Have you ever got a sleepless night because of your position?
If you trade longer-term ten a few hours, how many times a day do you check your position whether is going OK or it’s a mess and needs to be closed?
If it happens to you it means, that your position is too big.
In this article, I will tell you what you should do to survive the cruelty of financial markets and what to do in order to make your trading account grow.
If you read this carefully, you will find here a good number of tips and methods to improve your trading system.
What is your trading capital and how much you need to trade the Forex market?
If you are on demo account and you’ve got 200 bucks for trading it’s OK because as I told you in one of my previous videos before you start trading you must test your system on demo account for at least 4-6 months to make sure your system works and you should do testing on micro or nano account in order to feel the thrill, to feel emotions during trading and to get accustomed with winning and losing.
But if your trading account is 200 bucks it means that it is like a play money and you are a dreamer, a game player who hopes to get reach with no money.
Or it means that you are undercapitalised and you waste your time on the market.
Don’t take it personally but the smallest possible account size is very hard to grow; it will take ages to grow it and it doesn’t worth a candle to spend countless hours for trading.
It’s better to sell vegies and fruits on the local market because in this way you may easily double your business capital of 100 or 200 bucks within one trading day.
On financial markets, it doesn’t happen because you’ve got against you all big financial sharks, investment funds, banks, hedge funds, and all trading individuals from all over the World.
Trading is a job as any other job and you must consider it as a job. I’m not going to discuss here is it easy or is it hard. Important is what rewards would you expect from your job, your countless hours of analysis, preparation and so on.
What is your hourly working rate? Is it two bucks? Is it five bucks? Think about it because even if you manage to double your trading account within a year, what is not impossible, but is not easy neither, especially for traders without or with small experience, anyway it doesn’t happen very often to double your account, but even if you manage to do it within a year, what your hourly rate will be?
Let’s presume you are not overtrading, you choose carefully your trades and you open two positions a week only. You did 104 trades within a year and managed to double your account.
If you deposited 200 USD means that you have made roughly 2 dollars per trade. Analysis, opening, checking and closing every trade took you an hour for each trade.
You made 2 dollars per working hour.
With the account of 1000 USD, your hourly rate will be 10 USD. Are you happy with it or not? If you are happy, prepare a grand and start trading with it.
With an account of 5 K, your hourly rate will be 50 bucks. Consider it.
So keep in mind the trading capital first but one important thing; but you don’t need to deposit all your trading capital straight into your account. Don’t keep all the eggs in one basket.
Even the biggest brokers might go bankrupt. If you remember 15 January 2015 when the Swiss National Bank Governor said they were not supported Swiss Frank any more at the level of 1.20 against USD, Frank dropped 1800 pips, but the minimum was over 2700 pips below the opening of that day. Many brokers lost their business but at the same time, their customers lost all their money.
Let me tell you how my money management looks like and how I protect my capital. First of all, I don’t risk more than 3% of my capital in one single transaction. This is the first and most important protection. And I highly recommend you to follow this rule.
But I have some other precautions in saving my capital against unexpected market events like this with the Swiss Franc.
What I usually do, I split my trading account between 3-5 brokers and keep only 6% of my trading capital at each of them. So I’ve got 18 up to 30% of my trading capital with each broker.
It has got a lot of advantages; first of all your broker, seeing that you risk half of your account in one transaction puts you, at the very beginning of your trading with this broker, in the basket lets call it the losers basket, what means you trade against the broker and not against the market. In other words, your broker doesn’t send your offer outside. As a high-risk trader, in the broker’s opinion or broker’s algorithm, you are considered as a sheep going to be slaughtered quickly.
Don’t worry; it’s nothing wrong with that. After several winning transactions your broker will realise that you are hard to slaughter and will move you to another basket and will send all your orders outside, but first, he will lose his money against you. So trading half of your deposit in one trade let you rip your broker off a bit.
The second advantage: having 6% of your trading capital with one broker refrains you from overtrading. This is an enormous psychological factor which will keep you off the careless trading and you know.
Having this 6% of my money in my account I know that I can make only two transactions here but I never do that because in a case when the open transaction is a loser I still have a possibility to open another transaction when a new signal will appear.
If another transaction fails, what sometimes happens, I leave the losing account frozen for a month or two.
From the other hand, if the account gets doubled I withdraw half of the profit or 25% of the account value and what remains over there I divide in two parts so in this way I rise the risk level to 4.5% of the initial capital but it is only for this account. If doubled again 25% of it goes back to my bank account and the rest on the trading account is split into two parts again.
It is worth mentioning, that I have a separate bank account for my trading capital. It lets me control it all the time.
I highly recommend you guys to use this method. It will let you keep your money safe. No overtrading, no erratic decisions, no compulsive trading behaviour and much more control over your capital.
As I mentioned before my position size never exceeds 3% of my trading capital but it doesn’t mean that I always open a position of that size. Usually is much smaller; it depends on market condition but usually is no more than 1% of my trading capital.
In the past I have read a book, I’m not sure if it was about George Soros or Warren Buffet; it doesn’t matter but what I wanted to say is that I have learned on thing over there. The Guru said that if you are convinced to for example buy at a certain level and you are 100% sure the market will go your way, open an opposite small position, in this case selling position, but the size of this opposite position must be negligible or small enough to not damage your trading capital. Let’s say your account is 10 k so by this concept you may lose twenty or thirty bucks so less than half per cent.
For me this method is amazing; the contrarian approach makes miracles because If your forecast was right, after testing the market with a small-sized position you will have more confidence opening a usual size position conform to your forecast.
From the other hand if you were wrong with your forecast and the market continues to go in the opposite direction to forecasted by you, or something major happens on the market and your mini position starts growing, then you may add up to the existing position and convert the testing small size position into the winner.
So, keep on experimenting with your trading techniques and your money management. The result you will see sooner than you can imagine.