But what is possible? What kind of returns should you expect to make from forex trading? Of course, if you have a full-time income to support your trading activities or are willing to put in the time necessary, anything is possible. When looking at expected returns from the forex market, this heavily depends on your risk tolerance. There are a few factors that massively effect your expected and actual trading results and percentage gains….

The projected yearly returns from forex trading greatly differ depending on whether you plan on compounding your profits, or withdrawing each month. Of course, if you withdraw your money each month instead of letting it compound in the markets, you have to pay fees. If you can trade on a compounding basis, this gives you the ability to earn more money than those traders who withdraw their profits each month. Compound interest has been called one of the wonders of the world by some investors.

This is the issue that most beginner traders face. So what can we do? There are now over 30 forex prop firms , dedicated to funding forex traders. You have to prove your profitability by taking a small trading challenge on a demo account. The most popular funding option is FTMO. They offer a £, account with just a simple challenge to get funded. Staying alive in the markets and keeping your trading capital should be the only thing you care about.

Before I continue, I want to quickly mention that I created a video lesson about this article recently. If you prefer to learn this stuff in an audio-visual manner then here it is:.

You should not build your trading strategy around your win percentage. Instead, you need to build it around your average risk to reward. Using a simple mathematical formula you can easily calculate exactly what your win percentage needs to be in order to break-even.

This is the only win-rate statistic that truly matters. This means the higher your average reward, the lower your win percentage needs to be in order to make money. When developing strategies you must balance your risk:reward profile with your win percentage until you find a combination that you feel comfortable with.

But even though you would make money, the chances of you having the discipline to stick to such a strategy is slim. A computer algorithm could trade a strategy like that no problem. It can take nine losses in a row and not feel any trepidation whatsoever about taking the 10th trade. During a lecture I watched recently by Canadian psychologist Dr. Jordan Peterson, he mentioned a very interesting fact about game ethics in rats. First of all, everything in life is a game. Some games are more serious than others, but they are games nonetheless.

Trading is a game. But just like rats, human beings have a maximum pain tolerance for losing when it comes to playing games. If we engage in a competitive activity with someone or something that has superior talent to us ie.

Human beings enjoy a challenge. In fact we thrive on challenge. Challenge imbues our lives with meaning. Without anything to challenge us to improve and get better, we stagnate. We atrophy. We lose interest. However, if the challenge is literally impossible and no matter how hard we try we keep experiencing loss, then that is arguably worse than no challenge at all. It demoralizes us. It discourages us from committing to the game. It makes it difficult for us to develop confidence in our ability to perform.

Of course there are exceptions to this. For everyone, their personal loss tolerance will be different. There are traders out there with abysmal win rates that still kill it in the markets. But be honest with yourself. A strategy with a low win rate that makes lots of money might look fantastic on paper. But if you are losing more often than you can psychologically endure, then you are going to make mistakes. You are going to lack conviction in your trades, and you are going to sabotage yourself.

Over time you will discover what your personal loss tolerance is. I was very attracted to trend-following when I first began trading.

I always thought that I could handle losing lots of trades if it meant I still made money. And to a large degree this is true. I have no ego when it comes to trading. I have nothing to prove to anyone. I am just trying to make money from the markets in any way possible. Whenever I get below that ratio, doubts begin to creep in. I begin to wonder how long the losing streak will go on for and if I ought to be doing anything different to prevent it from getting worse. Having a low win rate can work.

But it opens you up to a host of potential psychological obstacles and traps. So keep that in mind when you are designing your strategies.

Forex trading coach Akil Stokes discussed this topic in depth in his 28th podcast episode. If you are interested in learning more about this subject then I highly recommend giving it a listen. In the process of researching reference material I stumbled across this interesting post by Singaporean trader Rayner.

Rayner is a well-known trend-follower and trading educator with a great reputation among the trading community. I have watched hundreds of his YouTube videos and I can personally vouch for his authenticity and credibility. In this post he breaks down the basics of risk:reward. He also lays out the algebraic formula for calculating your expected average return based on your past trades and your win percentage. You are definitely going to excel as a trader so long as you can keep your psychology in check.

Personally I am not great at math, and it is a handicap. I appreciate and respect math, but I suck at it. Luckily for traders like me, this math is very simple. If I can do this math, anyone can do this math. Last year was fantastic. After a few years of trading actively I finally broke through my period of consistent losing and had four profitable months in a row for the first time ever. It was exhilarating, and it was what inspired me to create this website and blog. I knew that I was very close to attaining consistent profitability and I wanted to share that journey with the trading community.

It has been rough, but I have learned a lot about my strategy and myself. Edit 20th June, I have since recovered from this drawdown. If it stays above it, I will make money.

Nearly every trader enters the currency market hoping to earn massive gains. It is crucial to also acknowledge that risk and loss are two inevitable things that commonly occur in forex trading, even for professional traders. Therefore, successful trading does not necessarily mean lots of profits with no losses, but how we can manage our trades so that the potential profits can be greater than the losses. Such thinking sparks a question: How much is the ideal winning percentage in forex trading?

It is commonly believed among traders that in a good money management strategy , having a high winning rate will get you huge profits. At first glance, such common advice seems to be logical. However, if we look closer at the connection between profit and loss in forex trading, it is clear that this simple idea is not completely true.

When it comes to winning percentage, it basically talks about the number of profitable trades that are divided by the total number of trades. But that does not necessarily true because what really matters, in the end, is the real value of each trade, not just the winning rate. While that could make your trading performance look good, the truth is that the winning percentage does not have any significance on its own.

