Last Updated 6th September 2016: This article could also be called something along the lines of how to take an interest in forex into a full time income stream, that you can not only survive, but thrive off! This isn’t going to talk about specific techniques or strategies, we’ve written enough about those to make anyone a lot of money. Instead I’m going to talk about some of the basic business principles and how these can be taken and moulded to a forex business, because that is essentially what you are doing when you become an investor!
I could also make the title something like go from £10,000 to £1,000,000 in 5 years. But the truth is most people won’t have the patience to do this (which sounds strange as 10k to 1M in 5 years sounds quick!) I do the maths below, trust me you will find it very interesting!
This could also be called the compound effect of forex trading…. More on that later, but if you don’t already know about compound effect, its worth a Google.
If you’re a business owner you will likely already know a lot of the information I’m about to outline. But I’m writing this for the individuals who struggle to manage capital, get start-up and grow their investing portfolio enough to make a full time income. Now as I outlined in an article a couple of months ago, full time income doesn’t need to be £100,000 a year profit! Making a small amount of profit month on month allows you to have the freedom to trade anywhere in the world! This flexibility is one of the greatest assets you have, so it shouldn’t be wasted in search for more profit!
Table of Contents
- 1 The Pre-Grind | Research Stage – Stage 1 (Year 1)
- 2 Starting – Capital & The Compound Effect – Stage 2 (Year 2-3)
- 3 Growth, Profitability & Quitting the Day Job – Stage 3 (Year 4)
- 4 Scaling & Pre-Gold – Stage 4 (Year 5)
- 5 The Gold Era – Stage 5 (Year 6)
- 6 Year 6 of Trading (Year 7 Overall)
- 7 Year 7 of Trading (Year 8 Overall)
- 8 Year 8 of Trading (Year 9 Overall)
- 9 Year 9 of Trading (Year 10 Overall)
- 10 Year 10 of Trading (Year 11 Overall)
- 11 Taxation & Forex
The Pre-Grind | Research Stage – Stage 1 (Year 1)
The number 1 reason why people don’t make money from the markets is because they are a.) Lazy or b.) Impatient. If you look at their percentage of profitable trades they are relatively high. But the killer is not setting stop losses and taking profits too early. I’ve done articles on this in the past and that’s not what I’m talking about today but just keep that in mind. You can be a profitable trader with a 1:4 ratio, that’s 1 “correct” trade vs 4 unprofitable ones.
Stage 1 is the pre-grind or research stage. This is when you will be researching the specific strategies and techniques to use to make a profit in the market. Our entire strategy will revolve around earning 5% per month from the markets. It’s possible to make 5% a day from the currency markets, but our risk will be too high to do this. Instead we want to make a consistent profit. Whatever timescale you trade on, whether it be daily, hourly, 15 mins, weekly, you need to develop a system before you even open a trading account! If you haven’t got a system created then you are not ready for stage 2.
At this same time you should be working to raise capital for your forex trading exploits. Most of the time this will involve working your full time job, or doing whatever you did before to make money. This is probably the most important part to the entire system. If you cannot raise enough capital the entire process breaks down.
Starting – Capital & The Compound Effect – Stage 2 (Year 2-3)
The first step is to calculate your starting capital. Remember you will not be withdrawing any capital from your trading account for 2 years. Yes that long! This is a business and you will be reinvesting everything into your account each month. All profit will stay in the account to grow your profitability long term. As a result you should not be borrowing a lot of money to get to your starting capital. I recommend starting with as large a number possible, but also not using money that you might need in the next year. Always have a safety net outside of your trading.
I would recommend a trader have £10,000 in their account to begin. More is advisable, but I believe this amount should be attainable for everyone who truly believes they can become a successful trader. Doing some quick maths you can see that £10,000 + 5% per month gets you to the below figures in a 24 month period. This is if you don’t withdraw any of the money you have initially invested. This also is only making 5% per month! Which should be more than attainable for all forex traders as long as you stay patient!
As you can see the compound effect of this capital has grown very nicely and as a result you now have £32,000 in your account within 2 years. If you started with £20,000 then you’d be looking at £64k so having a large amount of initial capital to input is very important. This is what I call the grind stage. Remember you can use whatever leverage you need to make the 5% profit per month, but please don’t go too high! Stay under 10:1 at all costs and never risk more than 2% of your account balance per trade!
There is a good reason why its called the grind, that’s because you will be trading and probably working full time (or probably at least part time) in this period. Personally I recommend having a semi-automated business in place, but if you aren’t familiar with business then you will have to take a job. Another thing I’d recommend is to never touch even a penny from your trading account until 2 years is up. You want to grow that capital as its an asset in itself. If you take this money out to start spending on rent your asset depreciates drastically.
Growth, Profitability & Quitting the Day Job – Stage 3 (Year 4)
If you’re still reading then well done as 90% of people would have switched off by now. This is where your effort, research, discipline, patience and hard work begin to payoff, although not fully quite yet. At this point you should have roughly £32,000 in your account if you started with the £10k figure agreed upon. Now in investing that’s not a lot of money, but its the perfect platform we can use to launch our business.
The following is the position you should be in if you have reached this point in year 3. You should have a very efficient forex trading strategy that gets you around 5% a month, maybe slightly more by now as you begin to understand the markets. You should have another savings account from the income you have been earning from your full time job and you should have essentially the ability to quit your job and if you don’t like your job I recommend you do this now! – Seriously go for it.
