The Investor Diary Entry #68: January 18, 2025
When I first started my Forex trading learning journey, one of the most important things that I wanted to get into was how to learn risk management in Forex trading.
today, after seeing the effects of implementing and being disciplined to clear risk management rules in Forex trading, I wanted my diary to get back to the basics and record this journey step by step.
We are starting this series of diary entries with the concept of learning how to set financial goals.
Setting financial goals is like having a map for your personal and professional journey. It might not tell you everything that lies ahead, but it sure helps steer you in the right direction. Figuring out what you want financially isn’t just a grown-up thing to do; it is basically one of the smartest moves you can make, no matter your age.
The way financial goals is usually explained and simplified starts with understanding the goals’ timeframes. Financial goals come in three flavors: short-term, medium-term, and long-term. Think of short-term goals as those things you want to nail within the next year, like saving for a sweet new gadget or paying off a small debt. Medium-term goals stretch out a bit longer—one to five years—like buying a car or setting up an emergency fund. Long-term goals are those big dreams, like owning a home or stacking away cash for a comfy retirement.
When you plan financially, you’re not just setting yourself up to buy stuff. You’re creating freedom. You’re giving yourself the confidence to make life choices without having to stress over “Can I afford this?” You’ll find that this kind of planning unfolds opportunities you might have never even considered.
Nailing down your financial targets doesn’t only have practical benefits. Psychologically, having goals and seeing progress can be an awesome motivator. Achieving that target savings goal or paying off that debt gives you a sense of accomplishment, which boosts your confidence to go after your next financial ambition. It’s like a positive feedback loop where success breeds more success.
Crafting a Robust Financial Plan: Practical Steps and Tools
In this section, we will talk about the theoretical part of the story. In the following section, we will get into financial planning for Forex Trading.
Creating a solid financial plan starts with a deep dive into what matters most to you. It’s not just about numbers and spreadsheets; it’s about understanding your values and making sure your financial goals line up with them. Each decision you make should echo what you truly value. If financial freedom is a priority, then maybe cutting back on some non-essentials can help put more towards savings.
Budgeting is critical here, and there are tons of tools that make it super easy. There are many applications out there which can track your spending in real-time and help you identify where your cash is actually going. Once you have a clear picture, creating a budget that aligns with your goals can help keep things from veering off course.
SMART goals are your best friend in this whole planning process. Specific, Measurable, Achievable, Relevant, and Time-bound—these five elements ensure that your goals are clear and reachable. Instead of just saying, ‘I want to save money’, a SMART goal would be ‘I want to save $5,000 in the next year by cutting out weekly restaurant meals’.
Life has its curveballs, and having a plan that includes contingencies can save a lot of headaches. An emergency fund is your backup plan for unexpected expenses like car repairs or medical bills. It’s your financial cushion, letting you handle surprises without derailing your financial goals. Plan for adjustments and keep some wiggle room for life’s unpredictable turns.
Learning Risk Management in Forex Trading: A Key Skill for Financial Success
Forex trading, or foreign exchange, isn’t just for Wall Street folks. It’s a global market where anyone can trade currencies, and it’s got its appeal because of the potential profits. But—and it’s a big but—it comes with its own set of risks. That’s why learning risk management is crucial and a must if you want to survive in trading.
Mastering risk management in forex isn’t something you pick up overnight, but it is doable when you are practical about it. Start small by getting to know the basics. Tons of online resources and courses can give you the lowdown on trading strategies and risk factors to watch for.
Look, it took me years and hard-earned money to believe that knowing how to learn risk management in Forex trading is important if I want to be part of this world.
One practical way to learn is by signing up for a Forex demo account. It’s like a hands-on practice arena where you get to trade without the pressure of real money. Here, you can test different risk management strategies and see what works without emptying your pockets.
Many people disregard this with the justification that a demo account is not like a real account, and the whole psychological effect of a real account is not felt when trading on a demo account. I totally dig that, and I do agree with it. I tried both.
