A friend of mine recently made an interesting observation: most novice traders prefer to think and speak in dollars and not in proportion to their loss or profits. I think he is right, I've often notices times again how neophytes really struggling to believe in this. Talk about how lost $ 6,000 or $ 7000, but so what? 6000 $ to a million dollar is a changing chop. What is interesting, many so-called trading gurus (but essentially Mountebanks) taking full advantage of this weakness of beginners to think in percent, when trying to sell their consultancy and trading systems.
Here is what you usually hear in some commercial seminar and read some futures trading web site: open account 5 K, begins trading S & P 500 eminis futures ". Yes, indeed, to buy or sell a contract only requires $ 3600 margin or so. Hence 5 K allows freely negotiate a contract. Commission for trading S & P emini is small, literally couple of dollars, so you can both inside and outside of these market several times a day. S & P 500 eminis in a typical day to move point 10–15 up or down. Each moving point is equal to $ 50 dollars. So, I would like to say a hacker: "If you capture only 4 points out of these 15 will be $ 200 per day, and will teach you how.
Precisely because this sales pitch is in dollars is not a percentage people get seduced by this kind of talk: anyone can put an account 5 K, and $ 200 per day is a lot of money for many people, however, this does not appear to be astronomical, does not seem to be "too good to be true". And so people think it means a fishing just four point move out of daily 15 sounds doable.
However, let's put that $ 200 percent in the long term. On behalf of 5000 $ 200 dollars per day: 4% per day or 80% per month or 1155% per year. If you keep making $ 2,000 per month, and if you do not withdraw a month would make enough money to be able to trade 2 contracts simultaneously in 3 months, you have several commercially 4 contracts simultaneously, and so on. In less than one year, your account will be worth 1 million dollars! Again in Parliamentary percent, 80% per month means 1155% per annum on a compound basis.
Now, if you express in percent, look for astronomical. Now that smell like very-good-to-be-true proposal: nobody makes this much profit, not even Warren Buffet! Such percent return means that starting with 5 k can become richer than Bill Gates just a few years!!
Yes, because people do not catch the lie? People hate thinking as a percentage. Avoid thinking a percentage! You smack them with this 1155% p.a. right into account, but will ignore and keep thinking: "$ 200/day is doable and is air-conditioned. Isn't one of those idiots: love-hate dollars rates!!
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