It does not determine how efficient your trading is or how good you are as a trader. But how can that be? So, in the end, we know that winning percentage does not determine how much profit you'll end up getting.

Instead, you should pay attention to the risk to reward ratio of your trade. See Also: Risk Reward Ratio In Forex Trading. Now that you know winning percentage actually has little significance to your profitability, you shouldn't build your strategy on it.

It's better to put your focus on the average risk to reward ratio instead. This is one of the most vital management skills to develop in forex trading as it can determine your actual profitability. It helps you to know where to place your stops and exits logically. So it would be best if you properly plan this out before you start trading. The standard average risk to reward ratio is , which means that the value of each profit you get is twice bigger than the amount of each loss.

What you need to master is to manage your losses relative to your wins. If you can consistently make more profit than loss, then you can still make a steady income. In this case, there's a simple mathematical formula that can determine the minimum winning percentage you need to make a profit:. Exceed that win rate and you will be getting money.

Based on that formula, we can conclude that the higher your risk to reward ratio, the smaller your winning percentage needs to be. A Singaporean trader , Rayner Teo, introduced a very useful formula that could calculate your expected average return based on your previous trades and winning percentage. You can also say that it shows you the expectancy level of your trade. Knowing the expectancy of the trade will help you to predict the direction of your trade, whether it's going in the positive profitable way, negative loss , or break even.

The formula is as follows:. Now let's try to imagine a realistic scenario and use the formulas to calculate the most possible outcome of the trade. While the formulas are quite simple, it is definitely useful to manage your risk. As long as you keep the expectancy level positive and you exceed your minimum winning percentage, then you can relax a bit.

Keep trading and trust your plan, you will eventually get return consistently as you expected. See also: If Trading Success is a Journey, Where Do We Start? Even if we already know the theory that with a high risk to reward ratio we only have to win a few times and should not stress on the losses so much, the chance that you're not going to be affected by the idea is slim. The reason is that human brains have a certain loss tolerance. If we take trading as a game, then the human brain can only handle a certain number of losses before they end up losing their confidence and patience to continue.

Challenge is another thing that humans are attracted to. If it feels like the trading becomes stagnant and they lose most of the time, then the challenge is not there anymore so traders can lose interest. It discourages them to keep trying and it's hard to develop confidence out of it. See Also: The Secrets of Trading Psychology. It is important to note that the loss tolerance for each person is different.

So take a good look at yourself and be honest. By trying a variety of strategies, you will eventually figure out your personal tolerance that makes you comfortable with your trading. So keep that in mind when you build your trading strategy. It is important to lay out your plan before you actually enter the market and trade.

While it is true that forex trading requires a lot of practice and it's common to experience errors in the process, make sure that every decision you make is based on logic. That is why after building a trading strategy, you should stay consistent with it so you know for sure if the strategy really works or not.

It would be best to try your strategies in a forex demo account so you can test it out without risking any money. Once you feel certain and comfortable with it, then you can try it with real money. When determining risk and reward, traders often make the mistake of determining the reward before the risk, or setting a stop loss level that is too close to the entry level.

This causes the strategy to not work well. The first thing a smart trader does would be to calculate the amount of risk that they can handle. By determining the risk in advance, they will focus more on the risk, which in return will save them from unbearable losses.

Basically, the commonly used ratio is , but every trader can adjust it to the amount of money they're about to invest in. From the explanation above, we've learned that the winning percentage actually has no significance to the outcome of our trade.

Focusing only on increasing our winning rate won't take us anywhere and even potentially ruin our accounts. Keep in mind that forex trading is not the same as gambling, so even if the market is volatile and unpredictable, we still need a proper calculation and trading strategy to succeed.

Passionate in contemporary global financial issues, I'm currently active in researching topics on cryptocurrency, forex, and trading strategies. If you don't bet, you can't win. If you lose all your chips, you can't bet. They are taking 5 to 10 percent risk, on a trade they should be taking 1 to 2 percent risk on. They are aware of trading psychology their own feelings and the mass psychology of the markets.

I do nothing in the meantime. If intelligence were the key, there would be a lot more people making money trading. The most important thing in making money is not letting your losses get out of hand. If you can follow these three rules, you may have a chance. Losers get high from the action; the pros look for the best odds.

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The winning percentage is often considered as an indicator to measure trading performance. But, it is important to know the ideal winning percentage in forex trading before making an evaluation of a trading system. The Truth about Winning Percentage When it comes to winning percentage, it basically talks about the number of profitable trades that are divided by the total number of trades.

See Also: Risk Reward Ratio In Forex Trading The Ideal Winning Percentage Now that you know winning percentage actually has little significance to your profitability, you shouldn't build your strategy on it. What I can understand from your post is if you win a lot with smaller profit and lose very little trading but Your loss value is greater than your profit per trade.

You will get little profit or even zero income. It just like win more to close your big loss. And yes, I think it's like trading rules for me. If I lose, I only lose one level, if I win, I double my profit. This article really opened the mind of traders, especially newbies, don't focus on percentage first but care about the profit you get, it's more important.

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IC Markets Webinar on Emerging Trends in the Forex Market. W means the size of your average wins L means the size of your average loss P means winning rate. Regulation Financial Security Secure your trading account Contact Admirals Company News. Instead, you need to build it around your average risk to reward. Hi Rayner, good article.

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