The Sad Facts about Trading

Traders-Live

Active Trader
Jul 22, 2010
33
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37
South Africa
www.traders-live.com
The sad fact is that most traders fail to make money, or even survive the first few months of trading due to two factors:

1. A poor trading system.
2. Poor money management

We can provide the first one for you – that’s the easy part! However, the second part is even more important and I want to show you what you can achieve if you do things the right way and if you follow a systematic money management approach.

I have prepared some Excel spreadsheets to show you how you can convert your small trading account into a substantial sum of money if you have a profitable trading system or profitable signals and if you know the three Keys to making money in Forex trading. But before we go through the spreadsheets, let’s briefly cover the three Keys to making money in trading Forex.


Key number 1: Managing risk per trade

Key number 2: Managing risk per account

Key number 3: Compounding profits

Ok, so let’s go through these keys one at a time. Let’s say you were able to get your hands on a profitable trading system or someone was willing to send you profitable trade alerts.

Would this mean that you would automatically make money trading your account?

No way!

The problem is that, as hard as it is to learn how to trade the market, it is even harder for most people to manage their account. This is mainly due to inexperience and wrong, emotional decisions. I can’t help with the emotional side (although there are some excellent books on the psychology of trading at available, but what I can help you with is gaining experience in converting a winning trade system or signals into money in the bank.

It’s all about money management.


Key number 1: Managing risk per trade

Trading involves risk. Every trade we take has a chance of being a winner and a chance of being a loser. There is simply nothing that will ever change that…

No-one knows where the market will go next with certainty.

What we can do is to develop systems which give us an edge of better than 50:50, and the systems we use win about 65-70% of the time. The other 30-35% of the time the trades are losers. This does not make the losing trades bad trades, but it simply means that the trades fell into the “good, but losing” group.

When a trade goes against us, the best thing to do is to close the trade for a relatively small loss and to wait for the next opportunity.

Many novice traders tend to hold onto losing trades, or even add to losing positions. This has a terrible effect on your account equity, risk of losing more and your emotional well being. Anyway, I don’t want to dwell on this subject, but I must stress that if you follow a trading system or signal, follow it precisely. Do not risk more than the 30-50 pip stop loss employed and do not add to losing trades.

More about that later…

Part Two will be posted here on Tuesday next week...

This is part 1 of a 3 part series. If you would like this e-book sent to you directly, simply opt in on the traders-live site and you will receive this, along with another report or two and a complete video series.

Cheers for now,
Chris.
 

graceheather

Active Trader
Jun 25, 2010
24
0
32
Most of the traders jump into forex like gamblers.

They start trading without any knowlegde about forex strategy...

Their attitude & mindset guide them to failure..
 

Traders-Live

Active Trader
Jul 22, 2010
33
0
37
South Africa
www.traders-live.com
The Sad Facts Continue

Key number 2: Managing risk per account

Forex brokers will offer you 100:1 and even 200:1 leverage, promising that these offer opportunities to easy and quick riches.

Don’t believe it for one minute!

When you leverage your account, you are actually borrowing money from the broker with the hope that your trading will make you money on the borrowed funds. It’s the same as taking a loan from the bank and “gambling” it in your trading account. A little leverage is OK – it makes sense to make money using other peoples funds, but too much will lead you to disaster quicker than you can blink.

Here it is: As a rule of thumb, I recommend no more than 10:1 leverage on your trades.

That means for every $10,000 in your mini account, you should trade no more than 10 mini lots, or for every $100,000 in your full trading account, you should trade no more than 10 full (100k) lots.

But can you make money at this leverage?

Of course!

I will show you later how this modest leverage can be used to convert your account safely into many multiples of the initial balance, if traded wisely.


Key number 3: Compounding profits

The power of compounding is simply amazing.

Compounding means that you re-invest some or all of each months profits back into your trading account and you use the profits to generate more returns. The only way I can show you the power of this process is in real numbers, and I intend to do just that right now.

Trading plan for our signals to explode the profits in your account!

First of all, let’s look realistically at what you can expect to achieve each month, based on our current achievements at www.thetradersclub.com and our previous experience as well.

The average pips-per-month is roughly 300, with some months over 500. We need to know what to expect before we can make any projections going forward. Please remember though, that past performance is no guarantee of future returns, and the risk disclaimer on our site should be read and understood before proceeding.

Now we know the expected returns in pips, we know that the leverage should not be more than 10:1 on your account, and we know that the trading system works and should be followed as it generates signals (no moving stops or adding to losing trades!)

What will this generate on our account? The spreadsheet attached gives us

Scenario 1 – Conservative returns of 200 pips per month and no drawdown months, at only 5:1 leverage (instead of 10:1). Take a look…

To be continued thursday...
 

Traders-Live

Active Trader
Jul 22, 2010
33
0
37
South Africa
www.traders-live.com
The Sad Facts Continue

Due to a technical problem I was unable to post this yesterday, but here it is

This last scenario was based on 200 pips per month and no losing months, at a 5:1 leverage. We have already discussed leverage, but let me remind you that this means 5 mini lots per trade position per $10,000 in your trade account, or 5 100k lots per trade position per $100,000 in your full account.

As you can see, I have even allowed for a deduction of $100 per month for subscription fees!

The account grows from a starting balance of $10,000 to a final balance of $88,200 after two years!

Yes, that’s eighty eight thousand two hundred dollars after two years!

This has been achieved at a conservative 200 pips a month with a very safe leverage of only 5:1, and you can see that most of the growth has come about through sensible growth and re-investing profits at a safe rate of return.

That’s the power of compounding!

Note how the number of lots traded grows as the account balance grows, enabling you to make more money from the money you have already made. If you push the projection out for just one more year, the profits are an amazing $274,200!!

Well, if only it were as simple as that. The problem is that not every month is a winner (although 100% are at this time) and we don’t make 200 pips every other month. The good news is that we actually make over 300 pips per month most of the time, and the bad news is that we must allow for losing months.

Ok, so let’s look at scenario 2 – a more realistic picture of what might be achieved. I have changed the winning months to 300 pips each (compare this to the actual results in the table on the first page) and have also allowed for three losing months of -350 pips each. Let’s look at the more realistic Scenario 2:
 

anna575

Active Trader
Aug 17, 2010
59
0
37
Hello

Great Facts about Trading. Everyone has a great chance of success to try, need to work hard, invest our time, learn from each other, willing to open up our minds to the market point of view.:D
 

Ary Barroso

Active Trader
Jul 9, 2017
908
70
39
34
I see, rushing is one of common problem here! Basically new traders try to make instant money here after their joining. In addition, I really agree on your 1st point. It’s not easy to build up a good trading system, it takes such a long time. But, a number of new traders attempt to make it within a single night, so they lose.
 

PolinaPolly

Trader
May 3, 2018
38
0
12
30
There's also the problem, that traders sometimes try to go through and forget about their loses, as they bring out a lot of negative emotions. But it's important to analyse them and make useful for future tradings.
 

Variss

Active Trader
Sep 14, 2015
43
5
44
There are many bad aspects of forex trading as well. There are poor money management in forex market. There are also brokers in forex market that take advantage of innocent and newbie traders. These facts make a sad reading of forex market.
 

Ary Barroso

Active Trader
Jul 9, 2017
908
70
39
34
There are many bad aspects of forex trading as well. There are poor money management in forex market. There are also brokers in forex market that take advantage of innocent and newbie traders. These facts make a sad reading of forex market.

Unfortunately, it’s true! That’s why, new traders need to select their trading broker so sincerely, they should understand that, only bonus is not the parameter of selecting a broker.