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The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start by Cliff Wachtel

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CHAPTER 5

Trader Psychology and Risk and Money Management (RAMM)

Now that you know some foreign exchange (forex) basics and technical analysis (TA), you have the background needed to understand the real foundation of successful trading and investing: proper trader psychology and risk and money management (RAMM). No matter how skilled and compelling your analysis, it will often be wrong. Worse, you'll endure losing streaks that can irreparably damage your account balance and confidence unless you've got the right preparation.

Welcome to that preparation. This chapter covers these core nonanalytical aspects of trading:

  • Basic trader psychology issues like mindset, attitude, expectations, discipline, finding a trading style that fits your personality, and understanding the conditions you need to succeed.
  • Top RAMM issues, including:
    • Why trading longer time frames lowers risk.
    • Risking no more than 1 to 3 percent of your account per trade with your stop loss.
    • Proper risk-to-reward ratios (rrrs) for each trade.
    • How to set stop losses.
    • How account size influences RAMM issues like stop loss settings, position size, and leverage used.
    • Planning trades in advance to remove emotion from your decisions in a trade journal.
    • Learning from your victories and losses via your trade journal.
    • The importance of having a business plan.

In this chapter, we'll review the key elements of proper mindset and RAMM because they are intimately related.

RAMM: PRESERVING CAPITAL IS YOUR TOP PRIORITY

Warren ...

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