Not everyone can be a rich and wealthy trader. Certainly anyone can try to. There are a few that have to be rich, due to their work ethic, dedication, focus, and big trading edge and mindset that they developed. Some other people because of inner demons and psychological issues will be capped on how much money they can make from trading during a single year or in their lifetime. Others can be stuck in a stage of break even performance for months or years. Others blow up.
There are various levels of trading success and failure. Let me go over them for you. I will start from the worst and then finish with the richest.
Gamblers In Trading
The good old gamblers in trading. Instead of betting on horses, cards, or in the casinos, these traders come to trading to do the same thing gamble. They gamble from the comfort of their own home. Some of them gamble in forex in addition to their other gambling habits. I know some gamblers that come home from a weekend at the casino, then proceed to gamble some more by placing huge trades Sunday evening before the work week begins.
They want the action, the adrenaline. They get a high from the ups and downs. They get a high from looking at the profit and loss swing up and down wildly. They usually like to place gutsy leveraged trades each and every time. Sometimes they catch a nice move, other times they get stopped out.
When there is a huge trade, they love to pyramid into the positions, using the paper profit they have accumulated to fund even larger positions. They do not know how to pyramid properly. There goal isn’t to trade properly. Their goal is to just get their urges for big bets fulfilled.
They always like to have some sort of position in the markets. They do not like to have zero exposure. It is sort of like poker players that just want to play every hand aggressively.
The gamblers are the ones that typically blow up their accounts the fastest. Whether with a $300 account, $3,000, or $30,000 account.
Tippy Toe into the Forex Market
Then you have the more sensible people who do believe that there is potential to make money from the forex markets. They are not prepared to risk a large amount in the beginning. Or they may legitimately only have a small pot of capital with which to begin trading.
These traders typically have an account somewhere in the $50 – $1,000 range. They do not expect to make a lot of money. They just want to see what type of potential exists in forex. They want to get used to a real trading platform. These traders know that demo accounts do not cut it. They want to start experiencing the real emotions of trades.
They are testing the water, risking small amounts. They are attempting to get a hang about how to place, use, and manage stop losses. They want to learn how to position size properly. They want to start getting a feel for the market action.
Very Slowly Lose Money Trader
Many traders will be in the category. They typically have a four or five figure trading account. They do not experience profits or break even. Instead they lose money gradually over many months. They may lose 1-5% per month.
These traders know how to control risk and position size. They risk small amounts in the market from anywhere to .25 – 2% per trade. They just struggle to find a trading system that works. Or they are just placing many consecutive losses in a row and it is dragging down their account.
They are hoping to stay in the game long enough for them to discover the right trading system that has an edge. Many of these traders can be stuck in the technical indicator, forex robots, or price action stages. They are attempting to develop an edge. They are just unsure of what that edge will look like and how they will know if they have attained it or not.
Some traders will eventually call it quits if this stage lasts too long. The others can progress to a trading system that finally has an edge. Many times it is rooted in order flow and liquidity.
Break Even Trader
The break even trader typically has a four or five figure account. They are breaking even or posting a small profit. They obviously know how to control risk. They know how to position size. They know how to find some decent trades. They can follow some of their system rules.
But there is a problem. Their trading system may have an edge, but it is only very small. It may show up over an extremely long period of time. It may show a small profit at the end of many months or years, but that is typically the slow lane. Retail forex traders are not going to become wealthy from the forex markets by getting a 4-10% return every year. I suppose if they can continue to do that consistently over 30 years they can accumulate a nice nest egg for retirement.
However, these traders are spending a sizable or enormous amount of time trading and for what? A measly 4-10% a year in trading returns? That is the slowlane. They may be looking to join the fastlane. They are just unsure of what the fastlane trades, mindset, and edge looks like. It is order flow trading, but they may just not have discovered it yet, or don’t understand it.
Again, some traders in this stage may call it quits as they judge their trading returns are not worth the time invested to generate them. Others eventually find their way into order flow trading to join the fastlane.
