So I’ve been pondering a simple question which I can’t seem to come to grips with.
There are many people on here who claim legitimate returns such as Pipsurfer with his Cowabunga system for example. Could someone explain to me how if someone is making 200 pips or so a month like Pipsurfer is with Cowabunga, they could not simply keep increasing or doubling the pip value until they were a multimillionaire in short order.
There must be something that I’m missing, because it seems that with any system where over time you consistently make pips you could just keep increasing your value per pip until you were exceedingly wealthy.
I’d like not to be cynical, but can someone explain why this is not possible or probable?
Quite simple really, risk management, and what a lot of people seem to miss is that you need to take money out of your profits so you can’t just increase your pip value willi nilly
It’s because those 200 pips per month come in as many individual trades, which are a mixture of winners and losers… And those winners and losers often come in streaks. It’s not uncommon to get 5 or more losing trades in a row.
If you’re risking 1-2% of your account balance per trade and have 5 losers in a row you’re fine, but if you’ve been increasing or doubling your lot sizes, and are trading 20% per trade, you just lost all your money…
Actually as your account grows you would increase your lot size and pip value. It’s called compounding. But that doesn’t mean increase your pip value after every trade. Keep the same pip value until you double your account. It might take a quarter or half a year or a year, then double your pip value and do it again. Who knows, PipSurfer may be a millionaire? I know someone who is.
My trading plan is based around calculating my lot sizes for the week right at the start. I take my balance and based on what it is at, calculate the lot size I’ll use for every trade that week.
If my balance is higher the next week, my lot size will be larger. Vice versa if my balance is lower than the previous week.
A string of profitable weeks helps keep the balance rising at a slightly exponential rate
It is possible and probable to do that, if you have a system that is working consistantly you can double your lot size as you double your account balance thereby keeping your risk to profit ratio the same as it was when you started but increasing your profits from each trade
I don’t think there is any substitute for good money management. Whether you choose to trade a high Win/Loss system with a smaller Reward/Risk ratio, or a low Win/Loss system with a high Reward/Risk ratio, money management is a key. You’ll get wiped out in either case without good money management. Just my opinion.
Thanks everyone, especially to the more seasoned traders who responded to this post.
Those who raised the point of doubling your pip value once you have doubled your account hit on the exact point I was referring to.
It seems that eventually you would be able to be exceedingly rich and maybe some are. I guess once people get to a certain point they probably start living off forex and then spending a great deal of their forex profits on living expenses as opposed to reinvesting in the account, therefor effectively capping them out.
It just seems if you were gainfully employed already and forex was a side thing you could keep doubling account size/pip value and subsequently end up richer than bill gates in 10-20 years… I guess I’ll try it out and let you guys know how it goes. Just have to start making those consistent pips first. LOL.
Well, I kind of disagree though… the point is to try to control bad trades and don’t let them come that way. I’m a bit unconventional (I don’t think so, but I’m sure most people would say so), but I think everyone focusing only on risk management is just as doomed to lose as someone who isn’t. You have to be on top of EVERYTHING! Stop losing. Don’t assume just because you can lose a lot more times that somehow you’ll end up ahead…that’s piss poor advice and I’m sick of hearing it. Even if you only risk .0001%, I’m sure you’d blow your account out if you were just keeping the focus on MM.
The devil’s in the details as they say. Losing streaks, long durations without trade signals, withdrawing profits, and the time it takes for things to compound, all add up.
I had been thinking the same thing. Also if I have a large amount of equity, say 100k, and could make just 70 pips a month, that would be my rent. 100pips and that’s my rent, cell phone, cable, and food. If if if…
You took the words right out of my mouth!! (I think I know a song about that)
You’ve sort of nailed it, that’s what my training program does, and I’m not ashamed of it. I don’t have a substantial account to start trading with and me and my customers are succeeding so forgive me for making a bit of money teaching people to make more. The trick is to get something that compliments trading, in my case it’s probably ideal training and trading forex, but there are many many options out there.
I think a lot of people decide that they are going to give up their day job by trading Forex, but I think it is a much better approach to decide that you will give up your job and attempt on maybe 3 income streams, if only it were to drag you away from it for a while, I remember that being a problem at the start, and it also just takes the psychological pressure off, you may well get to the point where you are earning, and Forex is that extra pile of capital that will buy your dream house, car, villa in a few years, totally mortgage free.
“Stop losing” is a great idea, but it’s just that… an idea. It’s like telling a dying person to just stop being sick… It’s not going to work.
Just like dying, losing trades is something that happens and you have no control over it. All you can do is minimize the risk involved, and you do that with MM.
