This question was posed by Andrew K.: Is it reasonable to earn $5k per month while taking small, low risk trades?

Hi Andrew,

The short answer is yes, if you are skilled, and if you have enough capital to trade. I can see that you are trying to get an idea about the potential for you in this market. The potential is there for a great lifestyle if you learn to do the right things, and you give yourself time. And you do need time, and part of that is managing your expectations. The problem with that is that expectations are the enemy of a trader. But there’s nothing wrong with examining the potential, and I think you can arrive at a reasonable outlook.

There are so many variables involved, there is not one answer, but here is how I would approach Forex trading if I were going to start all over from day one.

I would learn about everything that will affect my success. Setting aside the basics, this is really understanding high probability trading, and having the ability to execute trades.

Then I would apply a strategy so I am only doing those things each day that lead to progress, and ultimately to the achievement of my goal.

The first goal, I think, should be consistent profit. I think you cannot make “more” until you have the ability to make “some.” And there are so many lessons to learn in trading that if you have a smaller goal that is a true measure of success, it will be more achievable. Since anyone can get lucky and win, success must be measured over time, and thus the word “consistent.”

On top of capital and skill, “opportunity” is also a variable when it comes to earnings. As a general rule, the higher your probability for winning, the lower your number of opportunities. If you are more aggressive, you will have more opportunity, but since the risk is increased, your win/loss ratio drops.

The problem you want to anticipate here is what I call the “psychology of consecutive loss.” This has to do with how you feel when you lose several consecutive trades in a row, and how this affects what you do.

The simple way to put it is like this: If you win less than 70% of the time, because of the number of losses (in a row) you can incur, the method will be untradeable for you. Because of how we process information both consciously and unconsciously, you will “change something” by trade 3 or 4. Do you see the problem?

Without understanding what is happening, you won’t see the value in this factor, and you will likely be stuck in a loop of failure for years, changing methods or something about your method every time you lose 3 or 4 trades.

I think it is reasonable, on average, trading intraday charts to expect 1-2 trades per week IF you are there when the market is active. The best hours are during the London session 3AM-8AM ET.

I trade 8AM-11AM usually, as an example. If I’m up during London open, I’ll trade it. If I see a great setup with good movement during the Asian session, I’ll trade then, too.

But using the guideline of two trades each week, you can then begin forming an idea about the potential. When you are trading your method, with a trading plan, and you get to trade 40, you are going to have a very good idea about how many opportunities you are likely to have, how often you win, and so on. All of this can only be truly understood by you doing it and having this experience.

From there you will be able to plot your true potential.

Once you have made all of the adjustments to your method, you will realize profit, because you would have fixed your misunderstandings and devised ways to minimize the mistakes you make.

As you take 50 trades, let’s say, your method will also teach you when 1. you can avoid some losses and 2. When you can get “more” from a trade.

From there, you can also adopt other trading techniques. For example, if the market is trending well, and price closes over an 89 Fibonacci sequence number, it is very likely that price will move to the 144. In the case of an uptrend, that’s an additional 55 PIPs. But what if price pulls back 40 PIPs before making that move? Now we are at 90 PIPs of potential. What if you stop loss is small, say 25 PIPs? You can make 3-4 times the money on a single trade.

My point is that once you get good at making consistent profit, more opportunity does open up to you.

So, again, the short answer is yes, if you know what you are doing, and if you have enough capital. The long answer is that to really know what you are going to be able to do, you have to do the work, and by the time you have your high probability method, your trading plan, and you are on your 30th trade, you will have a true understanding of how many opportunities you will get.

Once you know how many opportunities you will get, you then consider your capital, and with a maximum risk of 2.5%, you can figure out how much you can make in a given trade. Multiply that by your number of opportunities per month, and your answer is how much you can make.

I’m holding a webinar this week, Forex Trading Breakthrough. During this webinar I explain why most traders fail, how you are being misled by just about everything on the Internet, and the Forex Art of War breakthrough strategy, that I have based on the Art of War principles. Whether you are new or a veteran trader, you will come away with something valuable from this session.

There is no cost to attend. Look for an email in a few days about this unique event. ~Vance Williams