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$100 to $100K in 1 year...

  • #1
  • First Post: Dec 20, 2007 9:41am Dec 20, 2007 9:41am
Welcome to the FF Fly Trap Newb... you've just been caught and you're not allowed to leave until you have actively read and participated in this thread for at least a year!!!

In this thread we are going to methodically disect what it means to be a trader, how to set goals and expectations that will lend itself to good trading. We're going to debunk myths about trading and help you build a solid foundation to move forward from.

This is a Forex Vacination: It's gonna hurt, you may not want it, you may not believe it, but deep down you know its good for you...

Often on a board the more experienced focus on telling people what they can't do or why something won't work... A lot of that is going to happen here as well, but I'll try to balance it out with what you CAN do in a resonable system that is built for the long haul.

Do NOT come into this thread and tell me something can be done unless you have several years of actual proof and can also prove that those results are typical and not unusual.

I encourage all questions, but I'm not going to spoon feed you... I will help point in the direction of knowledge becaus on that path there is mucho learning. If you ask me what is a good average expectation for return, I'm going to send you off to Barclays to do some digging... If you spend time there you will learn much more than what the averaged FX CTA is returning in a year.

I also encourage all knowlegable traders to chime in with there own knowledge, but again, make sure its grounded... If somethings off, I will be calling you out on it and will be asking for proof.

Lets get started...
Trade Small. Be Patient. Learn to Survive.
  • #2
  • Dec 20, 2007 10:23am Dec 20, 2007 10:23am
I want to be a trader!!

What exactly does that mean?

A lot of that will depend on where you came from professionally. If you’ve worked in the financial field prior to this your vision of a trader will be shaped by those experiences. If you’ve come from a different background your vision will be based on other influences.

Many people who come to retail forex see trading as a way to reach a zen like state in life where they work from a home on the beach and watch the waves break just a few yards off-shore. Their life is relaxed, there are no money worries, and things are peaceful. That’s a great vision…

Let me fine tune it for you just a little.

You’re standing on a very loud and busy city street; you’re in your best clothing and its pouring rain… There are more noises and lights than you can possibly begin to take in and process. You’re late to your destination, you’re lost and aren’t exactly sure where you are going; you’re carrying a large amount of cash on your person and around every other corner is a mugger who is going to beat you until you give some of it up. Chances are very high you will not survive all the beatings before you get to your destination. On top of this, you will have to do this every day until you retire or are completely out of money. Zen for you will be little more than survival at the end of the day. Welcome to the first three years of your trading life…

So let’s go back and ask the question again; “What does it mean to be a trader?” Trading is a profession that requires you to be right more often than you are wrong. So it’s like any other job. You can’t have a failing record as a surgeon and be in business very long. It’s also going to require you to have the emotional detachment of a surgeon; you just cut into a man’s chest in an attempt to prolong his life from five years to twenty and in the process you’ve killed him. You have to perform the same operation again tomorrow… Better get you head on straight right away.

Every day you will be faced with losing real money that belongs to you, your family and friends and or people who can put un-Godly amounts of pressure on you if things go poorly.

Like a surgeon you need to be above average in intelligence or you need to offset that with an outrageous amount of drive and perseverance, which means you will spend more time to get it right and that will come at the cost of family and friends and other things that would have other-wise brought you joy, balance and contentment.

Like being a doctor, Trading is not meant to be a hobby; you can do it as a hobby but you won’t succeed. To succeed as a trader requires a fulltime commitment to the process; for must of us that means two full-time endeavors in our life when we first start. One to survive and pay the bills with and then trading which will probably take four or five years to really get it down before it will be a stand alone success.

Like medical school or the Navy Seals training, most of you will not have the mental fortitude, financial means or structure in your personal life to make it… Most will washout and ring the bell before they have succeeded. Anyone can enter the ranks, few will exit with honors.

To be a trader means to be fully committed to the process, not for a month or a year but for years and years.

Additionally I believe those who succeed in trading are often strongly driven by a single purpose. They either want to help people, want to be insanely rich or have a need to crunch numbers and process information on very complex levels… Whatever it is, it will be a resounding drum in there heads that simply will not stop until they’ve succeeded.

To be a trader is to be obsessed with the question that only trading can answer. Trading is not for the weary, the weak or the wimpy… If you have the fire you may proceed! J

Next up… Setting Goals
Trade Small. Be Patient. Learn to Survive.
  • #3
  • Dec 20, 2007 4:08pm Dec 20, 2007 4:08pm
Setting Goals

Before I go too far let me just say; I know most of you will ignore this… And that’s OK. Most of us have to find our own path through this; that said I still feel compelled to thrust my opinion of trading into the FF world.

