Good start in making profits

Some of the things that are important so you can make profit.

The cost of business as part of your monthly profit. If you subscribe to various services like datafeed, software, news etc this is costing you money. So at the start of the month you are already behind.

The relationship between your account size to your cost. If your account is £5000 and you are clever enough to make a 10% return using a margin strategy. Even this type of return is nowhere close of beeing easy.

If we say your cost of business is £50 then we can see some figure.

Cost of business as % of account - 1%
Cost of business as % of profit - 10%

Now why is this important. The more you save on cost the higher your return is without breaking a sweat.

The more active you are as a trader the more the cost is going to be.

How much should you use as a guide. I would use months profit / 21 days. So your £500 / 21 = Total cost should not be much more than £24

There has to be some relationship between your exspected return and work put in.

Now for people just starting out. You have seen ads from spreadbetting/forex brokers that you can start with $300 /£150 this is just silly. You could work your way up with this amount but what you need to keep in mind is that your return would be so low that there might not be much insentive to look at this as a bussiness like any pro trader would do. Would you be happy to put in some hard work to make a profit of £5-10 few times a week?

And we are back to the cost again with lower account size the lower your cost needs to be.

5000 max cost was £24
2500 max cost £12
1250 max cost £6
625 max cost £3
313 max cost £1

If your return was 20% per month you could double your cost but as you may have seen there are various solutions offered to traders and almost all cost more than £10 per month.

And just to keep in mind that the biggest cost of a trader is not mentioned in the text above.

More is to follow.

Regards

Baldur

Now it is strange that you don’t often hear someone talk about the whole framework you need to have to succeed.

The framework is everything you need to be able to do your job. Best tools and services you can get.

One very important thing is data quality.

The basic you are working with time series of financial markets. You have high, low, open, close, volume.

You are working with this data series and perhaps creating indicators and looking for support/resistance.

All this will be wrong if the quality of the data is not good. The quality of data from many vendors is very poor. This is being offered by so-called retail vendors.

Understanding the data you are looking at is also important, especially when you are talking about Forex cash market data, often this is a pool of brokers which makes the feed useless on lower time frames.

Most of the times when you see so-called professional traders teaching their methods you can see they are using the same unreliable tools. You wonder are they really traders or teachers?

The other important thing is speed. The speed if your data vendor for charts and your broker connection.

If you are working and you get your signals from your charts. If your data feed is slowing down then you are behind the market. This can be for 10s of second’s even minutes with many vendors during busy periods.
So lets say you have got your signal on your delayed feed and you go and try to work an order via your broker and you notice the market is gone far away.

This is important because today’s markets move very fast. You can gain/loose a lot of money in seconds. This is why you need to have the top tools to be able to stay on top of things.

As always you guys are free to contact me if you have any questions or want to point out something I got wrong.

Copied from Learn How to Trade the Financial Markets