The Sad Facts on Trading
Chris - you're right but also a bit of over simplification. Almost no one can hit a perfect entry point all the time, so most trades likely will show some loss at first. Adding in, up to a reasonable risk reward amount can be very profitable.
The key is understanding where the position is relevant to the mean, the momentum and the primary trend/range. Sadly, the most commonly used indicators don't help much here, and most traders have not perfected their skills to correctly interpret what is really happening.
Next, most traders I know try to trade using pure T/A and fail to comprehend the impact of news and event risk. Again, the standard indicators really are useless here. For example, my favorite killer event is USA Non-Farm payroll. When I was a rookie, I got hammered a couple of times and then decided to not trade that day, missing a ton of volatility. Eventually, I figured out that I could plot previous Non-Farm swings with a Fibonacci and project this onto the next Non-Farm. With this tool (unfortunately manual) I now pick up some nice pips on Non-Farm day.
I also think that most traders use far too much leverage. When the trade goes against them, they become exposed to stop loss runs and quickly get wiped out. (Yes, this is first hand when I was a rookie experience!) I've learned to never use more than 90% of my usable margin on my primary position. This gives me plenty of room to either wait it out or add in for a break even exit.
Bottom line - after my rookie frirst 6 months 5 years ago with some substantial losses, I now have a 91% winning trade average and after recovering 100% of my learning curve losses and grown my account 300% per year.
Key number 2: Managing risk per account
Forex brokers will offer you 100:1 and even 200:1 leverage, promising that these offer opportunities to easy and quick riches.
Don’t believe it for one minute
When you leverage your account, you are actually borrowing money from the broker with the hope that your trading will make you money on the borrowed funds. It’s the same as taking a loan from the bank and “gambling” it in your trading account. A little leverage is OK – it makes sense to make money using other peoples funds, but too much will lead you to disaster quicker than you can bli
Here it is: As a rule of thumb, I recommend no more than 10:1 leverage on your trades.
That means for every $10,000 in your mini account, you should trade no more than 10 mini lots, or for every $100,000 in your full trading account, you should trade no more than 10 full (100k) lots.
But can you make money at this leverage?
Of course!
I will show you later how this modest leverage can be used to convert your account safely into many multiples of the initial balance, if traded wisely.
Key number 3: Compounding profits
The power of compounding is simply amazing.
Compounding means that you re-invest some or all of each months profits back into your trading account and you use the profits to generate more returns. The only way I can show you the power of this process is in real numbers, and I intend to do just that right now.
Trading plan for our signals to explode the profits in your account!
First of all, let’s look realistically at what you can expect to achieve each month, based on our current achievements atForex trading videos|forex reviews|forex trading systems and our previous experience as well.
The average pips-per-month is roughly 300, with some months over 500. We need to know what to expect before we can make any projections going forward. Please remember though, that past performance is no guarantee of future returns, and the risk disclaimer on our site should be read and understood before proceeding.
Now we know the expected returns in pips, we know that the leverage should not be more than 10:1 on your account, and we know that the trading system works and should be followed as it generates signals (no moving stops or adding to losing trades!)
What will this generate on our account? The spreadsheet attached gives us
Scenario 1 – Conservative returns of 200 pips per month and no drawdown months, at only 5:1 leverage (instead of 10:1). Take a look
To be continued ...
While your points are correct, there is of course risk involved with every single trade, the truth is there's a lot of money to be made trading FX online, & a lot of people have earned a substantial consistent income from trading.
EUR/USD 6 Auguts
Weekly Trend direction: Bullish
Weekly trend reversal level: 1.2860
Key G7 support levels: 1.2960/80, 1.2920, 1.2660/70
Counter-trend and scalping opportunities:
Strategy: Whilst above the weekly trend reversal level buy dips to support levels after an entry signal.
