How Realistic Am I Being About Trading Full-Time

During my workout today, I crunched some numbers in my head to see what it would take for me to be able to trade full-time.  I've tried to find these answers on forums like Moneytec.  I know a lot of you may visit forex forums but I don't find them beneficial one bit.  There is too much garbage to sift through.  Someone on Moneytec asked if it is possible to trade Forex full-time and it wound up being a very long thread with no real answers.  It was full of people stating that it was possible, others stating that you needed a million dollars in initial capital to do it, and pessimists stating that it was not at all possible.  Now it may be that this is not an easy question to answer.  I will attempt to run something by all of you and you are free to bash it at will.  My assumptions may be conservative or even unrealistic.  How would I know the real answer to this question because I have not experienced it yet.  

Here are my assumptions:

  1. You are consistently profitable now
  2. You have a trading system that wins 60% of the time
  3. You make 10 trades a week
  4. Each winning trade averages a profit of 30 pips
  5. Each losing trade average a loss of 30 pips  (Yes, this is a 1:1 risk/reward)
  6. You start with $10,000 in trading capital
  7. You do not risk more than 3% on any trade
  8. You are trading a standard 100K lots
  9. You will not pull any capital out of your trading account until you reach your full-time goal

The first thing you have to ask yourself is how many lots do I need to trade to make a standard of living that I am accustomed to?  I live in the New York City area and for me to maintain my standard of living, I would really need to make $2400 a week.  If I make $600 a week trading 1 lot, then I really need to be trading 4 lots at a time to do this full-time.

  • 1 lot = $600 per week
  • 2 lot = $1200 per week
  • 3 lot = $1800 per week
  • 4 lot = $2400 per week
  • 5 lot = $3200 per week

You are starting with $10,000 in capital, can only risk 3% on each trade, therefore you can only trade 1 lot initially.  Based on my assumptions, you are making $600 a week.  How long will it take to be able to trade 2 lots?

You will need $20,000 to start trading 2 lots so you must continue to trade 1 lot until you make $10,000 more.  Making $600 a week, it will take 17 weeks or roughly 4 months to reach your 2 pip allowance.

Now you have $20,000 and you're trading 2 lots per trade.   I need to trade 4 lots and preferably 5 lots a trade to make a living doing this full-time.  Trading 2 lots at a time, I'm now making $1200 per week.  How long will it take until I can trade 3 lots?

You will need $30,000 to start trading 3 lots so you must continue to trade 2 lots until you make $10,000 more.  Making $1200 a week, it will take roughly 8 weeks or 2 months to reach your 3 pip allowance.

Now you have $30,000 and your trading 3 lots per trade.  How long will it take until I can trade 4 lots?

You will need $40,000 to start trading 4 lots so you must continue to trade 3 lots until you make $10,000 more. Making $1800 a week, it will take roughly 5 1/2 weeks or a little over a month to reach your 4 pip allowance.

So now you have $40,000 in your account and your trading 4 lots at a time.  You are averaging a profit of $2400 a week.  How long did it take you to trade full-time?

About 30.5 weeks, a couple of weeks more than a 1/2 a year. 

Is this correct?  I want anyone and everyone to rip this theory apart!!!  

Obviously the key here is you have to be profitable before embarking on this journey.  Just being able to do that could take years and years.

Comments

9 Responses to “How Realistic Am I Being About Trading Full-Time”

  1. forex2stay on September 22nd, 2006 10:12 am

    I do thinks it’s possible, but I believe money mangement is the key. This needs to be a marathon not a sprint. One thing I’ve realized is that you can’t use the same lot sizes for all of your trades. For example on one trade you might be risking 30 pips and another 20 pips. So if you trade 4 lots on both of them (standard account) you’d be risking $1,200 on one trade and $800 on the other. That’s not good money management can get you a person in trouble.

    Here’s what I do…..

    When I position trade (4hr and daily charts), I won’t trade unless I have a 2:1 risk reward ratio. I figure out the proper stop loss for my trade, based on TA. So for this example say that’s 40 pips. I then make sure based on TA that I’m comfortable getting at least 80 – 120 pips profit. Once i’m comfortable I put my information into the following formula.

    S=(E*R) / (P-X)

    S = Size of Trade
    E = Account size (Cash)
    R = Maximum Risk percentage per trade
    P = entry price on the trade
    X = pre-determined stop loss or exit price

    So let’s put in some numbers…..

    My account size $10, 000
    Entry price on EUR/USD 1.2600
    Currently I’ll risk 3% of my account on a trade
    My pre-determined SL is 1.2560

    So how many shares of EUR can we buy with our money management rules??

    S=($10,000 * 3%) / (1.2600 – 1.2560)
    S = $300 / .40
    S= 75,000

    Anyway this is the way I do it. I hope it helps…

    Forex2atay

  2. Rich on September 22nd, 2006 10:57 am

    I agree. Money management is key and definately something I believe will come with experience. Trading multi-lots is really a mystery right now. When I have traded multi-lots it was all in and all out which really doesn’t give you the benefit that trading multi-lots can give you. Thanks for the formula. This looks great but this is also assuming that your broker allows non standard size pips correct or are you rounding up (Is it Oanda that allows you to specify any lot size?) Thanks for the helpful comment. Good stuff.

