In over 20 years of teaching Forex, I have seen many traders achieve 100% plus gains per annum and some have made even bigger gains which would lead many to the conclusion - you can make 10% per month with a sound currency trading strategy. The answer is - you can average this amount over the longer term ( if you judge your performance over years) but you wont make 10% every single month.
I have seen scam system sellers saying - you can even make 10% profits per week or per day but this is fantasy not reality. The good news is over a longer holding period you can target 10% as a rate of return on your trading signals but the only traders who will achieve this, are ones who understand about random distribution of profits and the outcome bias. Let's take a look at why its so important to understand these two key points.
Understanding Random Distribution of Profits and Losses
The idea that you can make a set number of pips per day week or month is rubbish. The people who say its true, have never traded and are just trying to sell a get rich quick system the reality is different you can make big gains longer term but not every month and this is because profits and losses are randomly distributed.
If you have a 50% win ratio in terms of your trading signals, you won't win a trade, then lose a trade, them win one – Forex markets are not that kind. You will get losses in groups and furthermore you will get marginal profits randomly distributed with bigger profits which will lead to periods of losses which can last for weeks on end or even months and don't think this won't happen to you – it happens to even the worlds top traders and best trading systems.
The Novice Traders Reaction to Drawdown
When a novice trader hits a losing period, he will lose confidence and this will lead to letting losses run, taking profits to quickly, over riding trading rules and chopping and changing systems. Periods of losses cause the trader to lose discipline and he losses more money than he should or he even gets wiped out.
The Pro Traders Reaction to Drawdown
The pro trader knows this will happen but if his trading strategy has an edge over the longer term (several months or years) he will make money and if he then averaged his return back he will see he has averaged 10% or more per month. Any pro trader knows losses and drawdown are ahead of him but has the confidence, in his trading plan to stay with it for the long run and trade it with discipline.
Random distribution of profit occurs because Forex markets are human – humans make a price and they can ruin even the best chart formation in the short term and give even the best trading strategy losses. This is just the reality of trading an odds based market based on probability. The MARKETS are not mathematical or scientific so its IMPOSSIBLE to win every day , week or month like the scam systems tell you. Sure you can make money over the longer term but in the short term, you will always get losing periods and they will be weeks or months, for any trader at some point and you simply have to ride them out.
The Outcome Bias
Most traders feel happy when they win but when they lose, they feel they have done something wrong or feel frustrated or angry. I saw a video with Turtle trader Curtis Faith, who said overcoming the outcome bias is the difference between a winning trader and losing one and he's right. When you put on a trade, you shouldn't feel emotional when you lose or think you have done something wrong – you just need to focus on the fact that this is the way currency trading is and always will be.
When someone tells you, you can make x amount per day or 10% ROR every month trading Forex - keep in mind its a lie. Sure you can average 10% per month, if you judge the average over years but it won't be every month, an increase in value – some months will lose and the percentage increase and decrease will also vary month on month.
See the Forex markets for what they are, not the way scam system sellers tell you it is because, if you don't see the reality of random distribution of profits and losses and you don't overcome the outcome bias, you will never become a successful currency trader. Of you do understand this article, you will be able to trade your strategy with discipline and enjoy long term currency trading success – it really is that simple.