We may now set suggested money management parameters for the two recommended Trader Profiles.
Scalper Profile Parameters
Pip Gain Goal 30 pips
Per-Trade Profit/Loss 3:1 Winners/Losers Ratio 1:1
Campaign Scenario: A Scalper makes 12 trades. He wins on six and loses on six. On the winners he nets 30 X 6 pips = 180 pips. On the losers he nets —10 X 6 = 60 pips. He's on fire, but he'll feel cold water if either ratio goes the wrong way for any length of time. Many scalpers would give an arm to maintain a 3:1 per trade ratio.
Day Trader Profile Parameters
Pip Gain Goal 60 pips
Per-Trade Profit/Loss 4:1 Winners/Losers Ratio 2:1
Campaign Scenario: A day trader makes 12 trades. He wins on four and loses on eight. On the winners he makes 60 pips X 4 = 240 pips. On the losers he is -15 X 8 = 120 pips. Life is good, but it depends on keeping the per trade ratio very high.
The success of a trader is always a delicate and precarious thing. You can see from the above how small changes in ratios could turn either one of these traders to the negative side.
When analyzing your performance, use these ratios and observe how they might be changing over time, and how much they vary per trade. It is very important to understand the basic FOREX calculations before actually trading.
I cannot emphasize enough the importance of understanding the basic FOREX calculations. Learn them from this book, then go into your broker-dealer's Demo account and generate as many What If? Campaign scenarios as you possibly can. You will learn not only how FOREX works but perhaps most importantly what is required for it to work for you.
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