By George Koumandaris – Many new Foreign Exchange traders come into the market with false profit expectations. This leads to irresponsible trading, overtrading and generally places the trader in the wrong mind frame.
Let me start by saying that the best Hedge Funds in the world average around 20% gains per year. Yes, only 20% per year.
And we are talking about professionals with teams of analysts at their disposal and superior access to information.
Yet, the internet is full of strategies promising 100% and plus returns per year. No wonder that new traders dream of getting rich in a couple of months.
Thinking like this can kill an account. New Traders have to realize that any given strategy can only produce a specific expected rate of return. This expected return is established by forward testing your strategy for at least 6 months. From my experience even the best strategies do not exceed 15-25% return per year.
I have been using my strategy for years now. And I know that in negative months I lose around 50-100 pips but in positive months I gain around 150-250 pips.
This helps me not to overtrade as my profit expectations are in line with my strategy. If I was expecting 600 pips a month, and my strategy can only produce 200 pips a month then I will overtrade in order to gain the extra pips. But Instead of gaining more, I would suffer losses from overtrading.
Furthermore, expecting huge profits out of Forex can make you fall prey to scammers that promise you the world. Realistic expectations will serve as the best defense against scammers.
I apologize if I am bursting any bubbles here, but it is crucial to enter the world of Forex with realistic expectations. This will save you from heartache and ultimately make you a better trader.
George Koumandaris, Senior Trader in TradeSignals.com. Has over 10 years experience of bonds and currencies trading. He was trading government and corporate bonds for a big bank as an institutional buy side trader. He has an M.B.A. specializing in Risk Management, Holds a Certificate in Risk Management from New York University (NYU) and certified by CySec and is licensed to Trade several Asset Classes within the EU.