It all depends on how much you win when you do! Profit factor is an easy measure of the quality of your trading system — it is the gross profit on your trades divides by the gross loss, this will tell you the amount of profit per unit of risk. This number can help you identify the strategy with the highest returns and the lowest level of risk possible. Your profit factor will be 1. There is no right answer here, except to say the more the better. This is a feature of how much historic data you can get your hands on, how often your strategy triggers a trade to forward-test and how much time you have to spare to test.

The more testing you can do and get a positive expectancy on the more confident you can be you have a profitable strategy. The more confident you are in a strategy, generally, the more real money you should be prepared to risk on it. These differences in trading performance are typically technical and behavioural. Technical differences Demo accounts usually simulate an ideal trading environment, which is quite different from the real world. This is especially true when it comes to processing orders, execution latency, re-quotes and slippage.

Most traders underestimate the importance of trading psychology in their performance, emotions often take over reason and technique.

Another psychological factor is the fact that a demo account will offer you more virtual funds than what you would normally use, which nudges you towards making riskier trades than what you would otherwise do in real-life. When deciding how you should start Forex trading , remember to follow these 5 steps:. Learn the skills needed to trade the markets on our Trading for Beginners course. Short on time? Get a PDF version.

If you trade, we can save you time and money… See how here! Next: Step 2 of 4. Chapter Developing Winning Forex Strategies. These are the broad steps to follow to develop a winning Forex strategy that you can stick to. Determine which kind of trader you are. Choose which trading style suits you best.

Define your risk. Back and forward-test your system. Learn more, take our premium course: Trading for Beginners. Step 1: Which kind of trader are you? How to determine your trader profile:. Ask yourself: Why do you want to start trading in the first place? What do you hope to achieve?

What is your general knowledge of the markets and their correlations, trading, money management, trading psychology, trading platforms, Forex brokers and financial products? How much education will you need before starting trading? How often will you be able to trade? Will your dedicated trading time be fixed, or do you have to be flexible? What will your risk level be? How well can you control your emotions and your stress?

Do you prefer to see the results of your trades within the same day, or can you wait a few days for your trades to play out? How often would you prefer to check your trades? What amount of money can you allocate to Forex trading? Step 2: Which trading style suits you best? Scalping and day trading These two kinds of trading are the most active and aggressive type of currency trading, as they both imply that all your trading positions will be opened and closed within the same trading day.

Like to know if you earned or lost money at the end of your trading day. Tolerate a high level of market and leverage risk.

Is Your Win Rate Really That Important?

Are available to be in front of the market and quickly react to potential opportunities. Can deal with a relatively high level of stress. Like fast-paced trading. Swing trading This trading style is a medium-term approach based on taking advantage of changes in the momentum of a currency pair within the primary trend. You favour technical analysis. Position trading This trading style is a long-term approach based on taking advantage of changes in the long term price of a currency pair. You can hold onto your positions for months or years.

You favour fundamental analysis. Step 3: Which kind of analysis method will you use to make your trading decisions? Technical traders. Fundamental traders.

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• Use Options to Win 90% of Your Trades!

Learn about Technical Analysis. Hedging Forex arbitrage strategy Forex pullback trading strategy Breakouts Forex trend strategy. Learn more, take our free course: Simple Breakout Strategy. Only use the money you can afford to lose. Adapt your risk management to your trading style. Use the right position size. Always use stop-loss and limit orders. Avoid over-leveraging. What is back-testing? Back-testing is the testing of your trading strategy on a set of historical data. Know your data:. Here is a rundown of the data you might start monitoring. Maximum drawdown MDD — the maximum loss from peak to valley of an investment portfolio — this is a volatility measure that helps to determine the right amount of risk for better capital preservation.

Example 1. Example 2. For example. Technical differences. Demo accounts usually simulate an ideal trading environment, which is quite different from the real world. Behavioural differences.

In summary When deciding how you should start Forex trading , remember to follow these 5 steps: Determine which kind of trader you are. Start learning.

Introduction 2. Why Is Forex Popular 3. How Does Forex Work? It is much, much safer to try to hit home runs and accept lots of small losses, provided you trade small.