First just a little background; I’ve been a registered CTA since 2003 (I just recently withdrew it); you can search the NFA data base for Putman Financial Inc to verify. I’ve been an analyst and guest writer for FXCM and RefcoFX (yeah that worked out just great).

I was the senior analyst and Web Content Manager for FXStreet.com

I’ve worked with AutoChartist as a paid consultant to help them improve their extremely popular software.

My professional track-record as a trader is relatively short, just about a year due to the RefcoBK. I had raised about $250k and had another $200 on its way when the BK was announced. In that year of trading my returns were substantially better than the average Barclay Currency CTA returns using 1:1 to 2:1 max open leverage at any one time. My model was tracked by AutumnGold and I had been invited to begin reporting my returns to Barclays (which I declined as I was quite sure trading was about to be suspended).

Personally I’ve traded forex on and off for over five years and have traded equities in varying degrees and stages since 98 when the internet technology began to make it possible to do so from home.

I secured my first license at the age of 19 (21 years ago) when I went to work for a small mutual fund company in upstate New York. About a year after that I went to work for Dean Witter as a research and trade assistant for one of their VP’s… This is when I got the bug for trading but also experienced my first real kick in the gut when it came to loss.

People often accuse me of being too conservative: I came into the financial markets right after the crash of 87, I watched clients lose tens of thousands of dollars in the dip of 89 based on research that I had conducted. After placing in the top 1% in a nationwide trading contest in 99 I set out to launch PFI only to watch the majority of my prospects lose all their funds in the market collapse.

In the years that followed I put the vast majority of my income and savings into R&D for the trade model and launching and maintaining the company, only to see most my portfolio and most of my clients money lost in the RefcoBK.

What’s unfortunate about all of this is: I’m not unique… If you trade long enough, you will eventually encounter Industry Risk outside of risks that are inherent to your approach and methodology. Thousands of people have been through what I’ve been through. It’s the nature of the business and it WILL forge your outlook going forward… So yes, I’m very conservative, and for the most part it has allowed me to wage war another day. Of course my opinions will be skewed by this conservative outlook, it’s up to you to decide if what I’ve experienced is possible or even probable in your own trading career.

Let’s get to it…

Part of being a successful trader, is knowing what “Success” actually means. People usually define success as making “x” amount of dollars a year. The thought process usually goes something like this. I want to make a LOT of money; the person determines what a lot of money is to them and then works backwards from their goal to their current situation.

Here is an example: Mr. New Trader wants to replace his current salary of $50k a year with trading income so he no longer has to work for his boss. He’s going to start with $10,000 of savings. This money is of course after tax so it represents about 24% of his actual net income depending on his tax bracket for a single year. It’s no small amount. Typically New Trader is doing this outside of his other investments and chances are good that this allocation is greater than his Investment Advisor would recommend. Most AI’s will suggest a 10% allocation or less to alternative investments to help balance portfolio risk and lower Return Correlation amongst assets. If New Trader saves ten percent of his gross each year for investments ($5000) than only $500 or less should be allocated to FX.

The problem is New Trader is no idiot, has already done some homework; he’s been on the boards and he’s seen a bunch of systems and traders who can make double digit returns every month, but he knows with a $500 allocation (or there about), that it will take him nearly 50 months (4 years) to get to the point where he can replace his income… That will never do. So he’s decided to use the $10k he has in his account which is the equivalent of 20 years worth of alternative investment allocation. This though only momentarily bothers him, because it will be totally worth it when his is completely independent. Trading for a living is going to be Sweet…

New Trader calculates if he can average ten percent a month with his $10,000 he can be at his goal in just about 18 months, maybe less. This seems much more realistic to New Trader… Now he just needs to get his approach down and get to trading.

Very few of us are told what we should be aiming for when we begin trading; we see and here returns but we never no for sure if they are good or even really what our goals should be.

What New Trader is about to do will not work and thousands before him have tried. There is no solid evidence that any group of traders can consistently make ten percent or more a month, despite that you will here proclamations of it again and again. People will waive the “10 Pips a day” banner at you, practically screaming and crying at the same time “it CAN be done”… and yet no one has ever done it consistently for a statistically significant period of time. Yes they want to believe it can be done, but those returns are a lottery ticket, if you’re lucky, one day you’ll get a good one. Most will not.

Lets look briefly at the 10 pips a day phenomenon: Currency pairs have a lot of volatility; they will move 50 to 100+ pips a day. A reasonably intelligent trader will say, if the market moves 100 pips a day, I only need to capture 10% of it… that’s got to be doable. Let’s see…

If I’m trading a $10,000 mini account and I collect on average 10 pips a day and I’m trading at just 2:1 leverage, each month I’ll earn 4% return. (10 pips x 20 trading days x 2 / $10,000). In a year I’ll earn 48%. Again all I have to do is capture 10% of the price action.

