Which would you rather receive - a single, large lump sum of cash or a steady income stream of smaller amounts each month? Which would make the bigger difference to your life?
Many traders have a ‘magic number’ in mind (usually in the millions of dollars) as their target. When they reach this number, they believe they will have “made it.” The magic number represents financial freedom – the dream house, dream car, dream holiday etc. Some even hold out hope that it will magically appear with a single, glorious trade!
Goal-setting is fine, even to the point of nominating a so-called ‘final target’. But in reality, there is no finish line or final target because your goals and expectations will progress (like your trading expertise) and you will set new, higher goals and pursue loftier dreams.
Another problem with chasing a ‘magic number’ is that it could take years to achieve. A trader starting with capital of $10,000 is generally not going to reach $10,000,000 in six months. Yes, it is possible but it is not a normal rate of return, especially a new trader.
Goals should have a reasonable time-frame. Let’s assume that time-frame is five years. Does this mean you will be working and trading for five years before you show any results? Of course not. Five years is a long time - especially in the financial markets - and you deserve to be rewarded for your efforts along the way.
Now consider the alternative. Rather than focussing on the multi-million dollar magic number, imagine your trading was able to consistently generate an extra $1,000 income per month. Would that make a difference?
Maybe it would ease the pressure on the credit card, allow the family to eat at nicer restaurants or buy a few more luxuries. Life would be just that little bit easier. And what if you could then increase that extra $1,000 income to $2,000 per month? Or $5,000? Or $10,000?
In his book, Cashflow Quadrant - the sequel to Rich Dad, Poor Dad and, in my opinion, an even better book - author Robert Kiyosaki writes that “cash flow, not money, relieves anxiety.” What he is saying is a steady increase in regular income will relieve financial stress more effectively than a single, large lump-sum payment.
Currencies markets are an ideal vehicle to start trading as they have some of the lowest margin rates around. Anyone can get started with a small trading account and trade with a small outlay and a lower risk while they build up their confidence.
We will cover these concepts and more at the full day, online seminar I am presenting on the Australian Dollar / US Dollar currency pair on September 24th. We’ll start with the mechanics of currency trading and finish with a plan for trading this particular currency pair moving forward. We will also look at setting targets and goals for profit-taking along the way.
And here’s a final thought for those still hanging out for a ‘glory trade’. Most Lotto winners are actually worse off five years after their massive windfall. I’ve always wondered why this happens but most of these ‘winners’ agree it is because they weren’t ready to handle such a large sum of money.
By targeting small monthly gains in your trading and building from there, you will go a long way towards avoiding the ‘Lotto’ syndrome as you will be better prepared to handle your ‘magic number’ of dollars when it eventually arrives.