How rich can you get in trading ?

There certainly is no absolute upper limit to earnings. From time to time Forbes and various other publications publish lists of the most successful traders. Profits made in any single year can be well in excess of $100 million.

However …..these people are of course the David Beckham’s of the trading world and whilst in theory it is possible for you or I to replicate those results in practice it is highly unlikely. One reason lays deep within each of us and is known as our  personal psychological ceiling.

Personal psychological ceiling / self worth levels.

Most people find an income and capital level that they are reasonably happy and content with and then stay there. They want more money but are generally not prepared to do more to make it happen.

This is known as the personal psychological ceiling and is inextricably linked to our own feelings of self worth, self esteem and self concept.  These in turn are a product of many things such as our upbringing, beliefs, values, family pressures, financial desires and so forth.

Once we have satisfied those financial desires we tend to spend more of our time pursuing other goals rather than simply acquiring more money. I suppose you could say that we then seek to get a better balance in our lives or seek to achieve self actualisation as Maslow put it.

There has been much research on this subject. One area, for instance, is the study of what happens to big lottery winners when they suddenly acquire great wealth. Statistics  from the FPB show that  around 30% of lottery winners lose all their money within five years.  

One common contributing factor for this tendency is our psychological ceiling and floor. The floor is the minimum amount we think that we are worth and the ceiling is the maximum amount.  When our actual wealth or income is broadly between these two levels we are generally content and happy and seek to remain  in this “comfort zone” or “rut”. If our income/capital levels fall below what we think we are worth we take positive actions to get back above that minimum floor level  (take on a new or second job, work overtime, start a business  etc) and if our income/capital levels rise too quickly and far above  what we think we are worth as a maximum, our ceiling level, strange as it may seem, we often take self destructive negative actions in a subconscious to fall back into our comfort zone.

In the case of lottery winners they do not feel that they are worth say $50,000,000 and tend then to subconsciously take steps to bring their wealth back into alignment with their own feelings of self worth.

The personal psychological ceiling can become a particular problem in trading because it is very easy to crash up through several ceilings in really quite a short period of time  – a bit like a mini lottery win or a winner on X factor.

Suddenly we find ourselves In a rarefied atmosphere of maybe making tens of thousands of dollars in a day.  At this point many will start to feel a sense of financial vertigo. We have risen higher and faster than we had ever expected and perhaps we are making much more money than we feel, deep within ourselves, that we are  either worth or indeed our efforts justify.  I remember an interview with Rod Stewart where he said exactly that. After his first few albums he began to feel a sense of great guilt about just how many millions of Dollars he was making from simply sitting down for 30 minutes and knocking out a hit song. Fortunately, at that time,  he had Britt Ekland to help him spend it and keep him on the treadmill !

So everybody has their own personal psychological income and capital ceiling.  For some of us that may be just a couple of thousand dollars a month for others it may be $100,000 a month or more. But the truth is most of us in the end are self-limited by our own psychology. We do not actually aspire to making tens of millions of dollars and deep down probably do not believe that we are actually worth those sums anyway.

As Henry Ford once said “whether a man believes he can do a thing or cannot do it then either way he is correct”. In other words we can only succeed to the degree to which we believe that we are both capable AND deserving of that success. Most of us are limited by relatively modest self expectations.

Psychologists will tell you that it is very difficult, although not impossible, to change these psychological ceilings.

So typically we are limited not necessarily by trading itself but by our own personal psychological ceiling.

Also we have a tendency to become side tracked for long periods in our lives by various other issues which tend to take centre stage such as children, relationships, sickness, holidays, personal disasters etc. Once we have moved into our financial comfort zone, then these other considerations tend to move higher on our list of priorities.

So typically how much do successful home-based individual E-mini traders make. Well firstly the enormous sums of money mentioned in the first paragraph are not made by individual home-based traders they are typically made by hedge fund operators and owners.

I suppose over the years I have got to know perhaps 30 or 40 successful home-based traders. Nobody will sit down with you and tell you exactly how much they earn or are worth but judging by the lifestyles I would say that maybe only one or two of them are earning much more than $750,000 a year. I would guess that the average figure is probably around $200,000 to $500,000 a year.

I suspect in order to earn much more than this as a private home based trader you would need to be psychologically extremely special and also overcome one or two other limitations that we will  cover in future articles.

Of course if you do not believe in all of this physco babble you could  simply adopt the perspective of the comedienne Rita Rudner who said.

 “Some people get so rich that they lose all respect for humanity……………………………………..……..and  that’s how rich I want to get !”

Maybe we should start there !