Guest Commentary: Withdrawing in Forex Trading
Are you trading forex to make money? The answer is a clear yes, isn't it? Now, the next question is: When do you plan on withdrawing your profits?
If you don't have an answer ready, you should make a plan for that as well. Here are the advantages of making withdrawal plans, and some ideas about how to do it.
Unfortunately, many brokers see your full deposit as their revenue. In too many cases of unfair brokers and too many cases of reckless traders, this turns into reality. But let's assume that your broker is fair and you are cautious, trading with a carefully made plan, executing your plan and sticking to it.
The next step is making a strategy for withdrawals, a Take Profit point for your account as a whole. This has several advantages:
- Seeing the bigger picture: It provides a framework for your trading. You can see the bigger picture for your moves, the greater goal - not just trading for the sake of trading.
- Putting losses into proportion: When you lose a trade, it's not a tragedy but rather part of pattern of winning some and losing some, with the bigger goal getting closer.
- Motivation: It helps you remain motivated, especially if you have plans for the profit you are about to take.
- It helps you from becoming overconfident. If you hit a winning streak, you might feel that you can "beat the market" and start enlarging your position sizes or trading less cautiously. The result is usually erasing your profits and quickly diving into losses. Putting some money aside will let you enjoy your profits and keep you focused in your trading.
I'm sure you are able to find more advantages for having a withdrawal point.
Now, how can you set one? There are different targets and this depends a lot on your character.
- Withdrawing after reaching a percentage of profit: Long term sustainable forex trading means that your return on investment will be a bit better than benchmark indices (especially in bearish markets). But that's it. Doubling, tripling or quadrupling your account in no time is a non-realistic target. Check out a good year in the stock markets and see how indices gained on average. Setting a target around these profits is a good idea.
- Withdrawing after reaching a certain account size: This is similar to the previous point, but there's a small twist: preventing your account from growing too much will help you avoid the overconfidence mentioned earlier.
- Withdrawing on a monthly basis: The target can be remaining profitable on a monthly basis and withdrawing the profits. This will be lower and higher each month, but it will still provide a time framework - a timely goal for withdrawal.
When do you withdraw your forex profits? How do you set your targets?
Further reading: 5 Most Predictable Currency Pairs - Q4 2011
By Yohay Elam, Forex Crunch
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.