Lesson six, how to set forex trading objectives that keep your risk small and let you win big Welcome to Lesson six. My name is Sam ADA. I'm a global macro Currency Trader and the owner of FX renew calm. This is the advanced forex course for smart traders. Ray Dalio said you have to start with your goal. It's far too easy to take this forex thing casually.

You can open an account with a broker in the blink of an eyelid and then two more blinks you can be trading forex. forex is a game of skill played by some of the most sophisticated, well connected an intelligent man and woman in the world. Every time you trade, it's like playing chess against the chess master. So do not think that having sloppy objectives for what you're trying to achieve is going to cut it. The good thing is that once you do understand how to craft proper objectives, a number of nice things happen. You stop losing money, even if you don't always make it You tried with purpose, your discipline goes up several notches.

And you really start to capitalize on big moves from foundation to system development. The first lessons in this course have been foundational in nature. We now move to a more technical level, where you will develop a simple, robust and insightful trading system, they will eventually meet your financial goals. And this starts with setting objectives for your system. Every good trading system is clear and well defined objectives. The main objectives you need for your system are returns maximum drawdown, chance of a maximum drawdown trading opportunity, when right targeted risk reward ratio, maximum number of positions.

Once you have clarity on these objectives, you will have the ingredients you need to build a powerful and robust position sizing model and to construct them A set of trading rules to achieve these objectives. Constructing a return objective. Saying I want to make lots of money is not a good objective. Instead, you want to be very specific about how much you want to make and over what time period. For example, I want to return 10% of my capital over a month. If you're not specific in your objectives, you'll make mistakes when you trade.

In particular, your cut winning trade short as you are not clear on what you need to achieve from the trade. have to decide what is right for you. You have several considerations, how much capital you're allocating to forex trading, how much time you have for trading. If you are a day swing or position trader, the size of the drawdown you're willing to accept the number of different systems you'll be running your individual psychology, your competence level. Ultimately, it will be personal choice specific to your goals. Your objectives could be based on your financial freedom goals from lesson three.

In particular, it is useful to know your financial freedom number, so you can work back towards your profit objective. For example, if your financial freedom number is 5000 a month, then the objective for your trading system could be to make $5,000 a month. If you have 50,000 to trade with, then that would mean your profit objective would be to make 10% return a month. Future money managers objectives are critical for you. For those of you that are one day looking to manage money, objectives have particular significance. You need to understand what objectives you'll be assessed against and then build a system that fits.

Here's what a friend of mine who is a hedge fund trader has to say on the topic, gain an understanding of the metrics that you need to achieve ideally, before embarking on creating the track record. Then devise risk management industry trading strategy that achieves those metrics. Starting out in forex, not all of you are going to want to start with a full amount of capital that you will eventually trade with. That is of course, okay start with an amount that you are comfortable with. What is critical is that you trade it like a smaller version of your targeted a camp. Don't use a smaller size as an excuse to take a punt, or you will develop bad habits.

Market was in Steve Clark said your job as a trader is to protect the direction of the equity line balancing the equation with a maximum drawdown objective. In order to make money you need to risk money but the good thing is that you are in control of what you risk. A drawdown is the amount of loss you are willing to sustain in order to go for your profit objective. For example, if you had a trading account with $10,000 in it and you lost 1000, then you would be experiencing a 10% drawdown. While you might never want to have a drawdown They cannot be avoided altogether, and they should be simply seen as a cost of doing business. This means you should plan for them prior to their occurrence.

How big a draw down should you allow? Draw downs can be tough. To make it easy on your trading psychology you want them to be as small as possible, but typically the bigger the drawdown you're willing to accept the grad year returns will be. To use an example from history the famous turtles, who were trained by market wizards William Eckhart and Richard Dennis had a combined return of close to 25% per year. But at the same time, they had to suffer through a drawdown of 35% at one point and multiple smaller draw downs. In general, you will want to make your maximum drawdown no greater than 50% of your return objective.

For example, if you have a return objective of 10% a month, your maximum risk should be no more than 5% a month. I would suggest that you be even more conservative with drawdowns and rescue no more than two to 3% a month. If you're looking to make 10% or 10% a year if you're looking to make 50%. recovering from a drawdown, it's important to know that once you go past the 25% drawdown it can be difficult to recover. Check the table in the written version of this lesson for more information, percent chance of the drawdown objective. Once you establish a maximum drawdown objective, you want to consider how comfortable you would be experiencing the drawdown.

This will greatly affect your position sizing model. For example, if you've decided that you maximum drawdown is 10%, and you're willing to risk 100% chance of this happening in order to achieve your goals, then you would trade very differently than if you only wanted a 5% chance of ever experiencing your maximum drawdown. What to do when you have a drawdown. If you experienced a drawdown, you have a few options. These include reducing your position size. Keep trading the same size and wait for the winning trades.

Pause your trading and review what's working and what's not stop trading altogether. You shouldn't have it written in your trading plan exactly what to do. Trading opportunity, how often you trade will significantly impact your position sizing and trading strategy. If you place 100 trades a month, you will need a different structure than if you placed 20 trades a month. More is not always better. Many traders tend to over trade and their returns suffer because of costs mistakes, such as the failure to hold on to big winners.

You can choose how many trades you get right? It might come as a surprise. But as a trader, you get to choose how many trades you get right versus how many you get wrong. This is your win rate. It's important to note that the higher your targeted win right, the lower your profit per trade is typically going to be market was advanced. Top seat.

Knowing when you're going to exit a trade is the only way to determine how much you're really risking in any given trade or investment. If you don't know when you're getting out then and effect you're risking 100% of your money. risk reward objectives. Once you have chosen your win rate percentage, you want to attach a targeted risk reward ratio to your win rate. For example, if you have a targeted win rate of 50%, then you might decide you want a three to one profit ratio. This means that you want your winners to make three times your risk on average maximum number of positions in forex trading you have plenty of leverage available on your account.

So it is very easy for the inexperienced player to take on more trades and they are the risk management model can handle and your trading plan specify a maximum number of positions that you want to have open at any one time. How many is too many. It really depends on your trading style and position sizing model Integrating multiple trading systems, you may find that you want to run multiple trading systems at one time. If you do, then you want to set specific objectives for each system and overall objectives for the combined systems market was Mark minervini. defining your style and objectives makes it much easier to stick to your strategy. There is no success without action, setting objectives as an art in their personal choices about what you want to achieve.

You will likely need to spend some time with this lesson. So it's important that you get very clear on what you're trying to achieve. Start by defining the following four objectives, profit objective, maximum drawdown objective, percent chance of a maximum drawdown and number of trades objective. In the next lesson, we will take a deeper look how you can use position sizing to achieve these objectives. For this week's coursework, fill out the my systems objectives worksheet. I'll see you in The next lesson