Often people ask me if it is really possible to make a living trading the
Forex market. I would have to say that it is definitely not possible to
merely make a living unless you have no idea of what simple trading money
management is. If you are successful in Forex trading and you understand
what money management is, you will not just make a living but will create
wealth relatively quickly. So I often tell people that if you are looking
for a job, you might want to try Wal Mart. I hear they are hiring part
time employees.
A good tool that can help you to understand how this
works is a calculator. They can be purchased at most local stores for as
little as $5.00. Then you might want to open a Forex trading demo account
and place a trade. Observe what happens to the digits that display the
profit or loss and get an idea of what the value of a PIP is in your
account. Then you can develop a purely hypothetical trading plan.
After you have learned a little about how Forex trading works you
should start to get an idea of what is a realistic expectation for results
in PIPS over a given period of time. Then decide what a prudent risk
management plan would be. Some say no more than 2% of your capital is a
good number. That number is of course, based on a false industry belief
that it is not possible to have a high win to loss ratio in Forex trading.
Regardless, it is a good conservative number. Then simply start off with a
number that represents the amount of capital you plan to start with and
project what would happen if you were successful with a realistic win to
loss ratio. How many PIPS will you earn? Win to loss ratio is the number
of winning trades vs. the number of losing ones. Risk to reward ratio
represents the average number of PIPS per loss vs. the average number of
PIPS per winning trade. What will your average net gain be per day or per
month? What will that do to your capital?
The next step is to note the amount of money you need to meet your
living expenses. When the amount of your monthly profits is at least twice
as much as the amount you need to live, begin taking out 50% of your
monthly profits. From that point on you will make a living AND your
trading account will increase each month while the amount you take out
will also increase every month from that point on. What could be better
than that?
