Monday, January 28, 2013

Pro Traders Don’t Think In % Returns

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One of the biggest ‘trading secrets’ is that forex percent returns don’t really matter. Think about it, if someone will tell you they made “100% on their trading account last year”, what does that in reality mean?

It is not actually a relevant regarding their trading performance because it could simply mean some amateur trader got very lucky a few times and he turned his small $300 dollar account into a $600 account, or on the other hand it could mean that a professional forex trader followed his plan and banged out a very nice return at year’s end, he also doubling his account.

The point here is…percents don’t actually mean anything in the forex trading world because they are relative to many other variables. Let me explain…

Professional traders are not reporting annual performance to some group of share holders; they are trading for monthly profit. They withdraw money regularly to live off the profits…so their trading account balance is probably not a best reflection of their cumulative profits they have made for year, because they’ve taken majority of profits out of the account. Essentially, pro forex traders don’t track account value by how much ‘percent’ its up because they withdraw money out of it and the balance will fluctuate from month to month depending on their profits and losses that can occur.

In reality forex trading account size and % returns are very arbitrary in pro forex retail trading, the most important thing is your risk vs. reward…how much you risked vs. how much you have gained, and that would be the true measure of your performance and a better genuine benchmark to compare one forex  trader to another. So, professional traders always think in terms of risk vs. reward; how much money did I risk and how much money did I make?