By James Woolley
If you trade forex on a regular basis, it can be very tempting to set yourself profit targets that you want to achieve each week. This is particularly true if you rely on this income to live. However it is not something you should actively do because it can be quite dangerous.
To demonstrate this point, let’s say you start the week with $10,000 in your trading account and set yourself the target of making $300 for the coming week. Now you may get lucky and hit this target in the first two or three days, but the trouble often begins when you are well below this target going into Thursday and Friday.
That’s because you can then starting taking greater risks in order to hit this weekly target. So for instance you may stick to your existing trading system but increase the stakes, or you may open an impulsive trade that is based on gut instinct more than anything else. Either way it is very likely that you will end up losing money and finishing well below your target. You may even end the week having lost money in the worst case scenario.
Another problem you may face when setting targets is that you can sometimes end up going for the big win rather than banking lots of small profits. Similarly if you are a long way away from hitting your target, it can be tempting to hold on to a losing position for far too long in the desperate hope that it will turn around and end up generating a decent profit.
You are often much better off trying to come up with a forex trading system that builds profits slowly and steadily, giving you a nice upward sloping equity curve. You don’t need to set yourself targets as this will lead to you deviating from your profitable trading strategy, and possibly making some nasty losses along the way.
If you stick to your trading strategy and only risk a certain percentage of your bank on each trade (no more than around 2 or 3%), then your account will grow very nicely in the long run. You don’t need to take risks in order to hit self-imposed targets. Just take what the markets give you and accept that some weeks will be more profitable than others. That’s the nature of the markets because some weeks the markets will be very volatile, whilst other weeks they will be dull and boring.
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