The key is the year after you’ve got into a full time trader. Now you can go 1 of 2 ways with this. You can either continue what you were doing previously and use the new time you have saved to spend with your family, friends, hobbies etc. Or you can scale your forex business….. It’s a tough decision but it needs to be made. This is when some traders say they will go full time and end up making way too many trades as they get bored and impatience waiting for the markets, and end up losing all their balance in months, that they took 2 years to build. Do not do this.
I like to aim for 7-8% utilising slightly higher leverage, but never going over 1% of my total account balance now. 7-8% as a full time trader is relatively easy to do but the slight difference you get is going to huge for your overall total. So let’s take a look at how this would go for your earnings over year 4. This is based on 7% a year. In this time I want you to live off the savings you’ve already created, withdrawing only £1,000 per month from the trading account. You still want the account to grow!
The kicker: The single most important note to this entire process. You are now in the position where you are earning a large sum of money, investing from anywhere in the world. You have the freedom and probably the time to do what you want. My recommendation? Move around, travel, try new things, stay busy! Keeping your mind free is one of the biggest advantages to this method. Don’t get bogged down in the details, if you have a unprofitable month, don’t worry you have the savings and the funds to overcome this, you’ll just have a better month next time. Even the best traders in the world can go up to 4-5 weeks with unprofitable weeks.
One thing you might be thinking is at the end of 3 years of trading I’ve made a lot of money but I haven’t actually seen much of it. The reason is because you haven’t reached what I term the “gold” stage yet. It takes a long time to get to that stage and people who try and reach it too quickly usually don’t even get close. I’ve said it once already but I’ll say it again, the best thing you can have as a forex trader is patience! With £1,000 and your savings from the last 2 years of work (probably another £1,500 a month) you will have more than enough to live off. Remember we are trying to build a business here, not make a quick profit!
Scaling & Pre-Gold – Stage 4 (Year 5)
By year 5 you should now be an expert trader. You should be able to predict the market and able to leverage a higher ratio with less risk. Year 5 is where we aim for the 10% a month account growth. This is personally what I recommend. If you don’t feel confident enough then continue on stage 3 for longer. If you stay on stage 3 for 5 years then you’ll have an account balance of £250,000 and may not ever need to reach stage 5, but for most they will want to continue this. The account position looks very similar to before although by this point your saving have probably been running low so withdrawals are up to £2,000 a month.
As you can see we are now in the range of what most people would call “rich”. When you think about this from a time-scale point of view. Do you think you’d be able to save up £134,000 in 5 years? Chances are low that you could. But by implementing correct trading and capital management techniques you’ve done this and you have made money in the process. By now you should be able to do whatever you want with your life and that’s the most important part to this entire process. You have the freedom and the money to do what you want. Staying patient at £15,000 in year 1 doesn’t seem so bad now does it?
The Gold Era – Stage 5 (Year 6)
If you’ve reached this stage as a trader you’ll know what I’m going to say. The basic principles remain the same, you still want to use your leverage, earn your 10% a month on average and build your account. But you can withdraw anywhere up to £10,000 a month that you like. Let’s say after living “lean” for a year you want to triple your income and go straight to £70,000+ a year. Not a problem. Take £6,000 a month out and look at what happens for you.
The golden stage is here. Now you can withdraw up to £20,000 a month from your account. In reality you can withdraw exactly 10% of the previous month’s total balance but I recommend staying slightly below this, incase you have a bad month or simply don’t need the funds.
I’ve continued the process to show exactly what is possible in 10 years of smart forex trading! It’s quite amazing really.
Year 6 of Trading (Year 7 Overall)
Remember that you want to avoid large withdrawals of funds, even for example think about buying a house. The interest on the mortgage would be a lot less than your potential earnings, and hence simply keeping £300,000 additional in the account would be better off. Although if you are looking to buy a million pound house (which you probably would be at this point) then withdrawing up to 30% of your account is considered okay to do, but try to avoid anything higher than 30%. Displayed in our example below.
Year 7 of Trading (Year 8 Overall)
Year 7 is the year you hit 1 million in your account if you stick to the 10% earnings and withdraw £15,000 per year.
Year 8 of Trading (Year 9 Overall)
Let’s say by year 8 of trading you want to reduce the time you spend indoors or in-front of a computer and instead of aiming for 10% a month you want to go back to earning 7% a month.
Year 9 of Trading (Year 10 Overall)
Year 9 you decide to drop it down to 5% a month and spend only 5-10 hours a week trading. By this time you should have automated a lot of the processes and should be investing heavily in other areas (angel investing, stocks etc.) As a result you withdraw an even larger percentage of earnings now, but due to the size of your account it continues to grow!
Year 10 of Trading (Year 11 Overall)
That’s the 10 year forex trading strategy for you.
Don’t look for the “Make 10k in 10 days” method. Follow the make 10 million in 10 years goal!
I recommend (obviously) you stay at this level. Never stop trading! Keeping money is a lot harder than making it!
Taxation & Forex
Remember that you will have to pay tax on your forex earnings. This depends on where you live. Personally I would recommend becoming a member of low tax paying nations by year 4. I don’t want to dive into this too much as it varies from country to country. For more information check out here and here. But seriously look into this, its very confusing stuff. US individuals have more of a struggle than Europe folks in my experiences.
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