Here is the first test we’re going to establish and we’re going to use it a lot: It’s called the “Is anyone actually doing it test”.

Let’s go to Barclays… http://www.barclayhedge.com/research/indices/cta/sub/curr.html

This is the Barclays Currency CTA Traders Index; they’re FX traders just like you and me. Take a quick look at the average returns for all the years reported; do you see any that were 48% or higher? Looks like just one. If you run an average on the years you’ll come up with 9.32% average return for all the years posted. Now does that mean NO-ONE is producing returns above 10%? Of course not, you will always have star performers who out-do their benchmarks. Some will do it one year and some will do it many years, but what important here is that we begin to ground ourselves in reality.

Now its time for a quick interjection: In the past I’ve had a lot of people say to me… well my goals are different than a money managers (obviously you’re trying to make ten percent a month) and I say REALLY? How is that? Well, I don’t have to worry about clients and protecting their money. Trust me on two accounts here: 1, your job is not to protect your client’s money it’s to make them money, and 2. if you don’t make them money not only will you not get paid; you won’t have to worry about protecting anything.

People try to separate themselves from what professionals are doing because these returns don’t fit their personal goals. I can’t be trading full-time in 18 months if I only average 9% a year; at that rate it will take me twenty years to hit my goal, it’s unacceptable. So they push on and find other retail traders that have the same goals and they form a union of belief. Then they spend the next 12 months arguing about what can be done while they all suffer silently as their attempts fail. I have personally seen hundreds and hundreds of people on the FX boards come and go in the years I’ve been active on them.

If you are going to set expectations (not goals) they should be based on what is real. The returns at Barclays are real; if you can consistently do better than the average ON A RISK ADJUSTED BASIS you are a GREAT trader. Think about that for a second; is anyone here currently sitting on gains above 2.56% (the average return for 2007) while using just 1:1 or 2:1 leverage, or maybe even above the median return of 9.32%. If you are, you’re doing a great job as a trader… again; you are doing a GREAT job as a trader.

But I can’t make it with only 9.32% a year; it won’t get me to my goal of $50,000 a year. You are correct, so what do you do?

Keep the goal, but change the path to it. Remember, there is more than one road to Rome.


Next time: The path to trading full-time…
Trade Small. Be Patient. Learn to Survive.
  • #4
  • Edited 7:50pm Dec 20, 2007 7:21pm | Edited 7:50pm
Oh how I wish I had your way with words!

I think it very possible you may have just saved some Families Grubstakes.

Will be following this thread for sure.

I was an IB for RFX and had > 2M on acct.

{Edit} Will remove post within 24 Hours to allow for continuity.{Edit}
  • #5
  • Dec 20, 2007 7:44pm Dec 20, 2007 7:44pm
This is what i call a great read
"Diversification is an excuse for a lack of talent" ~FXC
  • #6
  • Dec 20, 2007 9:16pm Dec 20, 2007 9:16pm
man I'm sorry about the rfx account and by all means leave the post there; these comments help to echo the experience accross a wider group. makes it a little more real for those reading.

thanks again four support guys.
Trade Small. Be Patient. Learn to Survive.
  • #7
  • Dec 20, 2007 10:28pm Dec 20, 2007 10:28pm
You have a rare writing style that combines education with entertainment. Don't worry, I won't call you an edutainer. >oops, sorry<

Anyway, I'm subscribed to only a small handful of threads. I check them daily when I log in to FF. I just added this one to my list. Thanks for the insights.
  • #8
  • Dec 20, 2007 10:29pm Dec 20, 2007 10:29pm
FXA

Very well written piece. From those of us who have already been vaccinated, the booster stings a bit too!
Thanks for taking the time to lay things out so skillfully.

