This article was written by Judith, who learned the hard way that making profits in Forex trading requires time and effort, but can be done. Can an amateur trader make big forex profits? This question is commonly asked by people who are wanting to learn how to trade forex:
Read on to see how we answer this question, using our years of forex trading experience.
Is somebody able win the lottery? Can someone be the recipient of an unknown benefactor’s inheritance?
The answer to both of these questions are of course “yes”. However, I wouldn’t go making drastic life decisions just yet. Plunking down your life savings in lottery tickets. Quitting your job. Waiting for the phone call to inform you of your huge inheritance. These aren’t the way to go.
Boom to Bust
Can an Amateur Trader Make Big Profits? is a question on many newbie traders’ minds. In fact, I myself tripled my very first Forex account in only a matter of 3 weeks and made large Forex trading profits! With ZERO knowledge about how to trade! It’s what happened next that is more important though. This illustrates that as important as this question might be, it is what is behind the question that really needs answering.
That fabled first account. I knew nothing of trading, and took positions based on “feel”. I had very little idea about what size lots I was trading, or how currency pairs moved. But somehow, I managed to catch a streak of winning trades my first few weeks in the business. Now I know, that was based on sheer luck and I just happened to catch a period in the pairs. I was trading where they were essentially moving in the same direction during that month, or “trending” for that time period. I had taken a crack at the market. And then, that fateful evening came, and I took a stab at a few more trades. They started to go against me. Because I didn’t use a stop, I just let them go against me.
In fact, I “doubled down” and took more orders. I figured things would turn around and I would be in an even better position from a cost-averaging point of view when they did. I kept adding more orders as the market went against me, and the market kept going against me. Several hours later, my broker closed the positions I had open. I had reached the “margin call” breaking point. Just like that, more than EIGHTY PERCENT of my account was GONE.
I didn’t even know what to think. I simply didn’t know what I was attempting to do.
A Familiar Story in Forex Trading
If you speak to experienced traders, read a lot on the subject, you might find that what I did is somewhat common. When people come to trade Forex with nothing more than a dream, an idea, and a few hundred bucks to fund an account with.
So, the technical answer to Can an Amateur Make Big Forex Profits? could certainly be “yes”. But, I would also add to that, unless that same amateur Forex trader took the time, and did the work to truly LEARN the craft of trading, those gains would not hang around long, and would inevitably end up in someone else’s pocket much like mine did with my first live account.
Can an Amateur Trader Make Big Forex Profits? – It’s all about Risk
I would encourage new traders rather than to focus on the profits potentially gained by the trading, to start working on how to manage the RISK involved with the LOSING of money first! Have a foundation of excellent risk management and learn how to hold on to your capital. This way, even someone who randomly chooses trades, stands a much better chance trading than someone with the knowledge of how to select entries but has absolutely no idea how to control their risk.
So, instead of wondering how to make big profits being an amateur, I would recommend spending the effort and time learning how not to lose money. Master this, and the big profits will eventually find you in my opinion and experience.
All too Common in the Forex Trading World
Judith’s story is far from unique. In fact, I made exactly the same mistakes early in my trading career. Amateur traders can make big money trading forex, anybody can make big Forex profits, but it’s whether you can make a sustainable career in trading forex that is the key element. I could go to the casino tomorrow and put a money on the roulette table picking black and win big. Does that mean I am a casino expert? Likewise, I could pick a horse at a horse race because I happen to like its name? Does that mean I’m now a horseracing expert?
Clearly the answer to both of those questions is no, it’s luck. And while you can be lucky for some time, ultimately it will run out. Trading is a game of probability, it’s similar to gambling. Only the more knowledge you have and the more time you spend learning you can move the odds in your favour.
Compounding is Key to Success
So how do amateur traders make big forex profits? A little understood concept is the nature of compounding. Clearly, a large number of new traders expect to start making huge sums of money very quickly, and are often sold the dream of Ferraris and Lamborghinis. There is no such trading black box system that you can buy. The only people making big Forex profits from that kind of approach are the people selling the system.
Compounding on the other hand is where you start with a figure, make small gains each month which then over time turns into a large sum of money. In an example, start with $10,000, make a modest 5% per month and you will have almost $200,000 within 5 years. Compounding is a good way to make big forex profits.
Risk Management in Forex Trading
The other way to make money from trading forex is to manage your risk appropriately. Amateur traders really struggle to understand this. They focus the win ratio believing they need to be right more than they are wrong.
However, if you want to make big profits in forex trading, managing risk is the way to do it along with picking high probability trades. Look at the above chart and you can see that with small risks of 1% of your account, and a proper risk to reward ratio, even with a strike rate as low as 40%, you could still be very profitable.
So, in conclusion, you want to make money from forex trading? Make the effort to learn, manage your risk and compound your account.
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