How do you determine what is the minimum acceptable earnings by day trading? What is the appropriate earnings target? Is it 50% , $2500 (per month), $50,000 per year or equal to or greater than Dow Jones or S&P’s annual return? Should your returns be based on benchmarks set by the biggest investors?
Unrealistic Return target: I want to earn 50% on my $1000 account per month!
So, how on earth did I reach to that conclusion! Well, look at the ‘median annual income’ per Canadian is $27,600.
And how industry’s top investors are faring in this game.
![](http://mahay.ca/wp-content/uploads/2020/04/RealisticReturs.jpg)
What if you are day trading or swing trading for income, then your game plan different. Get real do the math:
if I do 20 trades per month out of which 12 winners and 5 losers and 1 cancelled trades. Now my win percentage is (12/20)*100 = or 60%. (if cancelled trade is accounted then 12/19 x 100=63%). On my losses on 5 losing trades were $1500, and average loss is $1500/5 = $300. Those 12 winning trades made me a profit of $6,000, then; My average win=$6,000/12 = $500.
Let’s try again and answer the question, “how much money can I make from Forex trading?”
Answer depends on the following numbers:
- Trading expectancy : Your expected return on every dollar you risk for trade.
- Expectancy= (1+ Win/Loss) x P – 1 = 1+500/300 x 0.60 -1=1.60-1=60% (Win is average win and loss is average loss size in dollars and P is winning percentage, which is positive 60%, in another words every 1 dollar I trade, I can expect 60 cents return)
- Trading frequency: Number of trades I take is 20 per month or 140 trade per year.
- Account size: Dollar size of my capital account, here it is CAD 50,000.
- Risk amount: My maximum ‘per trade’ dollar amount is 1% of capital (1% of 50K is $500). Some traders also call it bet size.
- Withdrawals: If it is your income account you may be withdrawing some percentage periodically.
Let me populate the formula to get yearly returns:
Trading expectancy * Trade Frequency * Risk Amount per trade = 0.60 * 140 * $500 = $42,000 (annually)
[Trading expectancy * Trade frequency * Risk amount]($42,000) / Account size($50,000) =$42,000/$50,000= 84%, This means expected average of 84% in a year year.
Realistic earning: target of 5% per month on $50,000 account size, would get me $2500 per month or $30,000 annually. Most important number is your account dollar size.
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