One major mistake many newbie traders make while entering the forex market is starting their trading journey with unrealistic expectations and goals. They think of forex as a get-rich-quick game and end up disappointed when they fail to make easy money. This is a significant reason behind the failure of many new traders as they are misinformed and don’t research the reality enough. Trading in the dynamic forex market is rewarding, but you must wait to flip an account. Setting realistic goals is the first step towards trading success. This article is also written to help you do the same by providing some powerful tips.
1. Bring Down Your Expectations
The first tip that you need to follow to set realistic goals as a forex trader is to lower your expectations. Don’t believe the stories that spread through social media, claiming to make millions of profits from the forex market quickly. You might come across many influencers convincing you to pursue forex trading with a rags-to-riches story. But this kind of exaggerated success story may need to be revised, and those who think of recreating this kind of success as a beginner may lose all their capital by taking too much risk.
Since the risks and rewards cannot be separated in forex trading, you must take more significant risks to get higher tips. However, taking excess risks with knowledge will result in huge losses. Therefore, you must trade with a margin that you are comfortable risking, and for that, you can use a margin calculator, which helps you find out the free margin you should risk per trade according to your capital. Successful traders always take calculated risks and will not enter a business that does not conform with their risk/reward ratio. As a trader, you will always expect to make a profit. Still, this expectation should be reasonable based on the market conditions and the profit potential of your strategy. Logical calculations are an inseparable part of trading; someone who knows this will always aim for an achievable target.
One forex term you must learn about before setting profit targets is price interest point or pip. Pip is the basic unit of measurement in the forex world. Your profits and losses will be directly related to the currency price movements, and pips are used to state and express all such fluctuations.
2. Don’t Expect to Make Easy Money
The 2nd tip for setting realistic trading goals is not to expect to make easy money from the forex market. Many beginners need to pay more attention to the risks and challenges that are part and parcel of the trading process. They assume that trading will be easy and fun or dismiss every beginner’s potential losses during the initial phase. You can simplify the trading process by following a simple strategy and precise plan. But it will always be challenging when you are inexperienced. Knowledge and experience make trading easier over time, but you need to move forward with a serious approach.
The first step in the trading process is spotting an opportunity. Traders often have a plan but deviate from it as they see another trade setup that looks like an easy catch. They end up entering random trades that do not connect with their strategy. They must prepare to manage such a trade scenario, and such trading habits will never make you successful in the long run. Many beginners also need more practice on a demo account for live trading.
But when you are new, you need to spend a lot of time learning the technicalities of trading. Otherwise, you will end up making costly mistakes on a live account. Thus, consider trading challenging and invest enough time in learning and preparation. It would help if you always made calculated moves; tools like trading calculators can be valuable to your toolkit.
3. Try Part-time Trading Initially
Another reason traders set unrealistic goals is that they pursue trading as a full-time career. When you think of forex trading as your primary or only source of income, you will also expect to earn higher profits. You will develop this habit of chasing profits as your total income heavily depends on how much you make from the forex market. This can be stressful and overwhelming for a beginner, and because of this, they set unattainable profit targets as they need to support themselves while continuing to trade.
Now, one thing you can do to solve this problem is start as a part-time trader at first, as you will have another source of income to support yourself in the initial phase. You should not expect to earn much in the beginner phase as you are still learning, and it will take some time to find your footing in the fast-moving market. So, consider switching to full-time trading after gaining some experience as a part-time trader. One tool you can use to accelerate the growth of your trading account is leverage.
However, using leverage also increases the risk of loss. Hence, you need to set some limits based on your risk tolerance. A margin call is another chance you have to deal with while trading with leverage. Your account balance falling below the margin requirements triggers a margin call, which could be a better experience for any trader. Hence, it would be best to use a currency calculator to quickly convert the currency you are trading with your account’s base currency to determine how much money you need to maintain sufficient balance in your trading account.
4. Understand The Market Trends
The next tip for setting realistic trading goals is understanding the market trends and setting targets based on them. Market trends impact a trade’s profit potential, as you can expect to earn more when there is a strong trend. But your profit potential will be limited when the market moves sideways with a clear direction. You can only expect to make a little profit when consolidation or choppiness occurs. When you are well-versed in the market, you will be able to calculate the number of opportunities you can get from a particular trend and will be able to set your targets based on that.
Those who need help understanding the ups and downs of the market will expect to make the same amount of profits in every situation, which is far from reality in the volatile and ever-changing currency market. For instance, one currency pair can be a haven during a specific period, but it can also become highly volatile and unpredictable due to a shift in trend. Observing the market situation and learning about the changes in trends prepared me to approach the market politely. You will know to remain patient and follow the flow without setting unrealistic targets.
5. Consider Your Trading Style
The last tip for setting realistic trading goals is considering your trading style. The trading style you choose to follow strongly influences your trading goals. For instance, a scalper or day trader will set goals for earning profits daily, while a swing trader wants to make the most out of a potential price swing. A position trader will only look at long-term trends offering higher profit potential, and they will patiently wait to achieve their long-term goals. Hence, you must ensure that your trading goals align with your style.
Beginners start with long-term goals first, as setting daily or weekly profit targets may pressure you as a newbie. You may feel discouraged to trade if you fail to attain your short-term goals, which can also stress you out in the initial phase. Hence, starting with a long-term plan that motivates you to keep going even when things go wrong will be better. Traders who enter the market with short-term goals will often think about quitting when they fail. However, traders with long-term goals will be less stressed and remain firm while looking forward to the future.
To sum it up, setting your trading goals is similar to deciding the destination that you want to reach at the end of a journey. It tells you about the direction you must move, and having a definite goal helps you develop a sound trading plan. Your goals as a forex trader should be realistic, attainable and clear, leaving no room for confusion.