Many people see trading forex online as a way to make money without having much idea of what they want to do that for. Of course money is useful, but with other types of investment people are usually clear in their minds about what they are looking for in terms of a return: income or wealth building. But forex traders do not always think about this.
It is important. Even though you can make money with currency trading without having a clear aim in view, the ideal strategies and trading plan will be different depending on your aims for your investment. Something that a wealth builder considers to be a successful strategy could cause an income seeker to consider that he is failing at times. So let’s look at the differences and how to handle them in your online trading strategies.
If you are seeking profits for income, then your aim will be to live on the profits of your currency trading account. You may only have a small fund now but you will probably be hoping that in a few years you can give up your day job and pay all of the bills from your forex profits.
On the other hand, somebody who is building for wealth will not plan to take an income out of his profits. He will leave them in the account to grow. He may have the aim of building a retirement fund or some other plan where he will eventually use the money, but this is a long term goal and anything taken from the account in the meantime will be lump sums for a particular purchase rather than money to live on.
So someone who is trading for income has to make a certain amount of profit per month, or at least a certain average over a few months. You’d need your income to be reasonably stable and above a certain level, otherwise you risk not being able to pay the bills.
You would need some backup in the form of savings to cover you in the case of drawdown. You would also need extremely good money management and discipline to stick to your system in difficult times. Somebody who depends on trading forex online for their living expenses is under a lot more pressure and mindset will be crucial.
Traders who are building for wealth tend to trade less often because they do not feel this same pressure. Ironically, this can mean that they wait for clearer signals and make more consistent profits than the income trader. They do not mind if their money is tied up in a trade for weeks or even months. They do not need the profits right now.
Wealth builders are also able to accept a bigger drawdown. They take a longer term view and know that they will regain the losses and then some before they ever need to cash in. This means that, other things being equal, they can afford to take a bigger position with the associated bigger risk.
The bottom line is that if you are trading for income you should be looking for a system with low drawdown and your trading plan should be set for low risk. A system that provides frequent signals for small trades will probably suit you better than a system that waits for major trends and swings. If you have clear aims for your trading and understand the implications as set out in this article, you will put yourself in a good position to make profits from trading forex online.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment