In defining your Money Management rules, do not forget to consider the Risk/Reward ratio for your given trading method or strategy. Write it down, read it often, and stick to it!
Risk/Reward is defined as a ratio of potential loss vs potential profit, and you will see quotes such as 1:1, 1:2, 1:3 etc.(or vice versa cos its easier to say!). So, for a 1:1, you would risk $100 to make $100, and for 1:2, you would risk $100 to make $200, and it goes on.
So why is Risk/Reward important? Well, there is one absolute fact, and that is, you will have losing trades! You will have heard the statement “losing trades are part of the game”, and there’s a very good reason for that! Even those considered to be the best Traders in the financial markets will have losing trades, and that’s an undeniable fact.
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Keeping records is a must in any business or endeavour, and it is no different in your Forex Trading…. Keeping good records is a tool for learning and discipline, and will help you grow as a Trader. If you do not keep good records, how will you measure your performance? How will you know which areas to focus on and ensure progression? How will you ever learn from your mistakes if you cannot identify them with any surety?
Whenever you want to improve any area of your life, keeping records is essential. If you want to lose weight, and be successful at it, you need to keep regular records of your weight each week, recording the weight loss regularly, so you can track progress. You may also record what you eat, at what times, etc., etc. Without it, how do you know if you are making progress? In the sporting world, runners keep records of their running times, and adjust their training regimes to combat areas they need to improve, as do racing drivers………… I could go on and write a long list of examples, but I’m sure you see the picture.
My point is, whatever it is you are doing, either personally or professionally, keeping records is essential to achieving the progress and performance you desire.
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