Everyone as they say, has to start somewhere, and for many newbies to forex trading, they start with a small account. We're talking accounts of $ 10,000 or less in size.
Focus on Risk Management
Every currency will have an associated minimum cost per pip. For instance, on EURUSD futures, you may have an associated minimum cost of $ 12.50 per pip, and so if you spot a trade that requires a 100 point stoploss, your risk for that trade is 100 x $ 12.50 = $ 1250.
If you have a $ 10,000 account this is 12.5% of your account and is therefore not a feasible trade for you to take, no matter how good the setup looks.
Rock solid risk management must be the priority for your account when you are starting out. You will have to pass up many trades because the associated risk to your account will be far too large. A 1% risk limit is what many traders use, which means that on a $ 10,000 account, this is $ 100.
Taking on too much risk will increase the chance of you striking out, or losing all your money. If you have no risk capital you can not trade and therefore can not long continue to learn until you have raised more capital.
Focus on percentage returns, not absolute returns
Suppose you made $ 50 on a very good trade. That $ 50 may not be much in absolute terms, but if that $ 50 is 2% of your trading account it is a tremendous achievement, if you can do it consistently.
Percentage returns are far more important in the long run than absolute returns. If you know you can make 2% a week no matter the size of account you trade, then you can let the power of compounding do its work for you.
2% a week is over 100% performance a year, you will double your money every year if you can keep this performance going.
So, small numbers matter in the long run, they matter a lot. Even 1% profit per week over a long period of time is sufficient to make huge amounts of money from.
Focus on Execution, not Profit and Loss
If you already have a strategy that is making money, then your focus should be on executing that strategy as flawlessly as you possibly can. Perfect execution of the strategy will make you profits in the long run, as consistent application of it is the very thing that will yield profits over time.
Profit and loss are immaterial when you are starting out, so long as your risk is managed and your risk of ruin is minimized, you should be focussing on execution, not profit and loss.
This is so important because you have, as a beginner, to ensure that you will apply the strategy you have chosen consistently and in the manner that will yield you profits, as even small deviations from the plan may cause it to have a negative expectation.
The size of the profits when you are a beginner does not matter, it is the quality of the trades that brings them to you that is most important.
Source by Mark S Tan