How to Make Millions from Forex Trading?
Contrary to what you might have read elsewhere on the Internet the answer to this is not some magical indicator or ‘Holy Grail’ system that generates 500%, 1,000% or even 10,000% returns in just 12 months. There is so much misinformation on the web regarding forex trading and how to become a successful profitable trader. I want to use this article to teach you a real strategy that you can use to generate millions of pounds / dollars in profit by trading forex full time.
First of all, let’s just consider for one minute why most of the systems you find online are utter rubbish. If it was possible to purchase an entirely mechanical system, indicator or Expert Advisor (MT4/5 related, Google it if you haven’t heard of them) and make millions overnight then why would anybody need to work anywhere in the world? Why would banks and hedge funds need to employ hundreds or even thousands of front office traders? The answer is simple; they wouldn’t. I think from this you can see it’s clear; there is no Holy Grail that is going to generate millions for you without putting in any effort of your own.
I suppose I was a bit hasty saying there is no Holy Grail, indeed I believe price action trading is the Holy Grail you’re looking for. That is why I advocate this style of trading so strongly and have based this entire website on sharing the benefits of price action trading with the forex community. But price action alone will not generate you millions of dollars in a short period of time. It is certainly capable of generating good healthy returns in percentage terms, and as beginner traders this is what I believe you should focus on.
But This Isn’t What I Want to Hear?
I’m sure that’s what many of you are thinking right now, but please, let me explain further. You see when I say price action trading can generate healthy returns in percentage terms I really mean it. How much do you think you would get in annual interest payments if you placed £5,000 in a bank account? Well, a pittance in most major economies at the moment with central bank rates at rock bottom following the crash of 2007-09. But, for the purposes of this article let’s assume your bank is paying 5%, this means you would see annual cash returns of £250; great, eh? No, I didn’t think so either. What about the property market? Maybe there are better returns there? In recent years leasing a property has seen returns of between 7 and 10%, but even that’s not great in my opinion.
So, how much can you expect to earn per year as a forex trader in percentage terms? How does this compare to other investment opportunities? Obviously this all depends on the ability of the forex trader in question, the risk / reward ratio they use, their strike rate (% of winning trades) and so on, but consider the example below as a good guide.
- Joe Bloggs trades forex strictly on higher timeframes and as such expects to average just 6 trades per month. He is only looking for extremely high probability setups on the daily timeframe since he has a day job and therefore the number of trading opportunities available to him is limited.
- Joe has a success rate of 50%, this means 50% of his trades are winners and 50% of them are losers, he also trades with a 1:2 risk / reward ratio religiously and nothing else.
- Therefore, Joe executes 72 trades over a 12-month period, of which he wins 36 and loses 36.
- Now, let’s consider how much profit he has made during his first year of trading. Joe started with an account balance of £1,000, a small sum of money he managed to save from the wage he receives for his day job.
- When he set out to start trading he decided to use a fixed risk per trade of £30 (or 3% of his available capital) meaning his reward would be £60 on each winning trade. Over the course of his first year trading his winning trades generated £2,160 worth of revenue (36 x 60) whilst his losing trades cost him £1,080 (36 x 30).
- It can therefore be concluded that Joe made £1,080 (2,160 – 1,080) profit in his first year trading which equates to an annual return in percentage terms of 108%, not bad compared to leaving it in a bank account, eh?
Am I getting my point across yet? Perhaps for some, perhaps I need to keep explaining. You may be wondering how many years you need to be trading for to generate millions of pounds if you’re only doubling you account balance every 12 months. Believe me, it would be absolutely brilliant performance for a beginner trader if you delivered results of this standard. But guess what, there is room for improvement too. Joe only won 50% of his trades, if he can improve his strike rate so that he wins 60% or even 70% of his trades then his annual returns will be higher still.
How Long Will it Take to Generate Millions at This Rate?
Well this is the crucial question isn’t it? It all depends on the amount of capital you start with. To clarify what I mean I have included two examples for you below. In the first example a trader starts with £1,000 and I’ll show you how many years it takes to generate £1,000,000. In the second example the trader starts with £50,000 and you will see how it takes him / her significantly less time to generate £1m.
Trader 1 – Starts with £1,000
|Year||Capital||Cash Risked per Trade||Annual Gains||Annual Cash Profit|
Trader 2 – Starts with £50,000
|Year||Capital||Cash Risked per Trade||Annual Gains||Annual Cash Profit|
As you can see from the tables above, it took the first trader 10 years to generate £1m capital starting with £1,000 whereas it took trader #2 just 4.5 years to generate £1m capital. Both traders generated the same annual gains, used the same % cash risked and theoretically used the same trading method. Hopefully what this has demonstrated is that everybody can generate £1m capital, and actually, whilst holding down a day job and only executing 6 trades per month, to start with £1,000 and finish with £1m in just 10 years would be pretty fantastic by anyone’s standards. There is one crucial thing here though, clearly the more capital you have at your disposal the quicker you can raise £1m (if you are a profitable trader)!
It Doesn’t Have to Take 10 Years
But it doesn’t have to take 10 years to generate £1m; even with just £1,000 at your disposal you can generate more capital in a shorter period of time. First you must focus religiously on proving to yourself that you can generate 100% annual return on investment, you should keep a decent trading journal recording all of your trades and you should stick at this for at least 2 years.
If you can achieve this you will be in the perfect position to approach wealthy investors, you will be able to show them your previous profitability and explain your approach and a trading strategy to them. Often this is how the most successful traders begin to make significant profits, by obtaining that much needed cash investment just like any other business.
So to wrap up today’s lesson, focus on your trading plan and execution in the markets, focus on your profitability in percentage terms not cash terms, prove to yourself and to prospective investors that you can generate healthy returns. Once you have done this look for investment in your fund, reach out to networks of wealthy investors and venture capitalists, you will be surprised how many you can find that are hungry to invest in lucrative business opportunities. But most importantly, if you don’t take anything else away from this lesson, remember to focus on trading pure price action setups, keep your charts clean of indicators and ‘magic’ systems and treat your trading like any other business venture you embark upon in life.