Time for the third article in a series of tips for those considering leaving Forex. Let's get right into it.
Consistent Profits Are Better Than the High Ones
If your goal is quick and easy earnings, then try your luck at the casino. In Forex, a trader gradually accumulates profits thanks to the acquired skills, knowledge, and personal qualities.
In daily life, if you make rash business decisions your company will burn out and you will lose all your original investment. The same happens in Forex. If a trader thinks only about profit, he takes risky actions that lead to losses:
- Increases position size and uses high leverage
- Risks a large percentage of total capital on each trade
- Doesn’t use Stop Loss, etc.
It may seem to someone that without high risks, you can’t earn a sufficient amount for a decent life and can’t achieve the goals you had coming to Forex. Get rid of these thoughts. A stable income of 10% can bring you the long-awaited financial independence in just a few years. The thing is that your profit will increase every month proportionally to the growth of your balance. And I can prove it to you.
Let's imagine that at the beginning of the journey you cannot deposit more than $1,000. Not a big deal. Let's see what happens to your account during the first year, even with a gain of only 10%:
- $1,000 + 10% = $1,100
- $1,100 + 10% = $1,210
- $1,210 + 10% = $1,331
- $1,331 + 10% = $1,464
- $1,464 + 10% = $1,610
- $1,610 + 10% = $1,771
- $1,771 + 10% = $1,948
- $1,948 + 10% = $2,214
- $2,214 + 10% = $2,435
- $2,435 + 10% = $2,678
- $3,678 + 10% = $2,945
If you continue to compound, you will find out that at the end of the second year you will already have $10,000 in your account, at the end of the third year - over $100,000, in a couple of years - more than a million. A 10% profit may seem insignificant, but in reality, it could generate hundreds of thousands of dollars in the long run. Therefore, I urge you to stop chasing high risky profits, and focus on consistent earnings. This brings us to step #5.
#5. Build a Risk Management System
If you don't have a risk management system yet, make one urgently. If you have it and clearly follow it but still keep losing too much, then it definitely needs revision.
You also have to check successful Forex trading strategies.
Each trader builds his own risk management system based on his goals and financial capabilities. I'll tell you about the basic aspects that can form your plan:
- Risk a maximum of 2% of your total balance per trade. That is, if your account has $1,000, then set Stop Loss so that the loss doesn’t exceed $20. Reducing the size of the trading leverage and the position volume will help you with this.
- The potential profit should be two to three times the potential loss. This rule is irreplaceable, as losing trades are inevitable. When the risk-to-reward ratio is 1:3, 1 positive trade is enough for you to cover and exceed 2 losing ones. This way you can gradually grow your 10% per month.
- Don't risk more than 6% of your capital at the same time. I mean open positions. If you risk 2% for each trade, then open only up to 3 trades simultaneously.
That's all I wanted to say about this step. The next article will be the final one in this series. After completing step #6, you will be able to return to Forex with renewed vigor and start earning.