Thinking in terms of percentages

            Trading offers an amazing opportunity to gain substantial returns on our capital. If you have carefully studied the previous lessons, you might have noticed that while breaking down some of the preceding concepts I have focused on the amount of pips and percentage of funds that are involved in a trade, instead of the exact amount of money. Profits and losses should always be inspected from a percentage point of view. It does not matter how much money you win or lose on a given transaction, if you do not analyze this amount of money as a proportion of your total account balance. Thinking this way will prevent greedy behavior and jealousy towards other traders, which will result in healthier trading habits regarding risk, entries, and patience. 

 To elaborate further let’s use an example. Hypothetically you have a $10 000 account, while your friend has a $100 000 account. Your friend closed his trading day at $2000 net profit, while you managed to gain $500 after a successful day in the markets. Analyzing the rate of return for both traders, you managed to earn 5%, which is incredible to achieve in a single day, while your friend gained 2%. Both trader’s in this scenario performed well on a given day, but you might envy your friend because he earned four times more than you. However, you need to understand that despite having earned less money, you outperformed your friend on this given day. This is because real performance is measured in terms of return, not net profit. Your friend might have more saved capital, therefore he can invest more in a trading account than you can, but this should not affect you in any way. It is important to understand that trading is a long term game, not a get rich quick scheme. You should always stick to your risk management plan and be patient in growing your account balance.  

Keep in mind, I am strictly not implying that you should compete or compare yourself with other traders, because trading is an individual sport, and this was just an example to demonstrate the benefits of thinking in terms of returns. The goal should be to earn a positive rate of return each month, and if a trader can achieve that, he is successful. 

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