Bill
  • #9
  • Dec 20, 2007 10:56pm Dec 20, 2007 10:56pm
Thanks Bill... It's even good for me to go back over things once in a while too... never hurts to review. There will be more coming in a day or two.
Trade Small. Be Patient. Learn to Survive.
  • #10
  • Dec 20, 2007 10:58pm Dec 20, 2007 10:58pm
Quoting opie999
You have a rare writing style that combines education with entertainment. Don't worry, I won't call you an edutainer. >oops, sorry<

Anyway, I'm subscribed to only a small handful of threads. I check them daily when I log in to FF. I just added this one to my list. Thanks for the insights.
Thanks for the compliment... I want the information to be interesting, without being to cheesy or condensending, but I don't want it to be dry either. If I get off course I'm sure the group will let me know.
Trade Small. Be Patient. Learn to Survive.
  • #11
  • Dec 20, 2007 11:20pm Dec 20, 2007 11:20pm
Are you affiliated with the fxan group? I've wondered that since I saw your first post....
  • #12
  • Dec 20, 2007 11:49pm Dec 20, 2007 11:49pm
Quoting tdion
Are you affiliated with the fxan group? I've wondered that since I saw your first post....
LOL.. my past has caught up with me. The site is no more (although I do still own the domain). FXAN originally was set up to be the primary marketing for the Money Management service but it also grew as I operated a signal service early on to drive revenue while AUM grew.

For a while I toyed around with the idea of developing and running a full fledged FX website to compete with FXStreet etc but I just don't have the drive for that. I'm a trader at my core and whatever I do going forward, I want to be able to get back to that... Refco pretty much wiped me out, so it will probably be a long time before I'm actually back to trading fulltime... the good news is, there are still some old contacts on the institutional side as well as some new ones that have interest in the model. Its a matter of allocation and then putting some time into to see if it still does what its supposed to do. I don't think I'll ever go back to managing individual accounts again, but I would trade the larger scale if it came my way... (I mean who wouldn't!)
Trade Small. Be Patient. Learn to Survive.
  • #13
  • Dec 21, 2007 12:56am Dec 21, 2007 12:56am
Quoting FXAnalytics
People try to separate themselves from what professionals are doing because these returns don’t fit their personal goals. I can’t be trading full-time in 18 months if I only average 9% a year; at that rate it will take me twenty years to hit my goal, it’s unacceptable. So they push on and find other retail traders that have the same goals and they form a union of belief. Then they spend the next 12 months arguing about what can be done while they all suffer silently as their attempts fail. I have personally seen hundreds and hundreds of people on the FX boards come and go in the years I’ve been active on them.
FXAnalytics, excellent posts! This entire thread should be stickied to the top of every FX forum on the internet (especially the above paragraph). These forums definitely need more posts from your perspective.

I haven't been a member here for all that long, but it sure seems like there's been a proliferation of threads lately with subjects along the lines of "I turned $x into $100x", "the holy grail found", "make a killing", "martingale", "where can I scalp GBP/JPY at 400:1?" etc etc. It's sad really.. It's no surprise why the under-$5 Casino Strategies section at Barnes & Nobles somehow always flourishes, I just cringe when I see so many similar themes interspersed with FX trading (before anyone takes offense, those types of threads are thankfully in the minority; though it seems to be a growing minority, since they attract so much ill-fated attention).

I've been thinking of posting a similar theme as the one you shared ever since the aforementioned threads starting popping up ad nauseam, but I couldn't have said it better myself. Your posts are a breath of fresh air.
  • #14
  • Dec 21, 2007 10:30am Dec 21, 2007 10:30am
Thaks alot KGB... I really appreciate that.
Trade Small. Be Patient. Learn to Survive.
  • #15
  • Dec 21, 2007 11:37am Dec 21, 2007 11:37am
Quoting Trader KGB
it sure seems like there's been a proliferation of threads lately with subjects along the lines of "I turned $x into $100x", "the holy grail found", "make a killing", "martingale", "where can I scalp GBP/JPY at 400:1?" etc etc. It's sad really..
I agree 100%. I'd only add that you can't judge a thread by it's title. Look at the title of this one after all. Lol!

John has created a no-nonsense medicinal thread with a sugar candy coating. An effective means of (hopefully) attracting those, like me, who need it most. It's a bitter pill but I know it's good therapy. In fact, despite my demo trading progressing quite well, I'm teetering on the edge of disillusionment with FX. Demo trading is meaningless compared to the real thing. I don't know, man. I'll just continue reading and studying and getting as much chart time as I can before deciding if I'm ready, or not, for prime time.

Looking forward to the next dose. Bring it on!
  • #16
  • Dec 21, 2007 12:43pm Dec 21, 2007 12:43pm
hey FXAnalytics, we moved this thread to the beginner forum because of the title (cant have these kinds of titles showing up on the homepage, other than the +1K-100K in a week" thread, because that one is actually real). if you dont mind changing the title, we can get this moved back to Forex Discussion, where it belongs. great thread btw
Relax and be happy.
  • #17
  • Dec 21, 2007 1:34pm Dec 21, 2007 1:34pm
Well Said! This is just the kind of post to prolong the life of a new trader like me. You injected humors with facts and keeps our eye glue to the thread. Sound like a poem, haha! Anyway definitely will subscribe to this thread, thank you for the time!
  • #18
  • Dec 21, 2007 2:22pm Dec 21, 2007 2:22pm
Quoting merlin
hey FXAnalytics, we moved this thread to the beginner forum because of the title (cant have these kinds of titles showing up on the homepage, other than the +1K-100K in a week" thread, because that one is actually real). if you dont mind changing the title, we can get this moved back to Forex Discussion, where it belongs. great thread btw
Hey Merlin, no worries on the move... lets keep the options open and see how the views hold up over the next couple of weeks; if the readership is low and you think we'll get better reach by a move back then we'll do that.

