Even though the signals from our traders don’t require any input from you, there is one simple thing that you can do to maximize your results with our Forex signals. In a previous post, we showed you the best time to open an account.
In this post, we will show you a super simple strategy for protecting your profits. While there is no guarantee that our signals will end in the positive every month, there is a way that you can be sure that you keep some of your profits when your account is up.
This is especially important when one of our signals has a huge month. For example, when our Omega Genesis account had big back-to-back months last year, this would have been a perfect time to implement this strategy.
Obviously, you are free to do what you want. But this post will show you some very practical reasons why you should have a plan to protect some of your gains.
The Myth of Maximizing Compounding
Many people want to keep all of their money in their trading account so they can make the most money possible. But they don’t think about the practical, psychological and monetary benefits of doing some monthly money management.
If you do have a big trading gain in your account, what then?
It is just a paper gain. That money just sits in your account, it has no impact on your life and you could lose it in the next drawdown.
You might consider this instead…
Playing Great Defense is the Best Offense
A good strategy can be to take out a portion of your profits, in months when your account is profitable.
What is the right amount of profit to withdraw?
That is entirely up to you.
But if you choose to implement this strategy, we suggest that you pick a percentage of your profit that works for you, and stick to it.
This prevents you from making arbitrary decisions that can have a negative effect on your account. Without a plan, us humans tend to make the worst possible choices.
I’m going to give you two examples and take note of how you feel in both situations. Hopefully this will help you understand why this strategy can be beneficial.
Let’s say that you have a $100,000 account and your signal makes 5% in one month. So you now have a $5,000 profit for the month. Let’s say that you are subscribed to our Lambda Ascent signal, so you would pay the $179 monthly fee.
That leaves you with $4,821 of sweet profit.
You have a plan in place to withdraw 20% of your profits every month. That puts $964.20 in your bank account and your trading account goes up to $103,856.80.
Now let’s say that your account is down 5% the next month. Your account balance is now $98,484.96, including the monthly fee for the signal.
This nets out to a loss of only $1,515.04 in your trading account.
But you still have $964.20 in your bank account to make a car payment and have something left over for some oysters.
OK, so let’s take a look at what happens when you don’t protect your profits. We are going to look at the same signal performance, but without withdrawing profits.
During the first month, you will be up $4,821 after a 5% gain. But you don’t take out any money and let it ride.
After a 5% loss the following month, you will have $99, 400.95 in your trading account, after fees.
You are probably thinking: “Big deal.”
Both examples end up being about the same at the end of two months.
But are they?
Let’s break it down…
Psychological Benefits of Protecting Profits
When you start paying yourself a portion of the profits from your signals account, it now becomes a potential income source, instead of a “savings account,” where you stash money away.
By being able to pay some of your bills with your signal account profits, your trading account can have an immediate impact on your daily life. Since you are only withdrawing part of your profits, your account also has the potential to grow.
But if you only keep your money in your account and never take your profits out, the profits don’t seem as real and you might lose your gains in the next drawdown.
The Slight Edge
Now let’s look at the monetary benefits of this Forex strategy. When you add up example #1 and example #2 above, you get the following results, after two months.
- Example #1: $98,484.96 (trading account) + $964.20 (bank account) = $99,449.16
- Example #2: $99, 400.95 (trading account)
So, by withdrawing some profit in the winning month, you actually reduce your loss in the losing month and come out ahead $48.21.
Yes, that’s not a lot on a $100K account, but it does add up…
Also keep in mind that this is a $100,000 account and only a 5% gain/loss. What happens when you have a bigger account…
…or are dealing with much larger percentage gains…
…or you withdraw a larger percentage of profits?
The benefits of really become magnified.
Why it is Important to Have a Plan
Finally, let’s examine why it is important to have a plan. It can be very helpful to set a percentage of profits that you will withdraw every month.
This is because we generally have a knack for withdrawing too much money at exactly the wrong time. I don’t know what it is, I guess it is just human nature.
When we decide to take more money out than usual, that is the same month that a signal does really well. When we leave our money in and let it ride, that is when the drawdown comes.
If you have a set percentage that you take out every month, you are not relying on luck. You have a system that doesn’t require any guessing.
There may come a time when you want to reinvest the profits in your bank account. But having that money set aside can give you some peace of mind and help you build a stash that you can spend as you wish or possibly invest in another signal.
If you are like most of our customers and you want to leverage our signals to diversify your investments, then you need to think long-term. Even the best professional traders have up and down months.
By implementing this strategy, you can protect some of your gains, pay some bills or take that extra vacation.
Most signal services will tell you to keep all of your money in your account, all the time. This is generally because the more money they have under management, the more they make on broker rebates.
But we are interested in what is best for you. Again, this might not work for you, but we want to present the option.
We invite you to play with some scenarios on paper or in an Excel spreadsheet and see how they play out for you.
What do you think of this strategy? Let us know in the comments below…