Today's trade suggestion:
A messy old day on Friday (as expected on the last Friday of the month) saw some nasty whipsaws leaving the price essentially unchanged since Thursday. This week we are bullish yet again, with weekly support at 1.2860 and various support levels above there at 1.2960 and 1.2920. The strategy remains unchanged – but the euro int
dips after a clear g7 entry signal with a target of 1.3100 and perhaps higher. A word of caution – the price has reached just shy of the weekly 38% retracement level (see weekly) chart, and the euro is more overbought than it has been since October 2009. This means we are possibly due for a sharp correction, which could take us below the weekly trend reversal level in quick time
Update: A messy week, with whipsaws yesterday and no real direction. Still, we managed a good profit from the euro in session, and we’ll continue to look to buy dips to support. It’s NFP Friday so I won’t be trading until possibly after the NFP news is releas
Summary: Buy dips to support levels listed above after a clear G7 entry signal, allowing for a sudden pullback as far as 1.2500. First target 1.3000 and then 1.3120.
EUR/USD Hourly chart:
This last scenario was based on 200 pips per month and no losing months, at a 5:1 leverage. We have already discussed leverage, but let me remind you that this means 5 mini lots per trade position per $10,000 in your trade account, or 5 100k lots per trade position per $100,000 in your full account.
As you can see, I have even allowed for a deduction of $100 per month for subscription fees!
The account grows from a starting balance of $10,000 to a final balance of $88,200 after two years!
Yes, that’s eighty eight thousand two hundred dollars after two years!
This has been achieved at a conservative 200 pips a month with a very safe leverage of only 5:1, and you can see that most of the growth has come about through sensible growth and re-investing profits at a safe rate of return.
That’s the power of compounding!
Note how the number of lots traded grows as the account balance grows, enabling you to make more money from the money you have already made. If you push the projection out for just one more year, the profits are an amazing $274,200!!
Well, if only it were as simple as that. The problem is that not every month is a winner (although 100% are at this time) and we don’t make 200 pips every other month. The good news is that we actually make over 300 pips per month most of the time, and the bad news is that we must allow for losing months.
Ok, so let’s look at scenario 2 – a more realistic picture of what might be achieved. I have changed the winning months to 300 pips each (compare this to the actual results in the table on the first page) and have also allowed for three losing months of -350 pips each. Let’s look at the more realistic Scenario
Weekly Trend direction: Bearish
Weekly trend reversal level: 1.3340
Key G7 resistance levels: 1.2900/20, 1.2960, 1.3030, 1.3100
Counter-trend and scalping opportunities:
Strategy: Whilst below the weekly trend reversal level sell rallies to resistance levels after an entry signal. Today's trade suggestion: A sudden reversal of fortunes for the Euro has created a large bearish weekly candle and a drop below last week’s reversal level. That means we are bearish this week, whilst below 1.3340, a long way above us. Remember that August is traditionally a tough month to trade due to thin markets creating sudden swings in both directions. The two hundred period moving averages are around about the first resistance levels between 1.2900 and 1.2960, and these are the first levels where we’ll look to sell. Targets will be back down at 1.2750 and perhaps lowe
Update: Pretty much ranged since the start of the week. The strategy remains the same – sell into rallies, with resistance levels unchanged. After last week’s dramatic move lower, it’s not unusual to get a period of consolidation whilst the traders not on holiday digest the mov
Update Friday: No change – strategy remains the same
Summary: Sell rallies to resistance levels, starting at 1.2900, after a clear G7 entry signal. Target 1.2750 and perhaps lower.
EUR/USD Hourly chart:
Note that Scenario 2 produces $95,000 in the 24 month period.
That’s a return of $85,000 on an initial investment of only $10,000.
And that’s allowing for three losing months of 350 pips each
OK well, there you have it. How to transform a small trading account into a much larger one using sensible money management and a profitable trading system. I would very much like to help you achieve the same.
In fact, we have been using a leverage of 5:1 in these calculations, but when using 10:1 leverage, the same $80,000 is achieved in only 2 years from a starting balance of only $1000!
Consider these facts:
1. The scenario tables above, which show you can multiply your account over and over again, are simple maths – no gimmicks and no tricks – as long as you can stick to the trading methods and keep your hea
2. If you apply the 3 simple disciplines we have mentioned, and join the Live Charter Group of James’s, so that you have a reliable trading system as well to assist you, you have a good chance of converting your account into a genuine money spinner! Of course there are no guarantees, and there is always a risk, but we have shown it can and is being achieved
3. On your own, you may struggle to produce profitable trades. With the Live Charter Group you will have the best possible chance of making money from the Forex. And it will only cost you a small fraction of your trading profits – that’s why we even took them off the profit examples on the Excel sheets above
I really hope that this article clarifies the power of compounding for you, and helps you understand just how important this factor is in the long term picture.
