I finally settled into trading pullbacks of the trend at clear Support or Resistance levels when there was also a stochastic oversold or overbought signal. I still fell into over leveraging, placing a stop a little too close and getting stopped out only to have price go my direction over the next days, or getting scared out of a position when it moved just a little against me.
I managed to do this profitably for a little over a year and through some contacts landed an opportunity to be trained at a humble prop firm. This is when my real learning began.
You know, I started out trading thinking about how I could flip one thousand dollars into one million. It was sweet.
It never happened. I did add to some “winners” a few times aka overleverage some “winners” and made some huge returns but that was short lived. I am a short term trader. There wasn’t any real clear place to add to or even determine if my trade was a “winner.” In a longer term trend following strategy I have seen traders add to winners on pull backs but as a more short term trader price reversed and took back the gains in the end.
I say this to tell you you have to be realistic. If you aren’t sufficiently funded it isn’t going to work. When I first traded for a firm the new traders were on leashes. Yes, they let us lose a few grand which in the long run wasn’t a big deal with the amount of capital available but it was a wake up call. You started to pay attention. Once you proved yourself profitable with some training you were given a sort of advance to live off of and an income target. My first income target was not too crazy. Make $100,000 in a year. My trading capital to do this was $400,000. I was ready to hit the charts and get going aka force trades.
My mentor pulled me aside and said “Let’s do some math. $100,000 is what? 25% of $400,000?”
“Ok.” He told me, “So you need to make how much a month to hit that?”
“Let’s call it $8,500. So your max risk on a trade is…?”
" So with just a 2:1 Risk Reward Ratio each winner is $8,000?"
“So you need one and half winning trades per month and your knocking this out of the park? One 3:1 trade a month and your 44,000 dollars over target.”
I walked out of this meeting with a whole new perspective. I didn’t need to hit the charts with a vengance. I didn’t need to take sloppy entries. I just needed to wait for the highest quality entries and trade those. So what if it was only one a month or if there wasn’t even a trade to take that month. I had 12 months to do it.
I was also impacted by how easy trading became with proper funding.
Your income goals from trading need to be realistic. Unfortunately for a $1,000 dollar account 25% is $250 for the year. You can of course make more. Your trading strategy will most likely give you more than one quality winning trade a month and yes I have seen traders “flip” a $1,000 account into $20,000 with insane risk but that won’t be most of you and even if it is once, it will most likely be short lived.
There is a sort of olive branch though. I spent my second year proving I was profitable with low capital and got on with a firm. I even know some traders who got on with a firm with just a demo account but they do prefer to see live real money results.
So lesson number 2: Be realistic with your trading goals. It makes trading a lot less stressful and a lot more achievable.
I wasn’t given a challenge to double my account my first year, let alone those I see trying to triple or 10x their account every single month.
Yes, Forex provides a lot of leverage to hang yourself with and that’s honestly the point. You have to have some strict rules when using leverage mainly being that the position size you take = 1% or less of your account at your stoploss. Brokers and "big, bad"institutional traders like myself love the over leveraged “dumb money.” And luckily it will always be there. If you currently fall into this group don’t feel bad or be discouraged I did too when I first started out.