Why aren't we all millionaires?

Beginner Questions
1

Sorry for using the buzz word [I]millionaire [/I]but it makes a good heading.

I’ve spent a few hours online today just trying to find out what the expectations are for Forex trading, and all I see is hundreds of threads where the answers are vague (“You can earn enough”) or ridiculous (“You can make $1million a week”).

I truly, honestly, want a real, serious answer to the typical income in terms of percentage of capital invested. I mean, who in their right mind would take a job where they don’t even know if there is anyone else earning decent money out of it.

But seriously, why aren’t we all millionaires? I mean it!

Specifically, I just want the simple answer of what circumvents the following logic:

$10,000 Equity - Trading 2% Risk per trade = 1 Lot per trade with 20pip stop loss.
40pips Take Profit, 20 pips made per day, $10 a pip = $200
Approx 400pips per month = $4000 per month = [B]40% ROI[/B]

Now, I know some traders who make 1000 pips a month, but just assuming the above is just a basic, simple logic of pips and profit and risk and reward, $10,000 re-invested will make us a million dollars in just over a year!

So why aren’t we all running around throwing money around? I seriously do want to know what it is that imposes the limit on this kind of ROI. Because after a million dollars, it could just keep compounding to ridiculously high amounts? Why is it that professional traders say they can’t get 40% ROI, and most say that only about 10% per month is reasonable. Looking at the above, that is just 5pips a day. What is the underlying factor behind why I keep getting told that even 20% ROI is not achievable? It’s clearly not just in the simple logic.

I really hope some kind eyes see this, and can help me and many others to define in clear terms, realistic goals of what we can achieve.

Thankyou.

2

Well, making an analogy, try to learn how to play an instrument, it will take you at least three years to learn it after it you will have to play in bars, restaurants, promote yourself in youtube if lucky enough you will make enough for the bus ticket, so evnetually you have to create an audience wich is forged gradually. The same as trading, it took me 5 years and now I am playing in restaurants, following the analogy.

3

So you are saying that large wealth is attainable, but only for those who truly desire it and don’t give up?

(I apologise if I didn’t understand where you were going with that analogy)

4

Indeed, that is what I am trying to say

5

Thank you, that is a good analogy. I desire to be down that path also. So are you a profitable trader yourself? If you don’t mind me asking?

6

The logic is pretty simple if instead of profits and capital growth, you think of risks and capital preservation.

In your example you risked a whopping 80% over the month to make the 40% ROI. That creates the potential of a big losing month. It may not be the full 80% but it can be big enough to take a sizable chunk out of your account.

Let’s say that after many years of hard work you have grown your equity to 500k. Would you be willing to risk 400k of that equity the next month even if you haven’t had a losing month in a year?

If you answered yes, contemplate the existence of black swans.

Say you make 400 pips one month, and lose 300 the next. Without compounding you would still be in profit, but if you compounded at the end of the first month you could end up with a loss. If your equity is large enough, compounding might not sound like the best thing since sliced bread after all.

7

Yes, that does make sense. Thanks. How do professional traders handle this then? I don’t see how it’s possible to grow a nice profit unless you place yourself in a position where you’re always one bad streak away from wrecking everything.

8

You need to manage your risk.

40% monthly returns aren’t consistently achievable. Show me an account that has over 12 months history of this kind of performance and I’ll eat my hat.

10% I think is possible, and this still compounds to a huge number if you give it a reasonable amount of time. I’m doing exactly this with $30k of my own money trading a range of systems. The idea is to grow it into $300k over the next 2 years. So far I’m up 20% ($6k in the first 2 months) so fingers crossed I can show you what is possible with some reasonable expectations and discipline.

You can check out my journey here:

Nick McDonald - Making A Million - YouTube

9

This is an opened ended question. Each people have different views on how much they want. Therefore, this leads to people having very different trading styles. Depending on the lifestyle you want reflects your trading style.

10

Nail on the head, its called the law of attraction

11

Hey wait a minute, that’s not right, it’s risking 20% to make a 40%. Attempt to make 400 pips a month through 10 TPs of 40pips but lose every trade means 10SL of 20 pips = 200pips lost.

Your point about compounding is still true of course, but surely having a 2:1 R/R and compounding is beneficial, that’s what’s been drilled into me… “Compound interest, the 8th wonder of the world”

**

Oh hey Nick! I’ve seen you around before and seen your video. I don’t have anywhere close to that capital, I think I’ve been misled by certain people about what is possible. :frowning:

**

Urgggg law of attraction and lifestyles and stuff… the thing that initially had me excited about Forex was the Maths, now that just seems to fade into the background against psychology.