The title was kind of intentional and I'd like to leave that hook out there for the rest of the new traders that wander through. If we don't see good readership we can adjust to something more appropriate like, It's Easy to Trade for a living!!!

Thanks for the kudos!

fxa
Trade Small. Be Patient. Learn to Survive.
  • #19
  • Dec 21, 2007 2:47pm Dec 21, 2007 2:47pm
Quoting FXAnalytics
.....
This is the Barclays Currency CTA Traders Index; they’re FX traders just like you and me. Take a quick look at the average returns for all the years reported; do you see any that were 48% or higher? Looks like just one. If you run an average on the years you’ll come up with 9.32% average return for all the years posted. Now does that mean NO-ONE is producing returns above 10%? Of course not, you will always have star performers who out-do their benchmarks. Some will do it one year and some will do it many years, but what important here is that we begin to ground ourselves in reality.

Now its time for a quick interjection: In the past I’ve had a lot of people say to me… well my goals are different than a money managers (obviously you’re trying to make ten percent a month) and I say REALLY? How is that? Well, I don’t have to worry about clients and protecting their money. Trust me on two accounts here: 1, your job is not to protect your client’s money it’s to make them money, and 2. if you don’t make them money not only will you not get paid; you won’t have to worry about protecting anything.

People try to separate themselves from what professionals are doing because these returns don’t fit their personal goals. I can’t be trading full-time in 18 months if I only average 9% a year; at that rate it will take me twenty years to hit my goal, it’s unacceptable. So they push on and find other retail traders that have the same goals and they form a union of belief. Then they spend the next 12 months arguing about what can be done while they all suffer silently as their attempts fail. I have personally seen hundreds and hundreds of people on the FX boards come and go in the years I’ve been active on them.

If you are going to set expectations (not goals) they should be based on what is real. The returns at Barclays are real; if you can consistently do better than the average ON A RISK ADJUSTED BASIS you are a GREAT trader. Think about that for a second; is anyone here currently sitting on gains above 2.56% (the average return for 2007) while using just 1:1 or 2:1 leverage, or maybe even above the median return of 9.32%. If you are, you’re doing a great job as a trader… again; you are doing a GREAT job as a trader.
.....
FXAnalytics, Magnificent post! Many thanks for sharing. (Every post that says something like "attaining consistent profit is difficult" makes me feel a little less stupid, that after 6 years, I haven't been able to achieve it).

There are AA-security-rated banks offering investments with a greater return than 9.32%. Given that this income is completely passive, it begs the question: why spend countless hours analyzing markets, then waiting for the perfect setup to occur, and then sweating blood as your watch your position initially move against you?...... all in the hope that you're good enough, or at least will be one day, to (significantly) beat an industry average. I can only assume that people trade because they enjoy the challenge, or the adrenalin rush, rather than for profit.

I have a couple of questions.....

It seems clear to me that, to be a successful trader, one must have a provable "edge", one that's capable of profiting in the foreseeable future, and beyond that, indefinitely. (If we can't say "indefinitely" with any certainty, then that suggests that the method could break down at some point). If a trader doesn't have a provable edge, then all gains and losses are necessarily fortuitous.

1. How does a trader (objectively) measure his edge?

2. Given that any trader can have a fortuitous run for several weeks, and possibly even several months, how many trades does a trader need to have behind him before he can be sure that his method (and implementation) will work profitably, no matter what conditions (price behavior) the market throws at him? Given the near random nature of price movement, can he really ever be sure?

I hope my questions aren't too off-topic. I don't want to hijack your thread. Perhaps you were going to discuss similar issues in your upcoming articles?

Thanks again for your contribution.

David
  • #20
  • Dec 21, 2007 3:23pm Dec 21, 2007 3:23pm
An absolutely amazing job FX. With your permission, i think i'll make it mandatory reading for all of my new hires. In a manner, u just took a chainsaw to all of the hype out there. Retail forex has some marketing wizards to be certain... Thankfully I'm institutional. :-P

Keep up the good work
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