Cheers for now,
Chris.
P.S. My business partner, James, applies this in a live environment to show traders exactly how it works in the real world. If you really want to learn how to apply this practically then check out his Live Charter Group .
You have to enjoy the habit…not just have one for the sake of having one
I was going to write an article on this myself, but it is now 2h30 in the morning… I have one day to finish a never-ending list of tasks, because I will be away for a week and a bit, and I want to make sure you get this message now rather than later
I have various videos in The-traders-mindset on habits and how important it is to have good habits in the first place…and of course…how important it is to dump bad habits as soon as you can – especially trading habits, because more than just the pain, it can cost you actual money as we
So firstly, know what habits you will need as a trader, know what dangers await you should you not pay the necessary attention to forming these habits – through shear discipline and effort (yes I bet you didn’t want to hear that
Remember, we always respond to pain or pleasure, as I mentioned in my last email and PDF. So be aware of this.
Forming new habits can be painful…well because it’s hard…and because it takes time (and who has any of that these days
Breaking old habits is perhaps even harder though…as they, by their very nature, become part of who we are and so it is never easy getting rid of something that you are – a piece of you so to spea
So that being said – they are essential to longevity in this game…remember, the very best traders keep the very best of habit
I received this article this week from Leo Babauta who is one of my favorite authors, and as I had planned to do this article anyway (sometimes life can be rather uncanny) and seeing as I have a 3000km round trip planned for this week...I need to get to bed – and anyway he says it better than I coul
“I’ve written a lot about habits — it’s in the title, after all — and after all these years, and after all the questions that people have asked about forming habits, there’s one thing that seems more important than anything
It’s simply this: enjoy the habit
That might seem obvious to some of you, but you’d be surprised how many people try to force themselves to do things they don’t enjoy. They try to instill “discipline” because they think it’ll make them a better person or give them a better life, but what kind of life is it if you force yourself to do things you hate all the
And here’s the thing: if you try to make a habit of something you don’t like doing, you’re almost sure to fail. I know, because I’ve tried it many times. If I find myself saying, “I hate this, but I can do it!” then it’s an uphill battle, and one I almost always lose. Because after a week or two of doing this, you’ll lose enthusiasm. You’ll run out of the incredible energy required to form a new habit, and then miss the habit one day, and another day, and soon
But look at the opposite scenario — you do something you love doing. Well, how hard is it to motivate yourself to do this? You look forward to it. You are excited about it. When you actually do the habit, you’re happy, and your overall experience is positive. That’s a habit that is much more likely to sti
I’ve done dozens of experiments in creating habits in my own life, and I’ve helped hundreds if not thousands of others form habits, and it’s a common theme — when the person doesn’t enjoy the new habit, it fails, and when they do, it has a high degree of suc
Sure, there are other factors — how consistent you are, whether you have a trigger that’s already anchored into your regular routine, whether you have social accountability, etc. But the most important factor, by far, is loving the habi
THE THINGS WE DON’T LIK
I’ll acknowledge there are times we have to do things we don’t like. That’s a necessary part of life. But why choose such a thing to become a daily habit? If that’s what you’re doing, you should take a long hard look at whether it’s really necessary, and if so, whether you can possibly make changes to your life so that you don’t need to do this activity on such a regular basis. I’ve done this many times, and though the change in my life is sometimes time-consuming, the result is always w
But what about kicking bad habits? Isn’t that hard and unenjoyable? Sure, of course. I kicked the smoking habit (almost 5 years ago), and it was difficult. Agonizing. Fortunately, I figured out that I had to put enjoyable habits in place of the smoking, and I actually looked forward to them — things like running to relieve stress, eating healthy foods, writing, stuff like that. I love those activities, and it made the whole process much easie
HOW TO LOVE THE HABIT
This how-to section will seem too obvious to some, but it seems necessary to me. How do you go about enjoying the habit? Two ways:
1. Choose a habit you already love. This is the easy way. If you love reading, or drinking tea, or journaling, or taking walks in the park, choose something like that. Want to get active? Choose a sport you love playing, or an outdoor activity that gives you joy. Want to be more productive? Choose a work activity you love doing as your first task each day.
