No matter if you are a new forex trader just starting out or an experienced trader with a lot of capital, you should always protect your capital.
Not only that, but it should be your top priority for as long as you trade. This is more than just making sure you protect your own money.
Keeping your capital safe will help you in a lot of ways with your trading.
Don’t make the same mistake that a lot of other traders have made. I’ve been successful as a forex trader because I’ve used what I’ve learned here to grow my capital and improve my trading habits.
So, if you want to make money trading that lasts, keep reading!
Profits are bigger when capital is bigger.
Most people who start trading forex do so because they want to make money.
One of the most important things to know about trading is that people with more money stand to make the most money.
Let’s take this apart.
Tom is using $5,000 to trade. He risks 2% of his account on each trade, and his average risk-to-reward ratio is 1.5. With 2% risk, he stands to lose $100 for every trade that doesn’t go his way and lock in $150 for every trade that does.
Tom would have to make 50 trades that win for his account to grow to $10,000 if he didn’t lose any.
It would take a long time because there would be losses. Tom’s growth is limited by the fact that he only has a small amount of capital.
George, Tom’s brother, is making a deal with $500,000. If George also risks 2% per trade and has the same 1.5RR, he stands to lose $10,000 for every trade that goes wrong and make $15,000 for every trade that goes right.
George can make more money with just one trade than Tom can with his whole account because he has more money to start with.
In fact, George doesn’t need to risk that much on each trade to make a living. This is why traders and funds with a lot of money risk less than 1% per trade: they can make enough money by risking only 0.25% per trade.
This shows how important it is to take care of your money.
If you start out with $5,000 like Tom did, protecting your capital should be your number one goal if you want your account to grow. If you don’t, you’ll lose money and it will take even longer to grow your capital.
This is really important for the long-term success of traders who work on their own. Taking risks or gambling with your money might make you money in the short term, but it’s not a good long-term strategy.
The house always comes out on top.
So, if you want to be successful in forex trading, you need to put up barriers to protect your capital and let you grow your account.
Let’s dig deeper into what some of those barriers might look like.
Watch out for your money!
The best first step you can take to protect your capital is to set up strict rules. That means you should never risk more than a certain amount per trade.
Forex4noobs has helped a lot of people get started with forex trading, but this simple rule is often ignored.
Increasing your risk percentage on trades you think will be sure wins is a quick way to lose all of your money. I’ve seen it many times, and every time it’s the same story.
You should also think about how many open trades you should be able to have at any given time. It’s not smart to have 5 trades open at 2% each. If all of these trades lose, you could lose 10% of your account.
When you make mistakes like this, your account won’t grow as fast and you won’t be able to trade as much. You will also likely lose time and motivation.
You should also think about how much of your money you put into your trading account.
You don’t have to put all of your trading money into your brokerage account. You can keep a lot of it in your own bank accounts, where it will be safer.
Small choices like this add up to your financial security while trading and protect you from things you can’t plan for.
It’s not hard to keep your money safe, but every trader needs to realize that they are their own worst enemy.
Putting together the best trading mind
More than you realize, your mindset has a big impact on how you trade.
This leads to problems like chasing trades, getting out of trades too soon, increasing your risk percentage per trade, and many others.
One of the most important things I’ve learned about trading is that how you think about it is probably the biggest factor in whether or not you do well.
There are a lot of different ways to trade, but no matter which one you choose, you will always be your own worst enemy.
Are you always wanting more? Are you impatient? Do you worry about losing trades that are making money?
Having the right trading mindset will go a long way toward helping you make money and be successful in forex trading over the long term.
It is important to get over these mental obstacles.
And it all starts with rules that are easy to understand and follow. Set a limit on how much you’re willing to lose on each trade and stick to it. Don’t let greed, fear, or impatience get in the way.
It will be tempting, and you will always be able to find a reason to give in, but that means your subjective mind is more important than your objective rules, which is something we want to avoid.
It takes time to develop the right mindset for trading, but doing so will help you protect your money by keeping you safe from yourself.
If you can figure out what your weaknesses are and take steps to fix them, I guarantee that your trading will get better. This is because I’ve seen hundreds of traders go through it.
In the end, independent traders are their own bosses, which means they are responsible for their own money.
You are running your own business in more ways than one.
Putting in the time and effort to protect your capital will pay off in the long run. Take those easy first steps and keep moving forward!
“If you don't find a way to make money while you sleep, you will work until you die.”
- Warren Buffett
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