How can you increase the size of your Forex trading account and continue to make good profits from trading the Forex market? The following points will help prove this can be done.
The Forex market will move in one of three ways, up, down or sideways. Your challenge is to develop a strategy which covers all eventualities.
If you prefer to scalp for a few pips based on a higher value lot size and trading many times a day, then your Forex trading strategy will be developed to maximise this plan.
If you trade intra-day, then you might only place a handful of trades per day and look for a greater pip gain. This would mean a sideways moving market is not for you and you would make the decision not to trade.
With Forex trading, it is commonly agreed that knowing when not to trade is as important as knowing when to trade!
Go through the motions of building the foundations to your career. Paper trade first until you are consistently successful, comfortable and confident with your strategy. Use a Forex trading demo account next to get to know your Forex broker's trading platform which will be a great help when you start to trade a live account!
Do you know your risk to reward strategy?
This is the amount you are prepared to risk in order to make a gain and is typically based on a 3 to 1 ratio. So if your stop loss was 10 pips below your entry point for a long trade, you would expect your trade to achieve a minimum of 30 pips.
This takes care of the risk management of your trade but what about the risk to your Forex trading account? How can we best protect your hard earned money and trading capital?
Well, we look to use a similar ratio for this too. The thought process is not to risk more than 3 percent of your total Forex trading account size on each open position. So if you had $1000 in your trading account you would only risk a maximum of $30 on each trade. If your stop loss was 10 pips, that would mean you could trade at $3 per pip and if your stop loss was 15 pips your trade would be based on $2 per pip.
Can you see how this strategy means you will be in the market long enough (assuming you activate your stop loss) to learn about trading and how to make profits?
If you keep growing your Forex trading account size in this way, you will achieve a growing trading balance, whilst protecting your capital.
This way you will still be trading having kept your trading account in order - achieving more than 90 percent of all other traders! If you reach this stage, you would have done very well indeed!
So, with Forex trading, by knowing which way the market is moving, you can apply to right strategy to trade, or not. Once you have your trading plan written, you can start paper trading, progressing to opening a demo account with a good Forex broker and finally on to a live account. Make sure you understand the risk strategy and grow your trading account slowly.
This will ensure you build the foundations of your Forex trading account and be proud of what you have achieved!
By Annabel Meade