Realistic Expectations & Trading other People’s Money
Buying and selling a market on the expectation of a higher rate of return than is currently available to you should be seen as the tip of a very large iceberg. To be able to produce consistent results with your trading plan will take consistent effort on your part. Success in any endeavor, particularly risking your money in live markets, is a matter of taking the time and initiative to study and understand your educational material extensively, and then be at the right place at the right time so you can execute what you’ve been taught. A lot of professionals will tell you that to achieve success you need to have a goal. In trading, that goal should be to not make errors – an error is not taking any action other than what is spelled out in your trading plan – and to show up at your work station early every day. Chicago firefighters have a tradition of showing up at the firehouse 1 hour before their shift starts. This is a courtesy to the firefighters waiting to be relieved. If a call comes in that last hour, and inevitably they do, the firefighter who has already put in 23 hours can still head home while the incoming, fresher man/woman can take his place on the rig. As a trader you need to show up early at your trade station also. You will find that being early is going to help you be more prepared, and over the course of weeks, then months, etc help you to find more winning trades.
It’s also very important that you have realistic expectations in both how long it will take you to learn to trade and how much of a rate of return you can expect from trading. We have a client, Craig, who is a network technician, and excited about learning to improve his trading. He just put himself on a regiment to get up three times a week to trade the London morning session. It’s not hard for him to get to bed at 6PM EDT three days a week and to get up at 2 AM, an hour ahead of the London open. He started out trading micro contracts and is now moving up to trading minis. We know he has discipline and is a good listener because he is more concerned with the consistency of his regiment than moving up to trading bigger contracts, which is what most people will do after even a hint of success. Craig is in it for the long haul; he knows the value of his trading plan and the danger of greed and haste. He also knows that if he can make just a few percentage points a week, or even a month, on a regular basis, and keep his draw-downs even smaller that he will have a good chance of finding work as a trader. With the advent of automatic percentage allocation management module accounts, also known and PAMMs, and Leader / Follower accounts where an individual trades her own account and whatever she does is replicated on a percentage basis in another account for an agreed upon monthly fee, it’s reasonable for a trader who can show statements that reflect a consistent performance to become a money manager and earn a percentage of profits for the total funds that brokers raise for her, or get paid on a monthly basis per account. Craig may or may not end up going that route, but the idea is an interesting one for him, and helps him stay grounded by reminding him that the one thing that matters most is being profitable at the end of the week, and then again at the end of the month. Traders who overtrade and then use the excuse “I have to trade bigger because I can’t make a living trading a small account” are missing the point that in the world of money management less is more. Let’s take a look at two perspectives, and decide which one is best for you to adopt – both assume you already have found a viable trading method which you have confirmed through several months of demo trading in live markets. Number 1: your job is to show up at your trading desk early and prepared and make somewhere between 2 & 3% per week on a $5,000 account. Number 2: your job is to show up at your trading desk early and prepared, and to make a living on the $5,000. It’s very obvious which choice has a higher likelihood of success. It’s also obvious based on which choice a person takes as to who an investor would entrust with trading funds. It would be much easier to be pateint and wait for optimal set-ups and triggers in an effort to consistently make $100 to $150 dollars per week on a $5,000 account than to try to trade more actively to make $500 or more per week on the same amount.
One big reason so many people aren’t as successful as they would like in trading is because they have unrealistic expectations. In fact I find it rare in my position to find clients who are grounded enough to realize that making a few percentage points a week is a fine goal to have; and in some circles still a very aggresive one.
Jay
Jnorris@brewerinvestmentgroup.com
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Course To schedule a complimentary, interactive tutorial with Jay on determining market direction and hear more about “Live Market Exercise” go to One on One Tutorial Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be on bookshelves in 2011
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments. Any charts shown here represent market conditions at a particular point in time. Such conditions may not be replicated in the future. Past performance is not indicative of future results.