Now, what am I pertaining to?
One of the most important concepts when learning how to trade.
Let’s admit that at the end of the day, a trader’s goal is to grow their account and be able to be profitable.
Account growth is also considered to be part of one’s trading plan. Basically calculating their desired amount of profits in a week or month. This can be seen as one of the most crucial parts of trading as well. It can determine how one becomes a successful or profitable trader.
Although this is the case,
90-95% of traders always fail to truly comprehend this concept.
These people tend to trade daily,
aiming to gain a 50-100% profit, only leading their way to blowing their accounts within a month or two.
In some instances, this leads the new trader to end their trading careers, due to this discouraging experience.
Others though tend to go back to the markets and
do the same thing over and over again.
Perhaps, because the action of compounding your account in a 100% growth rate per month might have been seen done by others. Leading a lot of incoming traders to believe they achieve the same.
Yes, it is true that there are traders that achieve these results from time to time.
But not always!
100% growth per month is not feasible.
Looking at it in a long-term perspective, you would need to ask yourself if you can actually achieve this.
But can you control yourself?
Your greed? Your decision making? Your risk on every trade?
Can you hold yourself responsible for everything that happens?
Think you can prove me wrong?
If we follow this 100% profit rule,
then we can do a simple calculation for 12 months
with an account containing $500:
1st month - $500 + 100% = $1,000
2nd month - $1,000 + 100% = $2,000
3rd month - $2,000 + 100% = $4,000
4th month - $4,000 + 100% = $8,000
5th month - $8,000 + 100% = $16,000
6th month - $16,000 + 100% = $32,000
7th month - $32,000 + 100% = $64,000
8th month - $64,000 + 100% = $128,000
9th month - $128,000 + 100% = $256,000
10th month - $256,000 + 100% = $512,000
11th month - $512,000 + 100% = $1,024,000
12th month - $1,024,000 + 100% = $2,048,000
Seems simple right?
If you honestly think that you can reach this in 12 months then you’re way over your head.
Trying to get that kind of winning rate for straight months
is difficult and close to impossible to reach.
Even the best professional traders get losses!
And if you aim for 100% wins,
then surely you will also obtain 100% losses.
If we calculate this on a 12 month period again.
Then even a month would wipe out your account!
I don’t think I need to show you a calculation of that.
What about the traders that are able to do this you ask?
Now, you have to understand that although it is possible,
in order to do so one needs a substantial amount of experience to pull off something like this.
There have been instances wherein individuals have obtained 100%, 200% or more than 300% returns in their trading careers but ask them if they recommend you doing so and I am sure they will all tell you not to do so.
Because in order to do so, even they have a strict set of rules to follow. Adding in their of experience with long hours of chart work and analysis, a new trader has nothing against these type of high-risk traders. And I can tell you they don’t try to do this every month.
There have also been some situations where traders that have less than a month of experience in trading have also been able to do this.
I have met some as well, but most of them have the same story of blowing their accounts in the end.
Because you have to always remember that a single trade can wipe out your whole account without proper risk management.
Following such a high-risk manner of trading for a long time will eventually hit you hard.
Greed is good, greed is bad.
However you may see it, if you work with it patiently it will reward you. If you try to catch it at every corner then it’s going to bite you.
Don't be addicted. Focus on long-term results.
So, how should one make profits if not looking to gain 100%?
Well, again it’s not impossible.
If we take a year and aim for 10% returns a month,
profit gains would range from 90-120% a year.
By following the earlier example of doing a calculation for 12 months but having a 10% profit gain rule with an account containing $500,
we can gain this:
1st month - $500 + 10% = $550
2nd month - $550 + 10% = $605
3rd month - $605 + 10% = $655.5
4th month - $655.5 + 10% = $722.05
5th month - $722.05 + 10% = $794.25
6th month - $794.25 + 10% = $873.67
7th month - $873.67 + 10% = $961.03
8th month - $961.03 + 10% = $1,057.13
9th month - $1,057.13 + 10% = $256,000
10th month - $256,000 + 10% = $1,162.84
11th month - $1,162.84 + 10% = $1,279.12
12th month - $1,279.12 + 10% = $1,407.03
A much more feasible way for one to grow his or her account. The emotional rollercoaster will be brought down tremendously and the ability to scale will be much more feasible.
If you are able to do this consistently then you will be able to
improve your ability of becoming profitable in the future with even larger accounts.
So to put things in to better perspective a trader should follow a more realistic approach when it comes to managing risk.
In doing so, not only does the trader become better in managing money, he/she can also be able to improve their ability in making profits, develop better patience and be an outstanding trader.
As ThatFxTrader says:
“Time moves fast and you need to slow down”
There is no such thing as right and wrong when it comes to the percentage of gains as long as you are aware of every action that you plan to do. But if you are not aware then you get consequences.
What are other things you can do to improve your profit gains?
Get yourself organized.
My personal tips are to get your live trading account connected to myfxbook.com. This helps you track your trading behavior and habits.
Also you get a better understanding of how much profits and losses you make on daily, weekly, or monthly basis.
Acquire a journal, take down notes on how you feel when entering a trade and exiting it. Regardless of it being a win or a loss.
Fix your desk, markup your charts and invest your time doing other things once you are done with your daily trading activities.
Develop your patience.
"Trading doesn't just reveal your character, it also builds it if you stay in the game long enough."
I hope this helps a lot of you out there!
If it does then please share this to people you think would absolutely need it.
Again, stay tuned for more content!
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Thank you and have a great trading day!