A Day In the Forex...

Do you remember the old country music song,"Some days are diamonds, some days are stones..."?

Whe a day starts as a stone, here is something important to remember...DON'T TRADE. All professions have particular challenges that face them. The particular challenge of a trader is his mental attitude. Now don't get me wrong, you can still have a bad trading day even if you have a great attitude. But on the other hand the odds of having a bad trading day when you have a bad attittude are like 99.44%.

This leads to another interesting point. I've never met a good trader who was a pessimist. I'm sure there probably are some, and I have certainly never met every trader in the world...but it is hard to stay at this work when you have a very positive outlook, I can't imagine sticking with this if your natural disposition is to always look on the dark side of things.

Afer all, when you have a string of 4 or 5 losses, even a great outlook starts to feel gloomy. Some professions have technical challenges, some have physical challenges, some have mathematical challenges. Our challenges are different. It generally is not the outside problems that will afflict us as much as it is our inner ones.

It is often said that trading runs on fear and greed. That is not the whole story, but there is truth to it. And the truth is this. Amateur trading runs on fear and greed. Only amateurs let those emotions get in the way. But I will be truthful...even the most professional of traders sometimes get emotional. So how do we avoid getting emotional, over money, one of the most emotional topics in the world?

First, you must reign in your expectations. If you are planning to get rich enough to retire after a year or two of trading, I can promise you, you will be giving your money away (to more expereinced traders). The advertisements that promise you retirement sized riches in no time at all, are only pipe dreams. They will force you to risk so much of your account, that eventually you will blow it all out.

Second, lower your leverage. You can always tell when you have too much at risk in your trade when you sit and watch every pip. Of course, that's not a very scientific, or calculated, way to evaluate your leverage. So what is good measure for your investment? Generally I recommend that you not have any more than $1 per pip for every $10,000 in your account. That means if you enter a trade, and you have an expectation of hitting 200 pips as your price target over the next several days, then you could have a 100 pip stop loss. This would give you a 2-to-1 reward to risk ratio. That's pretty good. Even then if you are only right on 50% of your trades, you are still making money on a regular basis. But also, you can leave your trade to do its work, knowing that even if you hit your stop loss, you've only risked 1% of your account. Many traders will allow a risk of 2-3%. This keeps you from being too emotionally involved with the trade.

Third, set limit profit targets. And be satisfied when you reach them. Don't cry when your profit target is reached and the market keeps moving in your favor. Just get your profit and get out. The more time in the market, the more likely you are to incur a loss.

Fourth, make a long term plan. Have an average gain in mind. My system allows me to shoot for 10% monthly. That's much higher than I can get anywhere else. But sometimes I don't make it. Other times I make more. So set your targets, make your goals and adjust them as necessary.

Until next time...Happy Trading!