This allows even the most novice of investor a shot at the dream. You can’t go to a dinner party without encountering a successful rainmaker proudly regaling tales on how they routinely “beat the market.”
Considering the horrifying statistic that approximately 90% of all retail traders struggle to succeed, it is astonishing that we all know at least one person in that all exclusive “10% club.”
There are countless articles that highlight the pitfalls of the retail trader – the most common include greed, lack of discipline and poor money management. In my experience I find that most “newbies” fail because of over trading and over confidence, it is not uncommon to see winning runs ending in calamitous fashion – a blown account. The winning run almost makes one invincible and that self-assurance leads to the mentality of a gambler rather than that of an investor.
It is difficult to deny the contribution that social media and marketing campaigns that claim superficial monthly returns of 20% plus as the norm, might be the catalyst for this behaviour.
Rather than delve into the shortcomings of traders, we embarked on a mission to determine if there were any key similarities of the “10% club.”
Our journey did not include professional traders that come from years of institutional training, but rather the “newbie” that successfully transitioned into a professional trader. We assumed that the results would not be surprising and although we found obvious traits like strong risk management and discipline – there were two characteristics that were consistent across the entire range.
Those two characteristics were having a strong appreciation of compound interest and the ability to remain realistic in the face of outlandish advertising claims.
Ask any professional trader and he will tell you that preservation of capital is paramount to achievement of consistent gains. An appreciation of the power of compound interest often allows a trader to better balance risk and reward in their decision making.
Likewise, the ability to ignore claims of 200% per annum returns is an art that allows for the control of impulse. Trading should be compared to your traditional investment vehicles and although FX trading returns can consistently outweigh those returns – it is still rare that any vehicle can achieve 200% returns.
An average return of 1% - 3% per month, which equates to a healthy 12% - 36% per annum, is the average return of the “10% club.”
These returns may not have the same allure as some of the advertising claims, but in relative terms is a remarkable achievement.