It is very common for traders to dream of obtaining financial freedom through online Forex trading. No more boring jobs, no more bosses, no more wasted administration time, meaningless emails, and endless meetings. Is it a realistic ambition? If so, how can it be achieved? In this article, I will try to comment on my own experience and try to give you an idea of the challenges you will undoubtedly face if you plan to make a living in the currency market. Forewarned is worth two.
How Much Money Can You Make With Forex Trading?
This is the first question that people always ask. There’s a simple answer: no one knows! No matter how expert in foreign exchange you are, you cannot control the market. You can be so good that you usually have a winning month and each year is considered a winning year. However, the exact amount you make depends on what happens in the market, and the market cannot be predicted with certainty. For example, look at the main currency pairs in the first 10 months or so of 2012. The market was extremely flat. Even if you weren’t negotiating trends, it was hard to be profitable using a forex strategy. Later, in the final part of that year, there was a huge bearish movement in the Japanese yen that gave traders the opportunity to make a lot of money easily. The point is that financial markets are unpredictable; there may be several months of drought followed by a huge downpour of opportunities to benefit.
A sensible approach to estimating what you can reasonably expect before starting trading is to calculate in terms of probabilities. For example, in 20% of the months, it expects to make 5% profit, in 10% of the months 7% profit, etc.
For the calculation of these probabilities, you should analyze backward by measuring your average commercial return, draw-down and initial capital, and then calculate an average expectation of trade; that is to say, the amount of profit or loss that you will normally get per transaction.
How to Calculate Your Performance
The first point to start is the amount of seed money you have to trade. It is very important to understand that the more money you risk, the less money you have, and the more money you need to pay your bills, the harder things are going to get. Even if it’s all the same on paper, the day-to-day experience of online trading as a livelihood is very hard psychologically for almost everyone, especially at first. There is a huge difference between trading with money you can afford to lose, trying to earn enough money to afford luxury items, you risk your life’s savings by trying to generate income to pay bills.
You should have a very clear idea of your typical commercial performance over the full range of market conditions as if you had been operating continuously for years. One of the best systems to do this is to have a trading simulator installed and/or a Forex strategy simulator software to simulate many years of exchange operations and ideally hundreds of operations. You can then have a good statistical basis on the likely range of returns that you can achieve in a month. Of course, proving this over a long period of live trading is a superior method for determining your trading expectations. By all means, watch Forex signals for business ideas, but don’t rely on them blindly.
Once you have these numbers, you must consider the amount of draw-down that you will be able to tolerate. From here, you can determine the money handling and leverage you’re going to use, and now you can finally calculate the likely range of cash income (and losses) you’re likely to experiment in a typical month. Will it be more than enough to satisfy your financial commitments? You will be able to weather the bad times without going into debt? Don’t forget that your actual performance will probably not be as good as your performance in the simulator, this is because making decisions over long periods of time with real money at risk is more difficult than simulated trading. Remember that the vast majority of retail Forex traders are not profitable, so you have to be at the top of your game.
A very important factor not yet covered is the psychological stress of online trading for a living. It is crucial in commercial success not to become emotional about the results of each operation. When you need good results to pay your bills by the end of the month, maintaining that attitude becomes very difficult. Your “trade psychology” is very important to get it right. A perfectly smooth equity curve gives less stress but is very difficult to achieve, so you will probably have to find a way to cope with the sudden falls of the curve without losing your calm.
A Realistic Plan for Second Income and Capital Growth
If you really want to trade Forex for a living, I strongly recommend that you consider a plan that will allow you to transition to this gradually. You may believe that you will do much better when you can devote all your energies to work and live on the operations of change, but this may not be the case
You may be able to automate your trading, at least in part, by using a Forex robot, say for trading entries. You can then decide on commercial departures every few hours or even on a daily basis. This way you can keep your income or primary salary and that, added to what you can do about exchange operations will look a lot like what you would do if you devoted yourself to this activity every minute of your day.
It is a very good idea to have both a significant stable income and a reasonably long history of profitable trading. What it can do is to grow its capital and gradually increase risk by increasing leverage. So, little by little you’ll get used to pressure and stress.
If you move forward this way, you should be able to earn enough money to quit that job you hate within two or three years of “transition” commercial success. It is tempting to think that it will become much more profitable if you dedicate yourself to this full time and without distractions, but many traders have discovered that the opposite is the case. Trading for capital gains is much easier than doing it to pay the monthly bills.