Trading on the forex market is a business
If you really want to succeed in forex trading, you have to approach it as a business. Most investors don’t treat Forex seriously, and that is what makes them lose most of their money. Trading on the forex market is a business, and you’re the chief accountant. You need to keep control of all your business decisions and must act according to strictly defined investment plan. Such plan should include tips and types of behavior in the event of a number of different scenarios. It is very important since any business, including investment, can only succeed if you do not act on emotion. You need to be completely resistant and you can not let greed or fear to influence your decisions in the forex. If you act on emotions, you’ll quickly lose your money.
Since you are the chief accountant, as well as the only person that can be held liable for investments, you need to take correct investment strategy and all other parameters into account, before you invest your money. Because the objective and self-serving decision-making is the key to success in forex trading, it is extremely important to create an investment plan before giving in to the thrill of real currency trading. You’ll never be as objectively looking at your investment, as before committing real money, so it is best to make all the strategic decisions right now. This is the best step to become a professional investor.
Good investment plan should include:
Position opening strategy – buying currencies. What input signals will I use?
Closing position strategy – selling currencies. How much profit is enough for me?
To determine how much money from the account you are able to lose in a single investment (determining the level of risk you want to take). A useful article about a reasonable level of risk in the investment can be found here: Investing based on the mini lots – recipe for success. You can also specify how much money from the account you are able to lose in one day/week/month/year and stop investing for some time, and relax, if this amount is exceeded.
Defining what you want to do when you close the position. Whether you have earned or lost on the investment, you need to plan, what are you going to do when you are closing it. This is important, because that’s the point on which most investors lose money because they are purchasing next currencies without a plan.
Defining the times at which you will be looking for signals to enter the market. Do not invest when you are sick, tired, not feeling well. Success in forex requires focus and a sound mind. It makes no sense to force yourself and look for opportunities – every week there are plenty of occasions for a good profit.
Above points are the framework for a good plan. Each investor may consider adding a few other factors – it’s a subjective matter.
Chapter 5: Managing money and the risk level