Get real!

There is one fundamental mistake that I see traders make again and again.

It’s the surest way to ensure that your trading will fail, and probably causes more people to walk away from the markets than any other issue.

If you trade this way, I 100% GUARANTEE that you will fail – perhaps not this week, or this month (you might even get lucky for a whole year) … but in the long-term, you cannot succeed.

I’m talking about unrealistic expectations.

If you’re not realistic about what your trading can achieve, then you’re set on a collision course for failure.

It doesn’t help that trading “gurus” tell us that they are writing to us from their yachts in the Caribbean … and that they’ve retired before their 30th birthdays …

The truth is, that if you’ve made silly amounts of money in the space of a few years, you’ve undoubtedly taken silly risks (and got lucky).

This is gambling.

What I want to talk about is serious investing.

The kind of thing that doesn’t play fast and loose with your trading fund … that compounds its winnings … and builds wealth steadily over years …

No Lamborghinis.

No weekends in Monaco.

(Sorry if it doesn’t sound very exciting, but please try to stay awake – this is important!)

So, what percentage growth are you expecting to see in a year?

5%?

10%?

20%?

50%?

100%?

Or more?

Be honest – were you hoping to double your money before the end of the year? (You wouldn’t be alone – many new traders expect to make 100% returns in a matter of weeks.)

If you could make 100% every two months – you’d have 600% profits at the end of the year! (And if you’d compounded those profits, the results would be even higher!)

I know it’s nice to dream – but, it’s not going to happen.

So, how much can we realistically expect to make from trading?

Almost certainly, we expect to make more than we could putting our money in a high-street bank (around 2.5%) …

Trading involves taking risks, and a degree of effort on our part – so we’ll expect to get bigger returns for our trouble.

Perhaps we can get a clearer picture by comparing our results to the other end of the market – where the big players are – the hedge funds.

The top hedge funds have produced returns in excess of 30% in the last year.

Does that sound more like what you had in mind?

However, hedge fund have good years, and bad years. A prime example is John Paulson’s celebrated fund that lost 51% in 2011, followed by 17% in the first ten months of 2012 …

Hedge-fund managers have to stomach ups and downs, just like we do – and the ones producing returns like 30% are few and far between. In fact, the HRFX, a widely used measure of hedge fund performance, shows an average return of just 3% last year.

So, with those figures in our minds, a reasonable target will be somewhere between 3% and 30% returns in a year – bearing in mind that there’ll be good years, and not so good years …

And, when we’re starting out, it would be sensible to expect to be at the lower end of that range.

If this reality check is leaving you feeling deflated and disappointed, I’m sorry. But if you want to build genuine wealth from the markets, you’ll need to take a sensible approach.

I’ve spoken to many, many new traders who’ve told me about how disappointed they were with a 5% or even 10% gain in their first month of trading!

If you have a trading fund of £10k, and you make £3,000 return in a year – you’re doing extremely well and should be delighted with the result.

If some years you only make a much smaller percentage – you’re still on the right track.

Some areas of your trading will probably go through periods when the profits are phenomenal … other areas will be more slow and steady … and some areas will inevitably go through rough losing patches …

This is part of the game, and we should try to think like an investment manager who looks at profits long-term, not like a gambler counting his winnings at the end of the day …

A couple of weeks ago, when I mentioned some interesting long- and medium-term trades, I was blown away by the enthusiastic response from Bulletin readers. It would seem that most of you don’t need preaching at about the value of a longer term approach, ticking up the profits.

Don’t get me wrong – I’m not trying to stop anyone from having fun with their day trading, and it’s certainly possible to make good money, as long as you’re careful. But first, you need something that can work for you behind the scenes – with very little effort required.

So far this year, I’ve placed just 4 of these trades (it’s not exactly taxing!) – and in the same time the closed positions have clocked up £3,215 in profits (on a £25k fund).

I’m currently working with the creator of the system for a way to show Bulletin readers exactly how to do this for themselves – I’ll be bringing you much more in the coming weeks.

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