Still, I would rather do the basic mistakes on a demo account, and then learn the more advanced psychological challenges at a later stage.
One of the more important aspects is testing my risk management strategy. Is it really working? Is it really saving my account? Am I able to trade in a relaxed manner, or am I always stressed about my account?
In my case, and I am still now on a demo account and have been for the past two years, I have arrived at a beautiful risk management strategy that suits my style and is giving me profits even if my losses are greater than my wins.
Understanding market volatility is another biggie. Currency values can change fast, and these shifts can impact your trades. Having a risk management strategy means setting limits on how much you’re willing to lose on a trade—called stop-loss orders. It’s like having safety nets to protect your investments from taking too big of a hit.
The relationship between the distance of a stop-loss from entry ttpoint and the size of the position is a crucial part of the risk management strategy.
My rule is to risk 1% of my total capital per trade. Therefore, the size of the trade depends on the stop-loss distance from the entry point where in all cases I risk only 1% of the available balance.
While the excitement of forex can be tempting, patience is key. Spend time studying market trends and learning how different global events impact currencies. With the right mindset and tools, you can develop a risk management strategy that not only protects your assets but also sets the stage for steady financial growth.
Tracking Progress and Adjusting Goals: Staying the Course
The first thing that I did is to set the amount that I am going to use for Forex trading. I decided to use USD1000. This amount is one that I don’t need at all. This is an amount if lost will not affect me in any way.
The way I decided on this amount is by asking myself, how much am I willing to spend on Forex trading? I said spend and not invest. This money is spent. This word was crucial for me.
The next thing that I decided on was how much I wanted to aim for gaining each month. I decided that I want to aim to gain 20% on the starting balance of the month, but I will also be happy with 10%.
This decision means, that I will be able to double my capital in a period ranging between five to ten months. This way I will be able to withdraw the original USD1000 and continue trading with the profits.
This last decision is still under study because I might keep it until I have USD3000 in my account. Then, I withdraw the original USD1000 and keep trading with USD2000. This way the account will grow faster.
My risk management strategy was finalized in December 2024 after several months of testing, changing, and retesting. I started real implementation in January 2025.
I started trading on the 7th of January, and in that single week, I was lucky to make 6.9%. This week the trades are still open, and I am not sure if they will close before the weekend.
Keeping tabs on your financial goals is like having a regular check-up with your finances, making sure everything’s on track. It’s not enough just to set goals; they need to be revisited to see how you’re doing and where adjustments might be needed.
Handy tools for this are budgeting apps that can show your financial health in a snapshot. These can highlight areas where you’re doing great or those sneaky little expenses that might be derailing your plans without you noticing. I just use Google Sheets.
If you stray off course or life throws you a curveball, don’t panic. Financial goals aren’t set in stone to stress you out. They’re more like guiding posts. If your income changes or priorities shift, it’s okay to tweak your goals so they still serve your interests.
Last year was very difficult for me on a personal level, and I was hardly able to reach my laptop. Life happens, and flexibility needs to be instilled in any plan.
Celebrate your victories, big or small. Whether it’s paying off a credit card or reaching a savings milestone, those moments deserve a pat on the back. It reinforces that your financial planning is actually working and motivates you to keep going.
Being adaptable is crucial. There will be times when things don’t go as planned. However, being able to pivot and adjust not only helps in meeting financial targets but also builds resilience for future challenges.
I know that this entry is not totally about setting financial goals for Forex trading specifically. But this is a life skill, it needs to be implemented in one’s life to be able to master it in trading.
The Investor
Thursday 18 January 2025
About The Author
I started to look into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second, as a place where I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links, I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
For more detailed information on my affiliate disclosure please refer to the Full Affiliate Disclosure page.
Furthermore, this site is in no way or form giving any financial or investing advice, nor it is encouraging or discouraging people to buy or sell any financial instrument. This is a personal diary in which I track my own progress and share it for informational, educational, and entertainment purposes.