I think we can all agree that money is the main reason why any of us got into or are looking to get into the profession of trading.
Some of us look to get into this profession to create a supplemental income stream or even a primary income stream.
Becoming a consistently profitable trader can help you to achieve these goals but focusing on the money alone can be detrimental to becoming a consistently profitable trader which then translates to being detrimental to attaining the goal of building a supplemental or primary income stream.
Today, we’re going to talk about why focusing on your accounts percentage growth is more beneficial to your growth as a trader.
Money is Subjective, Percentage is objective
First, let’s take a look at the definition of subjective and objective.
Subjective: Personal opinions, assumptions, interpretations and beliefs.
Objective: Observation of measurable facts.
Now that we know what these 2 terms mean, we can now tie these into dollar growth versus percentage growth of your trading account.
Below is an example of 2 traders that both have grown their account by 5% in a trading period. The only difference is the capital amount in their trading account.
|
Trader A |
Trader B |
|
|
Capital |
$1,000 |
$10,000 |
|
Percentage Growth |
5% |
5% |
|
Dollar Amount |
$50 |
$500 |
Both of these traders have grown their accounts by 5% but trader A only made a $50 profit as opposed to trader B who made a $500 profit.
This is where subjective vs objective comes into play.
While 5% is a pretty good return, trader A might be discouraged because the dollar amount that he made might not be the return that he was hoping for.
Trader A was hoping for a bigger return, maybe something similar to what Trader B had made. But if Trader A aimed for a $500 return on his $1,000 account, that would be a whopping 50% return.
A 50% return can definitely be achieved, but the risks are so much greater.
If Trader A aimed for a $500 return, he would have to up his risks and start over leveraging his account.
Gaining $500 is definitely possible but on the flip side, losing $500 is going to be the more likely scenario especially if Trader A doesn’t have a trading plan in place.
(Click here to read about how to build a detailed and effective trading plan)
The Solution
Focus on an objective target or goal. This is something that we at ASFX preach everyday. We never show dollar amounts in our community.
In order to start gaining higher returns, you have to grow your capital.
Figure out a way to start compounding your account and invest more capital into it whenever you’re able to.
As we’ve seen from the chart above, a 5% return can be a pretty good return depending on the size of your capital. Here’s another chart example of how that same 5% return will look on an even bigger account.
|
Trader A |
Trader B |
|
|
Capital |
$10,000 |
$50,000 |
|
Percentage Growth |
5% |
5% |
|
Dollar Amount |
$500 |
$2,500 |
Closing Remarks
Over leveraging or taking bigger risks on your trades is not the answer to making substantial gains.
The answer lies in your trading plan, strategy, risk management and being comfortable with adapting an objective mindset as opposed to a subjective one.
Start focusing on the percentage growth of your account rather than the dollar amount.
Trust the process and come to terms with the fact that trading is not a get rich quick scheme.
Invest in your trading account whenever you’re able to.
If you start implementing these good habits in your trading career, the money will follow.
I hope you guys enjoyed this article! If you found value in this article, let us know in the comments below, we’d love to hear from you!