Section WidgetHow about $1 million or more?
Sure you have. There isn’t a trader on earth who doesn’t dream about turning their $1,000 account into millions. It’s why we’re all here – to make consistent money and effectively grow our trading accounts.
But there is a disconnect between these thoughts and what it actually takes to transform them into reality.
The majority of Forex traders spend 90% of their time finding and tweaking their trading strategy, that magic formula that allows them to hop in and out of the market for a profit on a consistent basis.
While finding a profitable trading strategy is important, it isn’t enough. The hard truth is that the most profitable trading strategy in the world will never be enough to grow your account into millions without understanding this very simple truth that I’m about to share with you.
We’ve all read about the practical side to money management, such as the amount to risk per trade, so I’m not going to beat that drum here today. Instead, I want to expose a concept that is a bit more obscure but just as important. Call it a common sense approach to risk management that is not so commonly known or accepted in the financial community.
So, if you’re ready to connect the dots and discover why you’ve been struggling to grow your trading account, let’s get started!
You Don’t Deserve More Money
Let’s pretend for a moment that I’m a small business lender. You come to me for help with a business that you have run for several years, and although you’ve made great progress, the business has yet to turn a profit.
Upon further inspection, it turns out that you have failed to properly manage the business. The company’s debt levels are through the roof and sales have slowed drastically. You even took the liberty of going on a luxurious skiing trip with another lender’s money.
At this point, do you think I should invest in you? Would you invest in you?
Probably not. From what I know thus far, giving you money wouldn’t be a smart business decision as it would likely result in a total loss.
Alternatively, if I had seen manageable debt levels, rising sales and prudent money management, I would likely hand over the cash. And if things continued to progress in a constructive manner, I would be willing to lend more money in the future if it became necessary.
Most Forex traders approach their trading account like the first scenario above. They risk too much, trade too frequently and take profit too soon, resulting in a downward sloping equity curve.
Ironically, those same traders expect additional capital to flow into their trading account, as if by magic. But just like the scenario above, these traders have yet to prove they are capable of managing the money they currently have, so why should the market hand over more money?
If any of this sounds familiar, you’re not alone. Most traders find themselves in this contradiction – expecting a larger trading account before being able to effectively manage the money they currently have.
The Market is Your Lender
Now let’s take the scenario above one step further. Instead of me being the lender and you a small business owner, let’s make the Forex market the lender and you a trader.
Although we’ve changed the characters in the story, the dynamics at work as well as the relationship between them remains the same.
You see, most traders make the mistake of thinking they are competing against the market – that they have to beat this very large competitor every single day in order to survive and make money.
While it is true that you are competing against other traders in this zero sum game, a better way to view your interaction with the market is to see it as your lender.
This may sound a bit odd, so let me explain…
But before we dig in, it’s important to understand that the currency market isn’t just any lender. There are two inherent differences that separate the market from an ordinary lender of sorts.
For starters, the Forex market is an entity with $5 trillion a day worth of liquidity to hand out. So we can cross liquidity off the list of possible concerns.
The second (and perhaps the most beneficial) difference between this lender and all others, is that if you manage your capital properly, you don’t have to pay back the full amount, ever.
Try going to your local bank to secure a better offer than that. It won’t happen.
Just like our first example above where I was the lender and you were the business owner, the only way you can receive money from the market on a consistent basis is by proving you’re worthy of it. In other words, you have to show that you can properly manage the capital you have today before you can secure more funds in the future.
And while you may be able to achieve gains without proving your worth, I assure you that without proper money management, the odds of you keeping those gains for the long-term is slim to none.
The bottom line is that if you want to grow your trading account, you have to prove to the market that you’re ready for more funds. Until that time comes, you will be stuck trading with the same, or less, capital than you have at the time of this writing.
A Few Simple Ideas
So how does one prove they’re worthy of a larger trading account?
First off, it’s easier said than done. It takes screen time and lots of it. But the general idea is to keep your risk per trade small and manageable, remain patient and wait for the very best setups and never ever over-trade.
I know that probably sounds simplistic, but the goal of this article was never to hash out the exact recipe to grow a trading account. The goal was to make the connection between making money and managing it as a trader.
That said, I will be sure to discuss various topics surrounding the subject in future lessons and articles.
The most important takeaway from this reading is to understand that you can’t cheat the market. In other words, the market can always tell whether you’re ready for more funds or not.
It’s your job to maintain a high level of prudence and discipline at all times while managing your account. That’s the only way you will ever grow your capital, because the market doesn’t hand out money to those who are undeserving.
Final Words
You can’t mismanage the trading capital you have today and at the same time expect the market to give you more. This disconnect plagues the majority of Forex traders and it’s this misunderstanding that leaves traders scratching their head as to why they can’t seem to grow their trading account.
Learn to properly manage the capital you have today and the market will eventually give you more to work with. It’s an unavoidable and unforgiving law of the market that must be understood if you truly wish to succeed.
In short, forget about making money and instead focus on the process of becoming a great Forex trader. If you devote your time and energy toward refining your trading process, the money will eventually follow.
As Paul Tudor Jones famously said…
In other words, money is irrelevant. It doesn’t matter whether you’re managing hundreds, thousands or millions of dollars. What matters is the process by which you manage, protect and ultimately grow that money over time.