I read a few threads in this forum and have some questions. Many experienced traders say they make about 1 or 2 % max on their account.
1} Why is this and how you make it by only trading if you make only 1% or 2 %. Do you have a very big account ? I mean if you need to make $80,000 per year by trading only - then at $6500+ a month, you need to have a very big account. So please tell me - by account size you mean to include the leverage as well ? Like you have a $10,000 account and 1:100 leverage makes it a $ million account ? Or you have an account much bigger than $10,000.
2} If I have a $2000 account - is it possible to make $2000 every month ?
And those are relatively small-scale retail traders (like me) posting in a forum.
If you venture a bit deeper into the world of professional trading, you find that position-sizing figures are [I][U]much[/U][/I] lower than that.
I admit that I do still sometimes stake as much as 1% of my account on my [I][U]very highest[/U][/I]-probability trades, but in a sense itâs an artificial figure, because most people donât have all their trading funds sitting in one account at the same time, anyway. Itâs not really 1% of my assets.
Itâs about risk management.
The bigger someoneâs account is, and the more theyâre doing this for a living, generally, the more concerned they are about risk management and the less concerned about profit maximisation (something to think about, there, perhaps, if you believe in âcopying the habits of successful peopleâ?).
People with (just for example) a reward-to-risk ratio of 2:1 are sometimes going to experience a run of 25 consecutive losers, and far more often than that theyâre going to experience a much longer run of many losers interspersed with only a very few winners which has the same net financial effect on their account that 25 consecutive losers would have.
If you have a substantial account, and/or if you depend on the long-term income from your account to fund your whole life, itâs going to be soul-destroying, for most people, to lose 50% of their money when that happens - so, for someone in those circumstances, 2% position-sizing is going to be [I]unimaginable[/I]. Even 1% is going to be unimaginable for many.
Different people will have different answers to this.
As well as having very different ideas of risk management, and different degrees of risk aversion, and different proportions of their assets available in their trading accounts.
For myself (though most of my position-sizes are much lower than that), the answer is âby trading frequentlyâ: I have my edge and I seek to apply it as often as I safely can.
It all depends how often you trade, too, doesnât it? I take well over 100 trades per month. If I could do that with a 1:1 R:R, overall, and win 60 trades and lose 40, on average, per month, Iâd be making well over 20% per month. Sadly, I canât [I][U]really[/U][/I] do that. I have [I][U]once[/U][/I], in the last 8 years, managed to fluke a 20% return in a month by working terribly hard and being just amazingly lucky at the same time. So I look askance (to put it mildly!) when people in forums claim to be earning 20% every month, on average, from their forex trading. Call me a skepchick, but I donât believe a word of it. And if they have account figures which purport to demonstrate it, I want also to see the other five accounts they have, from which theyâre losing money! :rolleyes:
Generally, you shouldnât let people tell you that anythingâs âimpossibleâ!
But in spite of that, Iâm going to stick my neck out with this question and say no: that really isnât going to be possible for you. Itâs unrealistic, and trying too hard to do it will be dreadfully risky and lead to accidents.
The proportion of forex traders who ever make a steady-ish average of 5% per month income from their accounts is [I]very, very[/I] small indeed. That would be an ambitious aspiration - and it would represent $100 per month, on a $2,000 account.
Unless they happen to be well funded, most people âstart smallâ.
People very often significantly [U]over[/U]estimate what they can achieve quickly (and some of them then get disillusioned just because their expectations were inflated in the first place, and they start gambling, which destroys their chances). Equally often, they significantly [U]under[/U]estimate what they could achieve very gradually, with patience and discipline.
I guess, in terms of strategy, the money management is more important than the entry and exit I guess is the summary right ? The technical indicators are at best a small step up from totally random trading ?
But with such small returns how does one make entirely on trading ? Because that is what I want to do. What would the size of the account have to be to make $4000 a month with this ?
I have always thought so, very much - and still do.
If you include the âand exitâ part as well, itâs a little less true, but still true - if you see what I mean.
Personally (although Iâm slightly hesistant to say this too openly, because if someone âchallengesâ me on it, I couldnât prove it at all! :8: ) I think that exits are about three or four times as important/significant as entries, and that money management is way more important than entries and exits considered together. âJust my perspectiveâ!
I read somewhere that trading is about 60% money management, 30% psychology, 8% exits and trade management after the entry, and 2% entries. You can debate things like this for ever, but I found that a sensible and attractive summary, anyway. I liked it and am happy to quote it.
Again, itâs only opinion, but I suspect itâs not far off ârepresentative opinion of people making a livingâ.
When you see people saying (or clearly assuming) that âthe entryâ is more or less all that matters, and stating (or implying) that if you get the entry right, everything else will somehow all sort itself out and youâll be ok, [I]in my opinion[/I] you can be pretty sure that thatâs someone whoâs [U]not[/U] making a living.
(To be honest, the â30% psychologyâ part is almost a closed world to me, and one I know very little about, given my own âmental stateâ, but my own âmental stateâ seems luckily to be well-disposed towards trading so I get away with it ⌠and I know and acknowledge that itâs [I]very[/I] important to many people.)
I think for some people theyâre a pretty [I][U]big[/U][/I] step up from random trading. They often relate to the entry and usually to the trade-management as well.
I happen not to use them myself, but I donât claim that theyâre not a valid way of creating an âedgeâ, and Iâve seen (and even traded) profitable indicator-based systems before, and there are some on display in the forum.
If you can make a steady-ish average of 6% per month (tall order!), youâd be looking at $66,667 account-size (4,000/6 x 100).
You can easy calculate how much money you need to make 4000 dollar each month.
1% Profit each month needs a 400 000 dollar account.
