Financial Planning with Forex Income
I always like to make a planning of my future income (possibilities).
So far I have kept my planning simple with just job income and investments and expenses. Sounds simple, but everything is adjusted for taxes etc so it's kind of realistic.
For instance I would run sensitivity data on % of job income as expenses, to see the effect on future wealth and income. or What happens if you take % of your investments + job income and use that as expenses. So you get the idea what I'm trying to do.
I just implemented a Forex income stream in my spread sheet with the following characteristics
- Use % of investment capital for forex trading
- Set a max % risk per trade and divide that through 50 pips
- For E/U this is your lot size and use that for the rest of the year to make pips monthly
- And an increase in 'skill' of so much pips per month.
In my financial planning with Fixed Expenses and adding
10% of investment capital used for forex trading, using .04 lots and making 200 pips per month, with yearly 10 pips extra per month.
It will more than double my income and future wealth over a period of 20 years.
I think I have been conservative enough in my estimations. No crazy and scary geometrical growth in trading accounts or inhumanly performance.
Question is, is this realistic?
People would like you to believe that you can generate a steady income from FX, this is not true. In some months you will win big in other months you will lose and lose. When planning your future do not count FX in as steady factor, only solid investments and interest-bearing papers. Please don't believe in the fact that you can win 20 years in a row, and having a profit each year. If you could do this you should start a fund and billions will fly at you. The only thing from FX that can generate a future flow of money is betting cumulative and hoping to hit a streak.
Well obviously I'm not assuming to score 200 pips precisely every month of every year for 20 years in a row.
I am well aware of the variance that comes into play. Like BBPI_fxtrader I once was a professional poker player. There is no better way to learn variance in your outcome (even though perfect strategy execution) than by playing poker for a living.
So I'm averaging the 200 pips/month out over 20 years. , some years + 3000 pips, others -600.
With this relatively safe money management system and 200 pips, I'll make about 20% each year on my forex investments.
In order to make it worthwhile and indeed allocate money within your investment portfolio to (aggressive) forex trading, I think 20% is a bare minimum
My current investment portfolio is a very broad and diversified mix of stocks/bonds/real-estate/commodities. But I'd like to generate some alpha/uncorrelated returns within that portfolio, hence forex trading.
You may think that you will not be taking aggresive trades but to achive such results you will be taking a lot risk.
May I ask if before you thought about a financial plan, did you thought about a trading strategy plan which will average 200pips a month for 20 years ?
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