  3. Wim on September 22nd, 2006 12:47 pm

    Hi Rich,

    I agree with this but did you ever consider opening a mini account?
    You can more fine tune your lotsize. For every $1000 in account, you can add 1 mini lot extra.
    So, for 10K = 10mini (equal 1 standard lot)
    11K = 11 mini
    Advantages of the mini: (1)you can make more money since for example, if you balance is at 15K, you already can trade 15 mini lots which is not possible when trading a standard account. (you still have to trade 1 standard until 20K has been reached).
    (2) I think emotional, it is better to go up slow and staedy adding 1 mini lot for every $1000 extra, I think going from 1 standard to 2 is a much bigger difference in what you gain or lose and maybe this can work against you.

    I did swap my standard account for a mini since 2 years now and I don’t want to swap it back because all above advantages.

    Hope this helps.
    Wim

  4. Magdalena on September 22nd, 2006 1:26 pm

    Hi Rich,

    I do a lot of my forex thinking at the gym as well :) Your plan sounds doable and it’s a lot like mine – only your money management is much better. I think Wim is right about trading mini lots, it definitely gives you more flexibility. I have a couple of questions though: 1) Did you make provision for taxes in your simulation? 2) Assuming that you go full time after hitting 40K, are you going to take out all the profits at the end of the month or leave some of it in the account to let your equity grow?

  5. Rich on September 22nd, 2006 1:32 pm

    Magdalena,

    I did take taxes into consideration just not in detail. I figure if I can make 100K a year before taxes, that would be sufficient with the thinking that 25% would go towards taxes. We also have to remember to factor in health insurance! This is big money.

    I would have to say that I would probably wait a bit before I committed to full-time and build a little reserve. I’ve always heard to take your profits out at the end of the month, all of them.

  6. Rich on September 22nd, 2006 1:34 pm

    Wim, I actually never heard this or ever thought of it. Now that you mention though, I would absolutely agree with you. This is a great idea and one that will probably push me to converting to a mini.

  7. Forex2stay on September 22nd, 2006 2:01 pm

    Yes Oanda will let you trade indivuals. So I can trade 10, 100, 1000, 10,000, 100,000 sizes. Or even 22,261. This way I’m only trading 2 percent of my account.

  8. Forex2stay on September 22nd, 2006 10:11 am

    I do thinks it’s possible, but I believe money mangement is the key. This needs to be a marathon not a sprint. One thing I’ve realized is that you can’t use the same lot sizes for all of your trades. For example on one trade you might be risking 30 pips and another 20 pips. So if you trade 4 lots on both of them (standard account) you’d be risking $1,200 on one trade and $800 on the other. That’s not good money management and it can get you a person in trouble.

    Here’s what I do…..

    When I position trade (4hr and daily charts), I won’t trade unless I have a 2:1 risk reward ratio. I figure out the proper stop loss for my trade, based on TA. So for this example say that’s 40 pips. I then make sure based on TA that I’m comfortable getting at least 80 – 120 pips profit. Once i’m comfortable I put my information into the following formula.

    S=(E*R) / (P-X)

    S = Size of Trade
    E = Account size (Cash)
    R = Maximum Risk percentage per trade
    P = entry price on the trade
    X = pre-determined stop loss or exit price

    So let’s put in some numbers…..

    My account size $10, 000
    Entry price on EUR/USD 1.2600
    Currently I’ll risk 3% of my account on a trade
    My pre-determined SL is 1.2560

    So how many shares of EUR can we buy with our money management rules??

    S=($10,000 * 3%) / (1.2600 – 1.2560)
    S = $300 / .40
    S= 75,000

    Anyway this is the way I do it. I hope it helps…

    Forex2atay

  9. Experienced Trader on January 3rd, 2009 1:14 pm

    From my personal experience… there are 2 flaws from your calculation.

    You wrote this on 2006 and I got to read this post just now (2009) while surfing the net. So my advice would have been too late :-)
    I’ll point them out for educational purposes and save other forex beginners from losing their money.

    I’m assuming this calculation didn’t work because there were 2 flaws you didn’t know. Every part of the calculation was fine, except for 2 of them. If you are a very, very, very lucky person with high discipline, this calculation would work in around 2 years and not 30 weeks.

    Here are the Flaws:
    Flaw 1#: You can’t trade 4hr chart /daily chart and use a 30pip SL. You have to be a really well experienced trader to execute such tight SL on 4hrly. Let me assure you that it can be done, but for a beginner or intermediate experienced traders, 90% of the time it will hit your SL.

    Flaw 2#: This is actually a big secret in the FX world, I won’t fully disclose it, but I will let you have a little piece of the pie…. pay attention carefully!….. “You can’t go from 1lot, 2lot, 3lot, 4lot, 5lot, 6lot, 7lot, 8lot….”……..You can if you want and find out where it leads you.

    I can hear some of you saying ” What an A***!!!, won’t share and help people ”

    I don’t expect you to understand. Actually, I’ve saved future readers/traders a lot of money, who might consider and trying this approach. My other point from not disclosing it fully is because:
    “***anything handed to you without you experiencing the hardship of attaining it, possess no meaningful value to you. And you will never able to appreciate it and understand its deeper meaning.***”

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