What if I told you the Forex industry has been keeping secrets from you..That's right, secrets that are holding many back from reaching success in their trading journey. To some of you reading, these"things" may be common sense. We wish it was like that for the majority discovering the Forex trading industry. Many of the misconceptions lead newbie traders down a dark path of blown accounts, and false realities.For any new, or struggling traders, take these truths with you and understand that this is the reality of trading. When you do that, you will have a greater understanding of what to expect from trading.
The 3 secrets of the trading industry
- Trading is large capital, small returns. It takes money to make money
- Attempting to double or flip your portfolio is a naive individual
- You need actionable education to execute in the market.
1.) Trading is large capital,small returns. It takes money to make money!
How many of you heard you can start trading with $100, or even $50? Of course, brokers allow you to start with low minimum deposits. The question is, what do you expect to do with that amount of capital? What returns are you looking for with $100? A majority of traders wish to be full-time sometime in their future. I think someone is full time when they can provide enough monthly income to cover their overhead expenses.This should be consistent, as any job, and able to sustain your lifestyle in times of market draw down. Many traders expect to take $50 or $100 and turn it into $1,000 in a week or month. We will touch on this later on.
Lets break this down a little more! Assume Drew wants to be a Forex trader full time in the future. His new love & passion in Forex has him ready to go live. Drew breaks down his overhead expenses and realizes he has $1,000 / month in bills.For him to be comfortable, he needs to cover the bills and have cash liquid each month. With only $100, is this even possible? This leads us into #2
2.)Attempting to double or flip your portfolio is a naive individual.
Lets continue with the math. Drew would be asking for over a 900% return in 1 month to cover his overhead expenses! Even trying to cover half, is a 400% return in one month. One of the largest hedge funds in the world isn't even close to seeing those returns in a year! What makes you think Drew has something Ray Dalio doesn't have? This is the exact same scenario of ignorance we have seen cloud the Forex trading industry. This is not everyone, and their are some VERY legit traders who know what I mean. Now you ask, what is a realistic portfolio size to cover Drew's overhead? Well he drew(no pun intended) up a business plan and watched Top Traders. If Drew were to make 10%a month on a $10,000 portfolio, he would be able to meet his overhead expenses.There may be months +/- 10% ,but the bare minimum he would need is 10%.
The more capital you have, the better off you will be trading. You will be able to hit 10% with less stress, risk and draw down, than you can 900%. If you could consistently hit returns like, why isn't Bridgewater capital"flipping" its $150 Billion in assets? But wait...a retail trader off the street, with no experience in the corporate/institution can get 900%returns? If doubling your account was a consistent, legitimate way of managing money, every hedge fund would have trillions of dollars.
3.) You need actionable education to execute in the market
To truly succeed and scale into the trading business, there is a set level of education needed. It doesn't mean you should go to college, but you need to be well educated on macroeconomics. Why? A currency is attached to how well an economy is performing. There are a lot of other variables to be factored in as well. "Educational courses" have been proliferating in the industry, and most of it is useless garbage. Books on candlesticks, patterns, harmonics, indicators consume newbie traders. We have talked to numerous traders who have followed this path, and when we ask them whats your edge? *crickets* You would have thought we spoke a foreign language to them! The actionable education is fundamentals. It's understanding market psychology, liquidity, market expectations, economies and tie that into a system to formulate a strategy. That is where you get your defined edge.
What is your edge? What is your statistical advantage over others in the market place?
Paul Tudor Jones uses technicals! The uneducated will try to bring up these high level traders, who they claim use technicals. Take a look at Tudor's website in the About us: "While we are best know for our rich discretionary macro trading, we also have significant experience and capabilities in model-driven systematic investment approaches." They also go on to say "As such, we commit significant resources to research development across a variety of strategies in order to expand our edge." EDGE! Tudors fund has a quantifiable edge that they are able to exploit! If you continue scrolling down you will also see."Tudor's discretionary global macro strategy"
Actionable education is fundamental analysis & macroeconomics
"Tudor’s discretionary global macro strategy"
There are many other misconceptions in the market, but these 3 are extremely important. They can get you a good understanding where focus should be and thinking about your returns. Build up sufficient amount of capital that you're able to trade with. You wouldn't walk into commercial real estate under capitalized, don't think trading is different. No billion dollar hedge fund is "flipping" their portfolio or even using that terminology. Ask your self what your edge is..You should know why you are making money in this market, you should have a clearly defined advantage you exploit. Do your research on how some funds operate outside of the Forex books you find. We want everyone coming in to the industry to have the best chance at trading. I promise you that if you realize these myths you will be in a better position. Some will still argue, but the educated and logical will accept.