Often people ask me if it is really possible to make a living trading the Forex market. I would have to say that it is definitely not possible to merely make a living unless you have no idea of what simple trading money management is. If you are successful in Forex trading and you understand what money management is, you will not just make a living but will create wealth relatively quickly. So I often tell people that if you are looking for a job, you might want to try Wal Mart. I hear they are hiring part time employees.
A good tool that can help you to understand how this works is a calculator. They can be purchased at most local stores for as little as $5.00. Then you might want to open a Forex trading demo account and place a trade. Observe what happens to the digits that display the profit or loss and get an idea of what the value of a PIP is in your account. Then you can develop a purely hypothetical trading plan.
After you have learned a little about how Forex trading works you should start to get an idea of what is a realistic expectation for results in PIPS over a given period of time. Then decide what a prudent risk management plan would be. Some say no more than 2% of your capital is a good number. That number is of course, based on a false industry belief that it is not possible to have a high win to loss ratio in Forex trading. Regardless, it is a good conservative number. Then simply start off with a number that represents the amount of capital you plan to start with and project what would happen if you were successful with a realistic win to loss ratio. How many PIPS will you earn? Win to loss ratio is the number of winning trades vs. the number of losing ones. Risk to reward ratio represents the average number of PIPS per loss vs. the average number of PIPS per winning trade. What will your average net gain be per day or per month? What will that do to your capital?
The next step is to note the amount of money you need to meet your living expenses. When the amount of your monthly profits is at least twice as much as the amount you need to live, begin taking out 50% of your monthly profits. From that point on you will make a living AND your trading account will increase each month while the amount you take out will also increase every month from that point on. What could be better than that?
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