forex analytics
better trading through research
better trading through research
This article looks at the often asked question, “Can I trade foex for a living?” and reviews some of the important, but often overlooked factors to help answer. The article isn’t intended to sway you one way or another but rather to get you thinking about how to uncover a proper answer for yourself. Keep in mind, as you research, not understanding a term or concept doesn’t mean it doesn’t apply to you! Better to keep digging and gain the knowledge than blindly hope for the best.
Can you trade for a living? Theoretically yes, but in reality, probably not. Here’s a partial list of reasons why:
The average forex trader:
- Tends to be underfunded. What does that mean? Let’s assume your household expenses are $2400 a month, in all reality they are higher but this will make the point. If on average you are able to generate 12% a year returns you would need a funding level around $350,000 to meet your expenses. Let’s run the math. $2400 a month is after taxes, for arguments sake we’re going to assume the pre-tax amount is equal to $3400. It will depend on your tax bracket.$3400 x 12 (months) = $40,800. $40,800 / .12 = $340,000.
- Doesn’t engage in proper testing of their methodology before allocating capital. Few retail traders are taught or know how to properly stress-test a method or strategy.
- Relies heavily on Confirmation Bias, often from unproven resources and is quick to reject any opinion, regardless of source, if it doesn’t support the trader’s desires and goals.
- Is overconfident about the level of generated returns and how consistently they can be reproduced. As an example they believe they will make above average returns every year with little basis or proof for the belief.
- Overcompensates for fundamental shortcomings by adding risk. As an example, if a trader decides that an average return of 10% a year is unacceptable, or will not meet their goals, they will look for inappropriate was to increase return. Increasing leverage, trading frequency etc. All of which increases the risk of account ruin.
In conclusion we’ve reviewed some of the concepts a new trader should consider when entertaining the idea of trading full-time. These are things they might not be readily familiar with but should be part of the initial research conducted prior to trading (if possible).