Here's an article I found in my files. Given the approach of the New Year, now is an excellent time to re-enforce those good trading habits and thoughts ... enjoy!!
How many pips do you need to be wealthy? The answer may surprise you.
About 2 years ago I sent out a similar letter that changed the outlook and the lives of many traders. While most at the time were mini-traders a simple 25 pip gain equated to a mere $25.00. "How can I live off of that?" I was repeatedly asked. It didn't take long to put this into perspective.
Determining Percent Return
Profits are one thing, percent return is another. Monthly profits may add up to look nice or not so nice, but what is the actual return? I am sure we have all heard traders say, "I made 1,000 pips last month." OK.. what was your percent return? Not only for one month, but for the life of your trading.
Return Calculation
The simple return calculation is used to determine your return on an investment after you sold it. Or in this case, the profits after closing trades over a period of time.
Here is the formula:
Net Proceeds /Cost Basis - 1 x 100
Let's run through a simple example.
Suppose you traded one standard forex contract for a profit of 200 pips. This would be a raw profit of $2,000. The cost in this case was the spread and the margin needed to secure the contract; the most common margin is 100:1. Thus it cost a temporary, $1,000 to secure this contract. We say temporary because we all know we would not trade without a stop loss, most likely the stop would have been worth about $250.
Calculation:
Net Proceeds = $2000
Cost Basis = $20 (spread) + $1,000 margin
($2,000 /$1,020 - 1) x 100 = 96% (Just under 100% in a single 30 days)
What about per year?
Try it, you will be amazed. Hint: Don't forget to compound.
Take Home Message
Trade conservatively, a few 25 pip trades per week (300 pips per month) on a single lot can give you a return of just under 200% a month. Build your account slowly, trade with the same level of caution, just add more lots. This is the best method, the most realistic method and the lowest stress method of enjoying the rewards of forex.
John Keister
ForexInterBank
Happy Trading from ForexJourney.com!!
Clarity. This is my word, my mission for 2008. I am going (notice I did not say “try to”), let me repeat, I am going to achieve clarity in all aspects of life including my trading. As many of my readers know I had a very eventful 2007. I became a dad for the first time. This has brought a new meaning to life. One that many of my friends have mentioned, but one I truly didn’t understand until I experienced it myself. It has been the greatest single joy of my life, not to mention a major adjustment in trading schedule.
I define have one simple New Year’s resolution that will permeate my life and my trading – seek clarity in every aspect of my Forex trading and perform every action with intent!
I know what you are thinking; it seems kind of pie in the sky, but think about it. We should approach all our actions with clarity and intent. Design the outcome well before we enter a currency trade. Keeping mental focus it what really separates long term profits and losses.
I encourage each of you to take the time now and revisit your Forex trading plan. Learn from your mistakes, because they are your most valuable teachers. My goal is to always present clear intent into my Forex trading in 2008, what’s your intent?
Happy New Year’s from ForexJourney.com
Central bankers who "follow the yellow brick road" end up in Jackson Hole, Wyoming, every Labor Day weekend for their annual symposium sponsored by – who else? – the Kansas City Fed. (Who can forget Judy Garland saying to her little dog, "Toto, I've got a feeling we're not in Kansas anymore," in the 1939 movie, The Wizard of Oz?)
The Jackson Hole Resort serves as the Federal Reserve's equivalent of the Emerald City, as Fed governors and presidents meet with central bankers and economists from around the world to discuss economic issues. This year, the symposium focused on housing and monetary policy. Usually, the Fed chairman kicks off the symposium and, this year, the new chairman, Ben S. Bernanke, did the honors. He closed his speech with these words:
"The interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments."
Then came the other speeches. And it seems that some of the guests in Emerald City were waiting for their chance to pull back the curtain and prove that the Wonderful Wizard of Oz isn't such a wizard after all. Bloomberg reported that "Federal Reserve officials, wrestling with a housing recession that jeopardizes U.S. growth, got an earful from critics at a weekend retreat, arguing they should use regulation and interest rates to prevent asset-price bubbles." Apparently, one academic paper presented at Jackson Hole graded the Fed an 'F' for the way it has handled the repercussions from the rise and fall of the housing market.
Truth be told, these folks are a little late to the table as critics of the Fed. We're glad they're joining us, but here's what they still haven't learned: It isn't because the Federal Reserve messes up by allowing credit, asset and stock bubbles to form that it's not a wizard. The Federal Reserve isn't a wizard for one particular reason that it doesn't want anybody to know – and that is that the Fed doesn't lead the financial markets, it follows them.
People everywhere want to believe in the Fed's wizardry. But all this talk about how the Fed will be able to help the U.S. economy and hold up the markets by cutting rates now is as much hooey as the Wizard of Oz promising Dorothy, the Scarecrow, the Tin Man and the Cowardly Lion that he could give them what they wanted: a return to Kansas, a brain, a heart, and courage. Because when the Fed does do something, it always comes after the markets have already made their moves.
If you don't believe it, you should look at one chart from the most recent Elliott Wave Financial Forecast. It compares the movements in the Fed Funds rate with the movements of the 3-month U.S. Treasury Bill Yield. What does it reveal? That the Fed has followed the T-Bill yield up and down every step of the way since 2000. And the interesting question becomes this: Since the T-bill yield has dropped nearly two points since February, how soon will the Fed cut its rate to follow the market's lead this time?
[Editor's note: You can see this chart and read the Special Section it appears in by accessing the free report, The Unwonderful Wizardry of the Fed.]
We've got our own brains, heart and courage here at Elliott Wave International, and we've used them to explain over and over again that putting faith in the Fed to turn around the markets and the economy is blind faith indeed.
"This blind faith in the Fed's power to hold up the economy and stocks epitomizes the following definition of magic offered by Teller of the illusionist and comedy team of Penn and Teller: a 'theatrical linking of a cause with an effect that has no basis in physical reality, but that – in our hearts – ought to be.'" [September 2007, The Elliott Wave Financial Forecast]
Because, you see, what makes the markets move has less to do with what the unwizardly Fed does and more with changes in the mass psychology of all the people investing in those markets. The Elliott Wave Principle describes how bullish and bearish trends in the financial markets reflect changes in social mood, from positive to negative and back again. To extend the metaphor: The Fed can't affect social mood anymore than the Wonderful Wizard of Oz could change the direction of the wind that brought his hot air balloon to the Land of Oz in the first place.
As our EWI analysts write, "With respect to the timing of the Federal Reserve Board rate cuts, we need to reiterate one key point. The market, not the Fed, sets rates." Being able to understand this information puts you one step closer to clicking your ruby red shoes together and whispering those magic words: "There's no place like home." Once you land back in Kansas, your eyes will open, and you will see that an unwarranted faith in the Fed was just a bad dream.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
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Editor's note: Elliott Wave International invites you to read the full five-page article with charts from the October 2007 SFO magazine by Elliott Wave International's Pete Kendall called "Financial Manias and the Trade of a Lifetime."---------------------------------------------------------------
As co-editor of The Elliott Wave Financial Forecast, Kendall searches for trends that help traders to move in and out of markets. By comparing other historic manias with the impressive rise of the DJIA since the late 1970s, he focuses on the skyscraper pattern that they all have in common. The four historical manias are the Dutch Tulip mania of the 1630s, the South Sea bubble of 1720, the U.S. stock crash of 1921-1932 and the dot.com bust of the 1990s and early 2000s. Once you can see the similarities, you will be better prepared to face the music when the crash comes. As Kendall writes, "once the belief that the markets will always rise becomes widespread, it actually signals the start of a price swing that tends to be a career-breaker for any trader who tries to oppose it."
