Lesson 6: Create Forex Big Money With Small Steps
When we can see the future clearly in our minds eye, it helps pave the way to achieve our goals. With most of our goals and dreams for forex trading, we need an abundance of money.
The simple truth is:
- We can’t have the lifestyle we want without money.
- We can take care of our loved ones more with money.
- We can contribute more to society with money.
- Money buys a wider range of experiences in life.
- A shortage of money creates stress and no one wants that.
Let’s face it, we get a lot of pleasure from enjoying a house with a view, a nice car to cruise in, being able to provide our children with first rate education in private schools’ and worldwide travel. Money may not buy you happiness, but it can help with serenity.
So let’s agree at this point, that the forex return we make really does matter.
Let’s Crunch The Numbers
There are 52 weeks in a year. Let’s say we have 4 weeks off for holidays, fun, rest, you name it. That leaves 48 weeks in a year to make a return from forex trading.
For the sake of round numbers, let’s take 100% per annum. We can all agree that 100% would be a handsome return.
50% per annum is a premium return compared with a lot of investment products.
10% per annum is widely considered to be the long term return for share investment, a high risk and high return portfolio choice.
Let’s get down to the maths and see what these returns look like.
- 100% p.a. / 48 weeks per year = 2.08% per week
- 50% p.a. / 48 weeks per year = 1.04% per week
- 10% p.a. / 48 weeks per year = 0.21% per week
These per week returns assume no effect from compounding using money management strategies. The compounding effect would make a smaller rate of return required. How much smaller depends on the timing of the returns.
Next we need to consider how much we risk per trade.
It’s widely accepted that trading in excess of 2% per trade increases the risk of ruin whereby ruin becomes more of a realistic possibility. But 2% per trade is ok if you’re ready to handle it.
Some traders prefer to trade 1% per trade and others less at 0.5% per trade. It’s a case of anything goes.
We’ll call the amount we risk per trade our risk amount.
If we were trading 2% per trade, such that 2% was our risk amount:
- 100% per annum = net 1.04 profitable trade to the value of the amount risked per week or 12.5 per quarter
- 50% per annum = net 0.52 profitable trades to the value of the amount risked per week or 6.25 per quarter
- 10% per annum = net 0.10 profitable trades to the value of the amount risked per week or 1.25 per quarter
If we were trading 1% per trade, such that 1% was our risk amount:
- 100% per annum = net 2.08 profitable trade to the value of the amount risked per week or 25 per quarter
- 50% per annum = net 1.04 profitable trades to the value of the amount risked per week or 12.5 per quarter
- 10% per annum = net 0.21 profitable trades to the value of the amount risked per week or 2.5 per quarter
- 100% per annum = net 4.17 profitable trades to the value of the amount risked per week or 50 per quarter
- 50% per annum = net 2.08 profitable trades to the value of the amount risked per week or 25 per quarter
- 10% per annum = net 0.42 profitable trades to the value of the amount risked per week or 5 per quarter
I personally prefer to think in terms of the number of profitable trades per quarter because there are more trades in a quarter, making analysis over that timeframe more reliable.
What This Means For Forex Trading
Increasing the risk amount per trade magnifies the rate of return, both good and bad, all other things being equal. It’s harder to get a great return by being too conservative with how much you risk per trade. However, traders need to be cautious to only increase the amounts risked as appropriate for your trading skills and performance.
As you can see from this analysis, on a day-to-day or week-to-week basis, small positive milestones can combine to create a great annual result. When we’re in the day or week, it’s hard to see that seemingly unimpressive results can combine to become a powerful life provider. By consistently chugging away, achieving seemingly uninspiring returns, we can create the good life in time.
With an awakened awareness of what we’re looking to achieve we can focus on consistency and staying on track, while going through the motions.
Perhaps you don’t need to ditch your current trading methods to search for some supercharged system. Just maybe you’ve got that supercharged system right now in the form of a system doing a marathon and not a race.
We don’t need a heart pounding ride to achieve solid results. A good trading return comes from the accumulation of small returns over time.
Let’s not forget, money does really matter. With a clear plan and vision for money accumulation through forex trading, we can keep on the right road and arrive at our desired destination.
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About the Author: I’m Rachel Hunter, TraderRach, a Forex Trader who helps traders achieve the life they love with forex. Be strategic and design your trading business for sustainable success and have fun! That’s my mission. Join many traders’ gaining the edge with “10 Powerful Lessons for Forex Trading Success” plus other goodies. Years of precious learning specially packaged up for you. My background before trading is as a Chartered Accountant and Chief Financial Officer. I know what it takes to make a trading business rock on. It would give me great pleasure to make a difference to your success.