Profit Explosions and Profit Collapses Trader
These are some of the most interesting types of traders. These traders generate profit explosions and eventual profit collapses. They can have a small five figure account or a nice medium sized account around near $50,000.
They generate amazing returns at some point in the middle of the year. They can generate anywhere from $10,000 – $100,000 at some point in the year. They achieve some eye popping middle of the year returns of anywhere between 50% – 1,000%.
They just have a hard time holding on to the money. They have a hard time holding on to the profit and being able to compound it to reach a new trading account peak. They give a large chunk or all of the profits back to the market.
These traders usually have a large trading edge that they are developing. They just haven’t figured out how to find the few missing links that can cause them to have even greater consistency and profit. The missing links in their trading system, mindset, and psychology.
These traders are pretty damn close to making it big time. They just need that final push, that burst of effort and commitment to get them across the finish line.
Some of them like to spend all the money. Others like to create a sudden need for vast trading profits with never materialize. Or they could be some inner demons preventing them from making any more money. Some of them may feel guilty that they made too much money too quickly. Others feel that they did not “work hard” for it like some other salaried employees.
Small Fortune Trader
The small fortune trader typically has grown an account to the size of somewhere around $100,000 – $1 million dollars or so. Or they had a lot of money laying around, but learned how to trade that capital properly to give them a nice return.
These traders have learned to generate a nice living off this money. They can generate returns of 5-30% a month and live comfortably off that.
Other wealthy traders trade six figure accounts. They can generate some a very nice living off that. They aren’t looking for anything more out of the markets. Some of them can have a hobby on the side or even run a side or full time business to keep them busy.
Million Dollar Trader
These are the traders that have taken their accounts to the million or millions of dollars level. They have accounts around the $1 million – $10 million dollar level. If these traders generate even a 20% or 30% return for the year, they feel like they are living like kings. Since they are shooting for a smaller trading return of 10-50% per year, they do not need to stress to catch every move or leverage up.
They can use low leverage and feel absolutely fine with it because if they risk 0.50% on a trade, and it is a 5R winner, they just made 5 times what they risked which is 2.5%. and 2.5% of 1 million dollars is $25,000.
2.5% of 10 million is $250,000. They do not have to leverage up because they are already playing with a large account. No sense taking on that kind of stress.
These traders can also have hobbies or other business ventures that they launch and keep them busy with. They just have attained certain trading skills and like to trade their own account to generate sizable returns on their excess capital.
They know that they can generate far better returns on their money and do it far safer than any mutual fund/passive investing vehicle ever will.
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Rich Traders that work for a Hedge Fund
There are other traders that develop skills and opt to work for a hedge fund or big bank. They may just feel more comfortable risking other peoples money instead of their own. That may liberate them to generate the best possible return for other peoples money. And there are definitely some star traders working for banks or hedge funds.
These individuals can risk millions, tens of millions, hundreds of millions, even billions of the banks and other peoples money.
If they do well, then they will get rewarded with bonuses. Sometimes that is a six figure bonus. Sometimes it is in the millions. Other times in the tens of millions. There was even one occasion where Andrew Hall at Citibank racked up a $100 million dollar bonus.
There is this other trader named Paolo Pellegrini, who worked for billionaire hedge fund manager John Paulson for several years. He was the key architect for shorting the housing market. He got a bonus of $175 million for the year 2007. Not bad for a few years of work.
The Hedge Fund Manager
Then you have the hedge fund manager who doesn’t like to be an employee. Instead they like to own and run their own firm. The Paul Tudor Jones, George Soros, James Simons, Ray Dalio, Bruce Kovner, Steve Cohen’s of the world.
They typically make tens of millions, hundreds of millions, occasionally billions of dollars. They don’t necessarily make money every year. They have some down years. But the up years more than make up for them in the long run.
Of course there are other levels of trading success and failure. You can mix and match the different trading levels. There have seem some spectacular blowups of very large and wealthy traders.
But in general above are the trading levels that people tend to experience.
What category are you in? Where would you like to be?
Will technical indicators and forex robots help you get there?