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It is vital that you prepare yourself properly before entering real money into live markets. If you don’t you run the risk of joining the masses who go bust quickly, if you do, you’ll be taking the first steps in building a residual income which could ensure you long term, sustained profits.

But where do you start?

Formulate a Trading Plan You’re Comfortable with

There are numerous trading systems adopted by amateurs and professionals alike. The difference between them is that professionals identify one system to use and stick to it. Too many traders jump between different methods, bleeding their accounts dry in the process. In exploring the options and picking one system to fully immerse yourself in, you’ll get to fully understand it and grow your enjoyment in trading with it.

Simplicity is the key here. Complicated systems littered with indicators pointing in every direction and a chart that looks like space shuttle control is no use. It might look very impressive to a novice but it’s really just a lot of noise that pollutes your thinking and damages your trading. The simplest and most effective trading strategy is end of day trading on the daily time frame. It’s straightforward to understand, allows you to fit your trading activity around your day job, and the low volume nature of it makes is much more enjoyable and less stressful to use than minute by minute trading.

Have a Budget in Place

On the topic of stress management, controlling your cash flow is the next step to creating a positive trading style. How many of you traders out there manage your non trading income without thought or budgeted planning? If you don’t budget your salary and plan for living costs, personal expenses and savings, your personal lives are likely to be very stressful. The same will apply if you don’t employ budgeting best practice with your trading funds.

Forex trading, like any investment venture, is about achieving financial freedom. Before you can strive for this by trading, you need to have your personal finances in order first. Put aside money for bills, personal spending and savings first. Then look at the funds you have available to trade. If you’re “investing” money that you can’t afford, it’s not investing, it’s gambling.

Make Sure You Only Invest ‘Play Money’

The notion of only investing money you can afford to lose is a common one. The problem though, is that we hear it so often and it can end up sounding like a cliché to many. There is no founding principle of trading that is more important than this. Adding unnecessary stress to your trading is a guaranteed route to poor decision making and there’s no quicker way to put pressure on your trading than by creating a situation where you “need to win”. If you have to borrow money (whether from a bank or your own living budget) then your trading can’t be going well. Injecting more money is only going to accentuate the problem and potentially put yours and your family’s lives in a very difficult position.

Know Your Risk Tolerance

You may have heard about risk management, it’s another key foundation to positive trading. But you can’t manage your risk until you know what your risk tolerance is. There is no right or wrong answer when it comes to setting risk levels but as a rule, the average tends to be at around 2% of your capital. The principle here is a psychological one. Whatever the level you set, you have to be comfortable walking away from the trade as if you have already lost the money. If you’re losing sleep or breaking into a sweat every time you open your charts, your tolerance level is too high.

Strive to Excel Not Get Rich Quick

There’s no need to hide the basic truth in forex trading, we’re all in it to make money…hopefully a lot. But you’re either serious about building a strong income generator or you’re just looking to turn a quick buck. If it’s the latter, you might as well go to a casino. If the former, then your success lies in treating your trading life in the same way you treat your career. If you want to boost your salary, you have to be constantly striving for excellence at work and climb the ladder to higher earnings. The same is true for forex trading. If your focus is on improving your knowledge and trading ability, the money will naturally multiply, if you are hell bent on money, money, money, you’ll be blinded to what’s going wrong when you start losing. It’s a simple concept but one that is not easy to master.

Unlike in most people’s jobs, everything you do in your trading life has you focussed on financials. It’s difficult to put money out of your mind when you’re focussing on rates, stop outs, balances and such like. Nevertheless, if you don’t put the thought of making money out of your mind, your judgement will be overwhelmed and clouded and you’ll lose sight of the track towards becoming a good trader.

A Thought to Take Home

Today’s technology allows anyone to become a live trader in a matter of minutes. The promise of riches and the ease of execution trick us into believing we’re capable of succeeding without effort. Did you blow your first account? I know I did. Whatever your history, consider this a new start. Apply the good principles of responsible living to your trading strategy and you will be on the right course towards success. Whatever your history, today is your fresh start. Few things in life fully prepare you with the skills needed to handle the markets but the principles here can put you on the right course. Above all, remember to make certain that you can afford to trade.

About the Author

The Forex Guy‘ is a Forex educational blog run by Graham, teaching traders how to use price action strategies in the markets. These guys believe trading should be simple, not time consuming, logical and stress free and is achievable using clean price charts with price action.