Too many traders approach trading from a 2 dimensional standpoint and this goes for stock, options, futures, forex traders…you name it. The ‘number of winning traders’, the ‘win to loss ratio’ and the ‘amount made per month’ seem to be more important than the simple bottom line.
An example of this was when I received an email from someone stating that one of his students was consistently making 1000 pips a month trading forex (for stock, options and futures traders, in forex country this is a lot of pips!).
What I thought immediately after reading this was ‘so what’! Now don’t get me wrong, I have a lot of respect for this guy sending me the email, but it reinforces a belief I have that too many traders see trading as 2 dimensional. Let me explain…
If I was guaranteed to make 20 pips a month, this is guaranteed, without fail; then what is that worth to me? If there was no limit to the number of lots I can trade, what’s stopping me from trading 20 lots or even 50 lots? Well it’s the amount of capital and leverage I have available to me of course, but that’s not my point.
If I am able to trade 50 lots on this guaranteed 20 pips a month then that is worth $10,000 a month to me, just on a gain of 20 pips. Which do you think will be harder to achieve and more time consuming, making 20 pips a month or making 1000 pips a month?
The same goes for ROI per month and this may relate more to stock, futures and options traders. I get calls all the time from traders wanting to learn how to make 20-30% ROI per month consistently. When I ask them why such a high return a common answer is ‘I only have a small amount of capital, such as $10000, and I want to make $2000-3000 per month’.
If you think in ‘3D’, then which do you think would be easier to achieve by way of time, effort and learning, making 20-30% per month consistently or starting out with say $20000 and making 10-15% consistently per month? Either way the desired result of $2000-3000 a month is achieved.
If your reply was, “well, I only have what I have (say $10,000)”, then my response to you is; in the time it will take you to learn how to make 20-30% consistently every month, you would have been able to save well more than your original capital.
When I was a student of Peter Bain, one of Peter’s shining examples of a success was a student from South Africa who had taken his trading to the point where he was consistently making $50-55K a month! I can tell you now, he didn’t have to make a 1000 pips month to achieve this, in fact it was less than half this. This student learnt how to think in ‘3D’.
The Black Hole of Trading Part 4 of 6
In this short series of articles I will look to explain what you need to do before you buy any trading system and avoid the black hole of trading. This series will cover a step by step approach to using the markets to achieve your goals by highlighting 13 key areas that traders must address.
The Black Hole of Trading Part 3 of 6
In this short series of articles I will look to explain what you need to do before you buy any trading system and avoid the black hole of trading. This series will cover a step by step approach to using the markets to achieve your goals by highlighting 13 key areas that traders must address.
The Black Hole of Trading Part 2 of 6
In this short series of articles I will look to explain what you need to do before you buy any trading system and avoid the black hole of trading. This series will cover a step by step approach to using the markets to achieve your goals by highlighting 13 key areas that traders must address. To read part 1 visit: The Black Hole of Trading Part 1