2% Profit each month needs a 200 000 dollar account.
5% profit each month needs a 80 000 dollar account.
10% profit each month needs a 40 000 dollar account.
20% profit each month needs a 20 000 dollar account.
I think the best way is to lose the thinking of getting 4000 dollar each month.
Just try to make good trades that give you profit, while you watch your money management system.
If you got a system that make profit, the money will come by the years.
I want to understand more on the money management you have mentioned in your comments here.
When you say putting on the line only 1 % of your account, what does it mean ? If we take above example - lets say there is $60,000 trading account. By 1 % do you mean {a} Placing an order of maximum size of only $600 in any given trade? OR {b} Does it mean, placing an order of $60,000 and a maximum stop loss of $600 in that one particular trade?
That if the price turns completely against me just after Iâve put it on, and it hits my stop-loss without ever getting into profit at all and without my closing the trade manually before the stop-loss is hit, the maximum I can lose on it (assuming my stop-loss is honoured) is 1% of what was in my account at the time I put the trade on.
I can [I][U]make[/U][/I] more than 1% on it, if it moves the right way.
And if it moves the right way, then after Iâve moved the stop-loss up to breakeven I can add to it (and I [I][U]do[/U][/I] sometimes add to winning positions: itâs not âjust theoryâ), and might put an additional 1% on, because the initial 1% is no longer âat riskâ. I might do that if it seems as if Iâve caught the beginning of a trend, or the resumption of an earlier trend after some consolidation/congestion.
(b) - It means an [I]initial[/I] position risking a maximum $600 with the stop-loss.
When you get experienced in forex market you will realize that its not about making money its about controlling your risked amount in the market. This is why you have to lower your risk and thus your profit becomes little.
You canât make 100% profit every month regularly, aim for little to trade satisfactorily.
Dont make me laugh money because this has to be a joke. Risk is risk its what breaks you. If you dont allow yourself to be injured then you cant be broken. Its not all about a single trade that is the mentality of losers or gamblers. Its a collective amount of trades that matter as she stated. A single trade is not going to pay my house note but if could cost me my house if I let it. Its about a portfolio where you lose you gain. Thats what makes losses irrelevant. I can show after I shorted the Aussie into extinction I have since then consistently lost money in forex. So what do I do man keep risking my house on a single trade? If I would have had high risks on the shorting of the Aussie I would be homeless today. No instead I moved money to slower but steady investments. Those investments grow with low risk and as they grow I can move funds to other maybe riskier investments maybe not depends on what turns up. But to toss all your eggs in one basket is just insane because eventually you going to drop that basket and the eggs will break. Then what you starve to death because you dont have anything else to fall back on.
Its all about a portfolio and if you want to have your entire portfolio all in forex thats fine (you have bigger balls than me) but to have your entire basket in a single trade is a rookie mistake. You maybe ok for now but just how long you think you are going to milk that cow till she dries up then what?
For me I have no problem milking a cash cow but I am also going to make sure I have backup in case my cash cow dries up I can still get my milk and I can slaughter this cow and eat my steak.
However please explain how high risk on a single trade is the way to wild riches man I need the entertainment.
With the above said I had to come back and edit this as no matter where your money sits I do believe Lexy, Money and I can all agree risk is your exposure to the market and unless you have the holy grail or more money than soros or the rothchilds thinking that you can live a great life on a small account with 1-2% exposure to the market is wishful thinking at best. However I can say that you can grow it to something decent and one day make a living but you are still going to need more than 1-2% exposure at any given time. There is no exact number to what you need exposed at a given time its all up to the opportunities if and when they present themselves.
I do agree Bob, without a doubt. All im saying is, have faith in your system, if its working, make it work more efficiatntly, and not so much harder.
How many people you run into that have $50,000 to throw in to ANY investment,
Im in the USA, where 65% are on foodstamps, and everyone is broke. Heck, my entire circle is pay check to pay check,âŚ
At the end of the day, its about knowing how, where, and what to trade, and doing it correctly as often as possible, and make it as fruitfull as possible.
Everyone is differnet, as we have seen in the many years to this point.
Its like that diet, what works for 1, doesnât work for all. add restraints of life, it gets worse, or unattainable.
We just see entirely different, nothing wrong about that.
Hope everyone has a great week, be safe, Im actually done for the day again, so Im Oouuuttaaa here,
5% in 45 minutes, got to love the short work days. These are the days you charish, be gratefull for quick days,
As maryjane88 says, it is all about drawdown. For real investors Forex trading is about capital preservation / hedging / and the possibility of a bit of growth. This is why you only risk a small amount per trade. Trading is a game of probabilities and you can easily have 10 losing trades in a row. If you risk 10% of your account you could lose it all very quickly. not cool. But with 1 or 2% the losses are small. The gains are also not great but with a good strategy they can accumulate
1% to 2% is advised to trade because you should keep in mind this amount can bring profit or loss for you . If you risk more than that as 10% you can loose so fast too. One should think both sides of the picture. If one loose even 2% in one trade he will suffer a lot.
Thatâs really true; institutional Forex traders go for low monthly percentage! Actually they focus on consistent monthly profit, like if a trader makes 2% monthly profit that means, around the year he or she will get 24% yearly profit, itâs not bad yearly feedback actually! On the other hand, institutional Forex traders trade with huge trading equity, so 1% or 2% is really enough for them!
I donât know where any of this âinformationâ comes from, but it bears absolutely no resemblance at all to any kind of institutional trading that Iâve ever seen. :rolleyes:
Iâll get shot down for this - but making 15% to 20% a month on a retail account is very doable while using controlled risk. The key word there being âcontrolled riskâ - all comes down to your risk appetiteâŚIâm always hungry though
