In this episode of Truth About FX, Walter a question about the possibility of multiplying a small trading account into a million in a year. Walter explains what could be the answer to this, if it is possible or not, the dangers that might come along, and the human psychology that makes you want to try it.
Download (Duration: 03:18 / 3.78 MB)
In This Episode:
00:44 – math made sense
01:23 – money management magic tricks
02:15 – nucleus accumbens
02:57 – deterrent in real time
Tweetables:
The psychological aspect is the most likely deterrent for you. [Click To Tweet].
What’s the trading strategy and how will I implement it? [Click To Tweet].
It’s usually not a good idea to try. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter! This is an interesting question. Somebody probably asked you: “I saw this video on youtube on risk management and it said something like: how to turn three hundred dollars into a million dollars in a year? What is the trading strategy and how will I implement this?”
Walter: It’s a great question. It did came from a student in the forum. He, basically, was trying to figure out — the math made sense to him — and so he’s trying to figure out “Which strategy should I use to do what this guy is talking about in this video?”
The answer is probably none. Basically, what this guy was doing, he’s risking like a quarter of your account to leverage into a big run. That’s, for most traders, the drawdown that’s inevitable, is going to mean that you’re going to start questioning yourself and,at some stage, you probably are going to quit and get to that uncle point where you just don’t want to do it anymore.
When you see these sort of money management magic tricks, it’s usually not a good idea to try and fit your trading style into that. There is one exception and that would be if you have a whole host of trading systems.
When I say a host, I mean like dozens that you were trading and if each of those systems trades often enough and you have low enough risk then, essentially, what you’re doing is you’re speeding up the calendar because you’re taking so many trades.
This is really the attraction of scalping for a lot of traders. The reason why they’re so attracted to scalping is because they understand this, that they get paid per trade and so “I might as well take more trades.”
That’s sort of the distraction that scalping provides. There’s so many other problems to scalping including — if you want to google this — lookup your nucleus accumbens and see what that is.
I’ll link this up below this podcast but, look up at that. That’s the area of your brain that’s activated when you do drugs, when you get addicted to things like gambling and when you trade lower time frames like, in start, doing scalping.
Those things — although it’s possible to do that if you have a lot of trades going through your platform — it’s probably, in most cases, are really a bad idea because these guys aren’t looking at risking one or two or half a percent instead of looking at risking twenty to thirty percent per trade.
Although it’s true, the math does work out — it’s absolutely a true mathematical fact — the psychological aspect is the most likely deterrent for you if you were to implement it in real time. Essentially, I would say, none.
Hugh: Yeah, great answer. Thanks for the tip.
Walter: See you next time, Hugh.
Hugh: See you.
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