There’s an old adage that I’m reminded of at the turn of each year; “Many people look forward to the New Year for a new start of their old habits”. I’m also quite fond of this phrase; “I make no resolutions for the New Year. The habit of; making plans, of criticising, sanctioning and moulding my life, is too much of a daily event for me.”
If looking for an apt New Year quote then Mark Twain does it best;
New Year’s Day..now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual.
So it’s that time of week were you may have already broken your new year resolution and let’s be honest it’s a silly tradition, if you have the necessary will power to stop behaviour that is ‘self harming’ then you shouldn’t need a traditional jolt at the turn of the year to correct it. But were trading is concerned new year resolutions can be incredibly powerful at focusing the mind, helping you find a new direction and setting a new fresh course.
So what will be your New Year trading resolution, to make money, change broker, improve your trading, stick to the plan? Guaranteeing that you’ll have a profitable year is impossible, however I could make one prediction and give you a single piece of advice that would absolutely improve your trading performance. I’d actually go a stage further and guarantee that you’d actually make more money if you implemented this advice…If you’ve written down a thorough trading plan, perhaps have someone who you respect glance over it to then give it the thumbs up, I absolutely guarantee you’ll be giving yourself the best chance of success in our retail forex trading industry if you commit to adopting it. And it really is that simple and straightforward; if you want to improve your chances of having a successful year, or increasing your profitability, then either create (or revise) your plan and more importantly stick to it..
As part of your comprehensive plan and its New Year adjustment it’s also worth taking the time out to assess what would represent a realistic profit target based on your account balance, your time and preferred method. If you’re a part time swing and or position trader, and if you’re plugged into the right intel., then your swing or position trading shouldn’t be a ‘full time’ activity. The mental and physical activity of trading should only occupy a small proportion of any swing/position trader’s day.
However, with that realisation comes the expectation that the targeted profits should be much less than if, for example, trading intra-day or scalping. So if you’re a trend trader what would represent a reasonable ROI (return on investment) for you in 2012? Now before we go any further I’ve just written an article on hedge funds reporting how they couldn’t even manage to ‘beat the S&P’ in 2011. But their trading model is very different to ours and given their expenses they’ll have to make circa twenty percent per annum to simply break even, in turn handing over a small return to their investors.
So armed with the knowledge that hedge funds have struggled to break even in 2011 does 100% return per annum read as being over ambitious for a ‘trend’ trader? Well if you’re not familiar with our industry then it does read as incredibly over ambitious, particularly if you’re used to the very poor savings’ returns offered by banks and savings institutions. However, for trend traders, trading an account of €30,000 +, risking circa 1% of their account per trade, 100% return on the year is very achievable and realistic. Let’s break this target down further to manageable and realistic levels and daily targets. Firstly, would you regard an average of half a percent gain per trading day as representing a decent return and is that return achievable, an initial €150 gain per day? Seems reasonable and modest doesn’t it..
With on average twenty trading days per month you could theoretically gain ten percent per month. With twelve trading months per year that’s the equivalent of 120% growth per year and that’s before we account for an element of compounding. If we accept that compounding is part of the plan (we’re going to let the account grow organically and not withdraw any funds as they grow) then we’d only require circa 0.25% average profit per day to reach our target of 100% growth in 2012. Surely most of us can target 0.25% per month?
If we’re risking 1% per trade and winning two out of three trades (with an R:R of 1:2) then we should gain 2% out of every three trades. If trend trading then this 2% should occur on each forex pair you trade perhaps twice a month. If you trade two pairs concurrently then your target should be very achievable.
So let’s start the new year positively, let’s keep our ‘new year’ glass permanently half full. As part of your overall trading plan write down that figure of 100% account growth as your target and stay focused on it. Then re visit it next year to gauge your performance. As we’ve demonstrated it’s an entirely realistic target if trend trading (swing and or position), risking no more than 1% per trade and two pairs concurrently.