to be successful is to swing for the fences at first and then scale back when you are large, a much higher probability and most likely faster way to success is to focus on building a consistently profitable trading strategy and then taking on capital from others in order to earn your living trading.
That completes our lesson for today. In tomorrows lesson we are going to look at different ways of protecting one’s capital while trading so we hope to see you in that lesson.
Actionable trading levels delivered to YOUR charts in real-time.
Mon 10 Sep 2018 AA 08:30 GB- GDP, Trade, Output Tue 11 Sep 2018 AA 08:30 GB- Employment Decision A 09:00 DE- ZEW Survey Wed 12 Sep 2018 A 12:30 US- PPI A 14:30 US- EIA Crude A 18:00 US- Beige Book Thu 13 Sep 2018 A 1:30 AU- Employment AA 11:00 GB- Bank of England Decision AA 11:45 EZ- European Central Bank Decision A 12:30 US- Weekly Jobless AA 12:30 US- CPI Fri 14 Sep 2018 A 08:30 GB- GDP AA 12:30 US- Retail Sales A 13:15 US- Industrial Production AA 14:00 US- prelim University of Michigan
John M. Bland, MBA co-founding Partner, Global-View.com
Global-View Affiliate Program
We are starting an affiliate program to market some of our products.
Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.
Put the word "affiliate" in the email subject line.
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.