Many traders come to trading with dollar signs in their eyes and dreams of a yacht docking at the Bahamas. Whilst this dream is not unattainable the percentage of traders that are ever going to make that type of money is extremely small.
What can be realistically achieved?
**What you will be able to gain out of the market is largely based on the amount of money your trading account has**
Someone with $1,000 is going to struggle make decent living and ride out what are inevitable losses that will come, compared to someone with $100,000 who is going to have a far better chance.
It is simple maths that the more money in the trading account the less percentage that the trader has to make, to make a decent living.
Are you kidding yourself?
Are you expecting to open an account with $10,000 and quit your job? If so I think you need to realistically assess your situation.
Let’s say that you need to make $50,000 per year to make a living.
Account balance A= $10,000 to make $50,000 profit = 500% per annum
Account balance B= $200,000 to make $50,000profit = 25% per annum
As you can see from the above example trader A needs to make 500% yearly to make a living, whilst trader B only needs 25%.
This is obviously not including compound interest from within that year however trading on the assumption that you need to make any more that 5% a month is very risky.
Some people will say “only 5% a month”. Well 5% a month is 60% per year, and if you add compound interest with the growth of your account it is 80% per year!
If you can make 80% per year growth you are doing very well! (Considering 95% of professional hedge fund managers paid millions of dollars per year can’t beat the S&P500 Index each year!)
How does having unrealistic expectations hurt my account?
Getting rid of unrealistic goals will help you with the mental application of your trading plan aka focusing on the PROCESS not the result.
Traders that are trying to reach trading percentages that are large will in most cases do two things:
1. Over trade
2. Risk too much money per trade
Over trading is a very common mistake made by many traders who are unrealistic in what they can achieve. They operate on the assumption that trading more will make them more.
This is in fact is the complete opposite. Trading more will lead them to taking setups that are not worth taking and they will begin to lose.
Risking too much will in most cases lead to an account being blown up.
Occasionally a trader will get lucky and pull off a large winner. Over time however the same trader can’t keep it up and when the losses come their account is crippled.
What is needed to become consistently profitable?
To become profitable a trader needs to realistically asses their situation. Every trader is different. How they trade and what assets and instruments they will use will vary greatly from trader to trader. Following the trade plans and 7 pillars of success and perfecting that method will greatly increase the chance a trader will have of making consistent returns in the market.
If a trader can learn to trade using the trade plans and start using strict money management principles they will set themselves apart from the pack and give themselves a good chance of becoming consistently profitable.
This post is designed to show you what is possible but at the same time bring you into the correct mindset that is needed in a competitive market such as trading.