12

Do you not believe in the law of attraction?

13

Honestly, I’m not sure. See, my life hasn’t planned out the way I wanted it at all. Very unhappy, got diagnosed with depression at age 10 and been depressed for as long as I can remember. So, I can’t really know for sure if the law of attraction is true, because if it isn’t, then I’m simply depressed or unlucky or both, and if it does exist, well I’m probably attracting all this negativity into my own life.

I continue to try every day to reprogram myself into thinking with better beliefs, and it’s a difficult battle. Forex is in a way forcing me to confront this part of myself more than I wanted to.

I’ve just always hated psychology, and really wish I could just be successful with my Maths skills haha. Thanks for mentioning that though, because in writing this reply I’ve had some revelations within myself. :slight_smile:

14

I would not think in terms of pips, personally. A swing trader and a scalper can both make their million, but will have very different pip hauls. Was it George Soros who said that successful trading is not about how much you win when you’re right, but how much you lose when you’re wrong. Capital preservation has to be the name of the game.

The reason so many successful traders bang on about psychology is that the technical side of trading is not difficult. It’s hard, because of the psychology stuff, but it’s not difficult. It is a practical skill that can be learned. Some are just never going to get it, but I do believe that most people have the capability to learn it to some extent. Like anything else, it takes proper talent to get to the absolute elite end, but most of us could make some money at it if it just boiled down to the technical mastery of entries, exits etc.

Personally, I’d keep a tighter handle on risk than most advocate, ignore most of the garbage on here, refine your technical approach, put serious hours in, and don’t neglect the psychological side.

I risk 1% per trade. When that was £20 it didn’t worry me. When it’s £1000 and you have four open trades it can be a whole different matter, an issue that can creep up on you if you aren’t on point and right on top of your game.

To answer your opening question, I’d say people who attempt to trade fall into a few different groups: those who have insufficient talent, those who have sufficient talent but poor execution that ruins their chances, people who will be millionaires at some point in the future if they want to be, and those who are currently millionaires.

Work hard, don’t make stupid decisions, don’t rush or take shorts cuts, don’t take advice from people who don’t know their eggs, manage risk, keep on top of psychology, and anyone who has sufficient inherent aptitude will make great money at this if they stick with it.

Sorry if this is a ramble - I’m on the iPad and we’re snowed in, so not my most focused day! Hence rambling on BP rather than trading…

ST

15

Your example was:

$10,000 Equity - Trading 2% Risk per trade = 1 Lot per trade with 20pip stop loss.
40pips Take Profit, 20 pips made per day, $10 a pip = $200
Approx 400pips per month = $4000 per month = 40% ROI

So with 20 pips a day you’re assuming 1 win and 1 loss in a day? With 2% risked on each trade that’s 4% risked during the day. 4% * 20 trading days a month = 80% risked in a month.

I’m not saying compounding is bad, just that there are practical limits to how far you can take it. The point was in answer to the thread topic.

16

Lol you’re right, but I think that anyone encountering the practical limits of compounding kind of has their trading cracked!

17

iv only just stumbled across the law of attraction myself not to recently, before hand i was just drifting along life hoping to get “lucky” one day, emotionally reacting to to what ever positive or negative situation i was exposed to at the time.
I’ve once heard that “we become what we think about” so i guess we are our own genie in life, if we wish to become rich from trading we will become rich but it maybe be volatile & erratic wealth, if we wish for consistency we will get consistency. the problem i found with myself is that i never knew what to wish for or want from my trading, sure i wanted money… lots of money but i guess money can not be sort directly, its the compounding results of thoughts and materialization of thoughts.

No problem, just glad i could give you some food for thought. :slight_smile:

18

Do bear in mind that trading has a winning probability. Since it is a probability, there is a chance that a trade does not turn out to be a winning one. Every time we make a loss, our capital is pushed back down and that loss needs to be covered first until the capital is back to the previous level.

If a trader can make a consistent return of 6% every month, he will be considered as a very good trader. This is because he can double his account within a period of only a year.

Another important thing to take note of is that a trader needs to be consistent at his risk management at all times. If let’s say he can only risk 3% per trade, he should not risk more for a possible setup that looks very convincing, because there’s always a chance that it might be a losing trade. It is all about probability.

19

Frankly speaking i would never recommend any one to do compounding as it is risk prone and in the past i have used it to my own disadvantage :frowning:

20

I think that once there exists confidence in the underlying strategy then compounding is the key to growing the account on a sensible timescale. I risk 1% per trade, and recalculate what that 1% equates to in cash terms on the same date each month - that becomes my new risk per trade for the next month.