Why Managing Expectations Is Important To Your Forex Trading Strategy

Posted: 24 Jan 2008 | Categories: Currency Trading

Many times I hear from new traders who state that their goal is to make a certain number of pips every day. While it is important to establish goals in any endeavor, any benchmarks should be geared around your improvement as a trader and not about what you expect the market to give you.

I have seen many new traders who while looking for at least 20 pips a day, end up losing big in an effort to reach this plateau. The problem is that the market environment changes to the point where there are many days where solid trading opportunities just cannot be found.

So the new trader puts on a trade that they normally would not even think about. If that trade becomes a loser, they now have to win that loss back and then another 20 pips before the end of the day. You can see how this can turn into a nightmare after a couple of questionable setups end up as losing trades in the same day.

I think a better goal is to strive to be profitable every month. If you end up with $1 more in your account at the end of the month from the beginning of the month, give yourself a pat on the back for being profitable. It is a series of monthly gains that can result in big returns. But you must treat trading as a business instead of a get rich quick scheme and keep your expectations realistic.

For almost all of 2007, many students in the FX Power Courses were buying pullbacks in the EUR/USD and selling rallies in the USD/CAD and doing quite well since they were trading with the trend. But trading has become more difficult lately as there has been little follow through on any move up in the EUR/USD or move down in the USD/CAD.

The difference is that they are still trading last year’s strongest trends and not taking another look at all of the pairs to judge the current trends. We have talked about the first step in finding a trade is to identify the strongest trends and to only trade in that same direction. But the strongest trends one month may not be the strongest trends in the next month.

Just because you made some money selling rallies in the USD/CAD all last spring, summer and fall, does not mean that this is the pair to trade in the winter. The first step is still to find the strongest trend to trade and that means be very picky each time you check the daily charts. Check out the current daily chart of the EUR/USD and compare that to the daily chart of the EUR/GBP. Which trend is stronger? That is the pair that you should be trading as the strongest trends offer the best trading opportunities.

Tom Long is an instructor of FXPowercourse.com, a forex training site from FXCM.com

Article Author :Tom_Long