Your Risk Capital
Forex trading should only be done with risk capital.
Risk capital is money that, if lost completely, would not have an overly harmful impact on you financially.
Risk capital is money that you can lose.
This is the kind of money that if you lost, you wouldn’t lose your home, car, spouse, limbs, electricity, etc.
Don’t risk what you can’t afford to lose!
If you’re playing with money that you need to pay the bills, it will have a huge negative impact on your ability to make objective trading decisions.
Imagine how stressed you’ll be while your trade is open knowing you might not be able to put on the food on the table if you get stopped out.
How Much Time Can You Dedicate To Forex Trading?
You need to seriously consider how much trading will affect your current lifestyle.
How much time each day/week/month (whichever is most appropriate) can you dedicate to the various requirements of forex trading and managing a trading system?
Your time availability should determine your trading style.
The shorter the timeframe you are trading, the more time you need in front of the charts.
If you’re a day trader, since you’re entering and exiting trades throughout the day, you need to be glued to the screen the whole time.
The longer the timeframe you trade, the less you have to watch the market. You can simply check your trade from time to time.
Because if you were a scalper, you’d probably miss a lot of entries and exits, and end up instead scalping your own head due to your many losses or missed winning opportunities.
You also need to dedicate time to developing and tweaking your trading system.
Trading your system will require you to stare at charts looking for possible entries.
Once you’re in a trade, you then need to manage it.
After you exit, you need time to review your trade and look for ways to improve.
And then you need time to write everything you felt and did in your trading journal.
How much time you’ll need to accomplish all of this will depend on your trading system.
Naturally, your forex trading system needs to factor in how much time you can dedicate.
This is all assuming you only have ONE trading system.
You should repeat this process for every trading system you wish to trade.
Whatever “operating hours” you decide, just make sure you’re able to commit to it consistently.
What kind Of Returns Do You Expect To Make From Forex Trading?
I want to make some money! – anybody who’s interested in forex trading certainly has ambitions of raking in some dough.
trading involves risk, and we expect to be compensated for those risks.
There’s no doubt that every currency trader expects to make a profit.
The questions that you should ask yourself though are these:
What kind of returns do I expect to make? And how much risk am I willing to take to get these returns?
Your answer to these questions will play a huge role in determining what kind of trading style you will implement, what currency pairs and times you will trade, and most importantly, the risks involved in achieving your goals.
Let’s look at an example to help explain this better.
Traders will also have to take into consideration drawdowns.
A drawdown is normally calculated as the distance from the highest value of your account to the next lowest point. (We’ll explain this a little bit more in a later lesson. For now, pay attention in class!)
Each forex trader must decide how big of a drawdown he or she can accept in order to hit their profit target goals.
On the one hand, there are forex traders who are risk-averse and would rather have small drawdowns. The tradeoff is that this will also limit potential profits.
On the other hand, there are forex traders who are comfortable with large drawdowns, just as long as their system also yields huge returns.
You will also have to take into consideration how much time you can dedicate to trading.
If you can’t dedicate a significant amount of time working on your trading system, reading up on the financial markets learning new trading techniques, and recording/reviewing your trade journal, then we can guarantee you that you will have a difficult time hitting your goals.
If you can’t make this time commitment, you may have to readjust your expectations as to how much you can make your account grow.
In the end, just know that success depends on YOU.
Do you have the discipline to GRIND it out consistently to tweak your skills and gain the experience needed to navigate the markets?
If you don’t, then expect inconsistent returns, if any at all, over the long term.
What Is Your Daily Pre-Trading Routine?
Your forex trading routine should help you accomplish the following tasks:
- Reviewing any open positions and making any necessary adjustments
- Reviewing yesterday’s trades
- Getting yourself “up to speed” on the market
- Identifying any upcoming news that could cause volatility
- Being ready to trade when the next trading session opens
Now you will want to review the overall market news. This can be done online through sites such as Bloomberg or through television (CNBC, Bloomberg TV, BBC).
Determine what the overall market sentiment is for the day, review yesterday’s trades and how the previous trading session finished, and maybe identify key market areas like support and resistance.
Now it’s time to start trading your system!
Your pre-market routine will be critical to your success as a trader.
You want to start your forex trading session feeling calm, relaxed, and prepared for whatever the market throws at you.
Keep up-to-date with both the fundamentals and technicals affecting the forex market.
A forex trader in the dark is a forex trader in the red.