This is probably the question that we get asked the most via email so I thought I spend a few minutes exploring this topic and what every trader needs to know when it comes to performance or percentage returns in trading. Although you will not find specific return numbers here, this article will help you understand your trading in a new light.
Why do you ask it?
I get it. You want to know what you can expect from your trading and whether it’s worth spending your time on it. You maybe also want to calculate how much money you can make or how big your trading account needs to be to achieve a certain income level with your trading.
This is totally normal but we will see why this can be very dangerous for your trading.
Trading isn’t a sure thing.
Obviously. There is no paycheck waiting for you at the end of the month and payouts can vary a lot in trading. We all know that but accepting this on a deep level seems hard for many traders because it means uncertainty.
Most people are used to knowing how much money they make and when their salary is coming so that they can plan their life.
Becoming a trader means more than being able to read charts and understanding financial markets but it also requires a mental shift. Especially for people with a 9-5 job (it’s different if you are already self-employed), being a trader means thinking like a trader and accepting the randomness and uncertainty of this game.
The next step: don’t limit yourself
The next real problem that comes with setting return goals is that it limits yourself. Let’s say you somehow establish a 5% monthly return goal and you just make 3% a month. Does that mean you traded badly? Of course not, but if you set yourself a target and don’t reach it, it can easily lead to frustration and then negatively impact your trading.
Again, trading is an activity with huge uncertainty and you cannot control how much money you can take out of the market. You must be open for the trades as they come and you have to stay away from forcing trades because you want to reach your random return target.
I am not you
The other thing I highlight when traders ask me how much money they can make is that even if I’d tell you how much I make, it won’t mean anything for them. Return is closely related to risk and the level of risk you are willing to take will determine your return, but also other things such as account volatility and drawdowns.
You can model other traders’ trading methodss but you should never compare yourself to someone else’s return.
Finally: How much return can you make…
Obviously, return is important and if you can’t make money, trading won’t be worthwhile for you. So instead of chasing random return goals, do this:
- Where are you as a trader?
Especially if you are a beginning trader, asking for return goals should be avoided and your area of focus should be somewhere else. It’s like an amateur soccer player asking how much Cristiano Ronaldo makes per year – it’s not only pointless but it will also not help you become a soccer player, and make you feel unworthy and bad at worst. First, you need to learn your craft, work on the basics and earn your spot.
If you are just starting out, your only goal should be to learn as much as you can and avoid the common beginner’s mistakes.
- You are your own opponent
I said it in my last article: in trading, the only one you need to beat is yourself. This is also true when it comes to performance.
Instead of asking me or other traders how much they make, look at your own performance and then try to improve. If you still lose consistently, try to become a break-even trader. If you trade break even already, focus on getting your performance positive, and if you make 1% – 2% per month, see if you can improve your performance by tweaking your system or by improving your process.
Get a trading journal and track your progress. Only then will you be able to really measure where you are and whether you are moving into the right direction. And commit to learning one trading strategy only!
I understand that it would be great if I could just tell you that you can make 100% return every year by following a few simple tips, but this is not how trading works and the sooner you can understand it and focus on what will actually make a difference in your trading, the sooner you have a chance of profitable trading.