Developing a Forex Trading Plan – Part 6

profit target forexthink

Another key element of designing a forex trading plan is to determine the type of returns that you expect to make. The key word here is ‘expect’ – not how much you would ideally like to make, but how much you think you will be able to make given your time commitment and skill level.

The amount that you expect to make will play a decisive role in determining the level of risk that you are prepared to take on board, the type of trading style you are looking to implement, and the currency pairs and times that you are going to trade.

For example, let’s say we have two traders – Trader A and Trader B. Trader A expects to make 10% per year, whereas Trader B wants to double their money every year with 100% returns.

In order to achieve 100% returns, Trader B will need to make a lot more trades – and take on more risk – than Trader A if they are to have a chance of achieving these ambitious aims.

Drawdown is another thing to consider when setting expectations. A drawdown is norrmally calculated as being the distance between the highest value of your account down to the next lowest point. Forex traders have to decide how much of a drawdown they can accept in order to hit their profit target goals.

Traders who are risk-averse would rather have small drawdowns, but the flipside of this is that it will limit the potential rewards. Other traders with a bigger appetite for risk are comfortable with big drawdowns as long as their strategy reaps suitably big returns.

Anothe major consideration is the amount of time that you can dedicate to trading. If you you aren’t in a position to dedicate a substantial amount of time to your system, learning new techniques, writing and reviewing your journal, and reading up on the markets, you may find it very hard to meet ambitious profit expectations.

If you can’t make a big time commitment, then you will have to adjust your expectations accordingly. At the end of the day, it will all come down to whether you have the discipline to stick to your trading plan, work on your skills, and do the research that you need to. If you can’t do this, then it’s unlikely you will be able to make consistent returns – or indeed, make a profit at all.