If you gave yourself a monthly returns goal in Forex trading, you would self-sabotage yourself into the ground.
Talking about monthly returns is glamorous and all, but it’s never something a real trader should have.
Let’s talk about why in Episode 20 of the Forex Q&A Podcast.
This week’s question is from Jack…
“What’s a good monthly rate of return that I should be aiming for?”
Jack from Melbourne, Australia
You can listen to the podcast here, or as always, simply continue reading on…
Now if I say something to the effect of “I don’t like this question”, please don’t let it discourage you from asking questions.
Questions like this one are probably on a lot of people’s minds, and need to be discussed. I’m glad you asked it, Jack.
We need to pick it over though.
What I Like About The Question
I love the fact that Jack, and many of you now, are looking at results in terms of percentage gain, and not pips.
Pips can never tell the real story. Percentage gains always will. You can’t cheat percentage gains.
For example, I can have a 120 pip gain on my spot Forex account for the month, and a 1400 pip gain on my metals account in the same month, and have a better ROI on Forex.
How? Well, what I risk per pip on metals is much smaller. For example, the daily ATR on the EUR/USD is currently sitting at 78 pips.
The daily ATR on the XAU/USD (gold) right now?? 1159 pips.
“Pips gained” is a classic misdirection strategy many Forex robot and Forex trading signals companies will use to fudge their results.
And this is one of MANY ways they like to mislead you. I covered this deeper in the Robots blog post.
“Hey bro, I clocked 900 pips in one day! For $299 a month, you can too!”
“But….that was a USD/CZK trade. That’s not hard to do.”
“It’s 900 pips tho”
“But what about your losses? You didn’t mention those.”
“Why you ladies all up in my shit?”
What I Did Not Like About The Question
You’ll see articles on figuring your monthly returns all over the internet.
Some are very broad, but somewhat realistic. Others are mostly nonsense.
But you should avoid them, no matter what.
Monthly returns are a really bad measuring stick for your overall success.
Two main reasons for this:
- The market is never the same month-to-month
- You will make terrible decisions if you have goals like this
Let’s go over both in better detail, then I’ll show you what you should be doing instead.
Markets Change, Results Will Too
Pop quiz time, traders:
Q: What has gold been doing for the last 2 months?
A: Absolute fuck-all nothing!!
I’m every bit a metals trader as I am a spot Forex trader, but I have not made one trade in the last 2 months, because I’m a trend trader, and there are no steady trends to be had anywhere in metals right not.
It sucks.
But what would suck worse is if I had a 2% profit target I was required to hit. For 2 months, I wouldn’t hit it.
If I was at a shady firm that had monthly profit requirements, they may fire me. And I’ve achieved a 20% yearly return on metals several times.
Guess they don’t really want that level of prosperity at their firm. Oh well.
In the last 3 years especially, as the stock market has been ticking higher and higher, our market, spot Forex, dries up to a degree.
And when you have this overall lack of volume in our market, you will have entire months where shit is just flat.
The absolute worst thing you can do here is to have a set of goals so short-sighted, you pretty much have no choice but to fall short of those goals, or even worse….
You End Up Taking Trades You Shouldn’t Be Taking
You have a 2%/Month ROI goal.
You’re almost there.
It’s the end of the month.
And your algorithm is showing no trade entries.
Except for one, a GBP/USD short that satisfies all but one of your criteria.
Oh, and really big news is coming up for both currencies.
What do you do?
You can either:
- Take a trade you know you shouldn’t be taking, but you have goals and shit.
- Have an ounce of discipline, and don’t take the trade.
Unless you’re a complete amateur, you knew the answer was #2.
I said it in Episode 13, the three main things you must have to master trading psychology (which if you don’t have, you’re finished) was Initiative, Discipline, and Patience.
Having monthly goals you must hit completely robs you of Discipline and Patience.
It robs you of discipline, because instead of taking the most optimal trades available, and ONLY those trades….now you’re whoring yourself out to sub-optimal trades.
It robs you of patience, because it makes you lose sight of the biggest advantage a patient trader has….
We get to let the market come to us.
We don’t chase shit.
We don’t need to.
Us, all the time
And by allowing this, and by not forcing trades that aren’t 100% there, we can safely go after….
Yearly Returns
Looking for yearly returns is the way to go…..
When you’re demo trading.
If you really want to know what you should be doing instead, I covered this in Episode 6 when I talked about how long to demo trade, and what to shoot for there.
I gave you a 6 month profit target to shoot for.
But again, even though I gave you a goal in mind, you should still never ever force trades.
Give your system/algorithm an honest run. An honest run will give you honest returns.
If it’s not enough, improve on it and try again.
Remember, patience.
How I Achieve My ROI
In the Scaling Out video, I gave a small glimpse into what I typically make from an ROI perspective every year.
And how do I hit targets that high??
By not trying to hit those targets!!
By letting my system, which I have tested extensively do the work for me, I stay disciplined.
By not chasing trades because the month is slow, or I’m falling short, I stay patient.
And because my Money Management is tight and my Trade Psychology is on point, the results will be there no matter what I do.
Conclusion
That last section I just wrote, the one right above this one was a doozie.
Read it again.
I just gave away how I hit my numbers, you may want to absorb it a bit.
But to wrap it up, do not have profit goals of any kind, especially such short-term, short-sighted goals like monthly ROI.
Have a target in mind when demo trading, but don’t lost discipline or patience trying to hit it. You will end up with a false sample, and that’s going to kill you going forward.
Put in the work now. It’s worth it. So worth it.
— VP