Whenever one hears about FX trading and the $5 trillion daily volume it consists of, the first thing any normal human being will think is, yes you got it – how much money can I make from this? It is perfectly fine to think this way, however I strongly advise to reverse that thought with ‘how can I understand the markets so I can earn a living from trading the markets’?

As humans, the majority of us have emotional attachments to currency – due to what it does for us, how it enables us to stand out from the crowd, how we can exploit it to transcend our standard of living – the list goes on. Because of this, the majority of humans will usually embark on taking irrational decisions when trading – thinking about what you need the money for or mixing your own personal issues with your trading. All of these paradigms are what should be completely eliminated from your mind when you first start out as a novice trader because this is where the irrational decisions stem from.
We’ve all heard it before, ‘trading is gambling’’ or ‘’you need large funds to make money trading’’ or even ‘’trading is a scam’’. You always have to remember that the people that say these things are the same ones who make irrational decisions. It’s funny that you seldom hear professional investment bankers or hedge-fund managers say this. Never let someone else’s wrong doings effect the infinite ability and potential that you have to transcend above the conventional form of knowledge and expertise – we are all ‘individuals’ for a reason.

Psychologically, when speculating – you should never have a monetary target

Many of my investment banker pals surely agreed with me on this one. Even if you are a well-informed trader, you still should not set a monetary target on your portfolio – here are a few reasons why.

·         Liquidity modifies each day

I am sure the majority of you reading this has acknowledged that certain days we can witness the instruments on your watch list climb or decline 100 to 150+ PIPs in a single trading day (even in times of sharp reversals). On the contrary, we witness certain days where the market may not even move at all – and may be ranging at a particular price for the day or even days. This is due to market liquidity that is available on a given day and on a given currency pair. For example, AUDCAD may be quite volatile – and we may see that EURUSD isn’t moving as much. This is an expression of the difference in liquidity available for a given day on both currency quotations. With this being said, you cannot expect the market to move the amount of PIPs that you want it to move (unless your George Sorros or Stanley Drunken-Miller haha) – but hopefully you get the gist.

As mentioned, even if you are quite profitable in your performance – setting a monetary trading target will lead to irrational decisions, bending of rules and ultimately it leads to making trading decisions from emotions as oppose to your infinite intellect.

·         Subconsciously, you will be confusing trading with gambling.

You can be the best trader out there in terms of your knowledge. However, if you adopt a ‘gambling’ mentality with your trading the odds are you’ll be winning big and losing big – and I’m sure you all are not quite fond of this kind of paradigm.

We all know that the core impacts of the FX markets is supply/demand of currency. Rules and guidelines are absolutely crucial to follow when trading, especially if you are just starting out in the markets. You can read one of our previous articles we wrote entitled ‘The Difference Between Trading and Gambling’ which elaborates on this topic more broadly.

·         Invariably, you will be mixing outside sources with your trading.

The key reason why it is vital to learn from someone else who has been in the markets for a certain amount of years is because you will learn from all of their own mistakes. In a strange way, they have already paid the price that you no longer have to pay – so to speak. Attaching a monetary target to your trades can also derive from mixing your trading with outside sources, your wants etc.

When you mix the markets (predictable, but cannot be controlled) with your own outside sources – you will be forced to take unnecessary and uneducated trading decisions > which lead to gambling > which leads to drawdowns > which then leads to referring to trading as ‘gambling; or ‘risky’ – you see how the process of where that kind of thinking is derived from now? Setting monetary targets on your trading also leads to over-risking your account, which never usually ends well for the novice trader. It is imperative to treat your trading account just like your business, just like your baby – with care.

We all know that there is no finite number that can be made from trading the FX markets – given it’s volume. This means that if you begin your trading career and spend 6/12 months on just focusing on the understanding (whilst trading on a demo account and following live price movements) – you will be well ahead the average novice that starts their account with $5,000 or $10,000 after 1-3 months as a novice and end up referring to trading as ‘risky’ or ‘gambling’.

There is a strategic reason why we are required to take and pass a theory test prior to the practical here in the UK, because we must understand the core elements about driving before we actually get behind the wheel – this is very similar to your trading. The only significant distinction is that driving is practical and easy, trading is simple but complex at the same time – which means it will require you to put more work (study time) in before you actually start your live account, trading with your own real money.