Or:
2. Focus on the enjoyable aspects. If you don’t already love the habit, learn to love it. Not by reprogramming your mind to love something you hate, but by finding things about the habit you do enjoy. For example, when I started running, it was hard. I was a recent smoker, so my lungs were crap, and my legs were weak, and I’d get tired fast. But there were things I enjoyed too — getting outside, the fresh air, moving and feeling my heart beating, the beauty of nature, the good feeling after I was done. So I focused on these things, and it worked. And then eventually the running got easier and I loved everything about the activity. This kind of thing can be done with almost anything — look hard for the good aspects, the things you enjoy. If you can’t find anything, you’ve chosen the wrong
In the end, discipline doesn’t work. You can’t use discipline to form a habit you hate, because what exactly do you do when you don’t feel motivated to do the habit? You find something about it to get you going, and that’s thinking about something enjoyable — the enjoyable end result, for example, or an enjoyable reward, or how good you’ll feel telling others you did it. There are many ways to motivate yourself with something enjoyable, but no ways to use the nebulous concept of “discipline” to do something y
Love the habit, and it will stick around longer.
So that works for me…makes perfect sense and explains why people struggle to retain a change of habit…they simply don’t enjoy it…and we never do what we don’t want to if we can avoid it som
So set some fun goals for yourself this week regarding habits you may want to break, dump, or make and go get your goals acted on and thereby obtained though good conscious effort and disipleine.
Cheers for now,
Chris
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The sad fact is that most traders fail to make money, or even survive the first few months of trading due to two factors:
1. A poor trading system.
2. Poor money management
We can provide the first one for you – that’s the easy part! However, the second part is even more important and I want to show you what you can achieve if you do things the right way and if you follow a systematic money management approac
I have prepared some Excel spreadsheets to show you how you can convert your small trading account into a substantial sum of money if you have a profitable trading system or profitable signals and if you know the three Keys to making money in Forex trading. But before we go through the spreadsheets, let’s briefly cover the three Keys to making money in trading Forex
Key number 1: Managing risk per trade
Key number 2: Managing risk per account
Key number 3: Compounding profits
Ok, so let’s go through these keys one at a time. Let’s say you were able to get your hands on a profitable trading system or someone was willing to send you profitable trade alert
Would this mean that you would automatically make money trading your account?
No way!
The problem is that, as hard as it is to learn how to trade the market, it is even harder for most people to manage their account. This is mainly due to inexperience and wrong, emotional decisions. I can’t help with the emotional side (although there are some excellent books on the psychology of trading at available, but what I can help you with is gaining experience in converting a winning trade system or signals into money in the bank.
It’s all about money management
Key number 1: Managing risk per trade
Trading involves risk. Every trade we take has a chance of being a winner and a chance of being a loser. There is simply nothing that will ever change that
No-one knows where the market will go next with certainty.
What we can do is to develop systems which give us an edge of better than 50:50, and the systems we use win about 65-70% of the time. The other 30-35% of the time the trades are losers. This does not make the losing trades bad trades, but it simply means that the trades fell into the “good, but losing” group
When a trade goes against us, the best thing to do is to close the trade for a relatively small loss and to wait for the next opportunity.
Many novice traders tend to hold onto losing trades, or even add to losing positions. This has a terrible effect on your account equity, risk of losing more and your emotional well being. Anyway, I don’t want to dwell on this subject, but I must stress that if you follow a trading system or signal, follow it precisely. Do not risk more than the 30-50 pip stop loss employed and do not add to losing trades.
More about that later
Part Two will be posted here on Tuesday next week...
This is part 1 of a 3 part series. If you would like this e-book sent to you directly, simply opt in on the traders-live site and you will receive this, along with another report or two and a complete video series.
Cheers for now,
Chris.