Please read this article all the way to the end. You risk losing a lot of money if you don’t!
The article is divided into 5 parts for easier reading. Terms have been linked to their respective definitions to aid comprehension. Without further ado, let’s jump straight into the meat of the article.
(a) A Forex Setup (Computer, Internet, Home Office etc) HERE.
(b) A FREE Forex broker’s account HERE
(c) An account balance of 1000USD (100,000Kshs at the time of writing this article) HERE
(d) A good Trading System/Strategy. Check out THIS free one if you do not have one.
In Forex, we make profits via pips (LINK). A 1000USD account with 1:10 leverage (LINK) should earn you $1 per pip. Mathematically, what you want to make is 1000USD per month or (Divided by 30) 33USD per day.
This means that you need, on average, to make 33 pips each day earning a dollar a pip for you to make 33 dollars a day or 1000USD (Kshs100,000) a month.
ARE WE TOGETHER SO FAR? GOOD!
Is it possible to make 33 pips a day? YES! Many good traders average 50 to 60 pips a day. If you watch THIS DvD, you will see numerous live trades (and how you can replicate the same) that score a modest 66-90 pips in 5 hours or less.
Let us get into the nitty gritty stuff now.
I have written an article (HERE) on growing your 100USD account to 1000USD in a year. You can view it for mathematical comparison.
ACCOUNT SIZE: 1000USD
OPEN POSITION: 10,000 Units
LOT SIZE: 0.1 ie mini lot.
PROFIT PER PIP: 1USD
TARGET PROFIT: 50 pips per day so that in the event of minor losses we average 33 profitable pips a day.
STOP LOSS: Not more than 20 pips (2% of Equity) or 30 pips if you are in a choppy market to avoid whipsaws by erratic market movement. We are risking only 3% of our account on any single trade.
STRATEGY: NO SCALPING! 50 pips a day via scalping is very exhausting and you will burn out in a month or two.
- This article assumes that you;
(a) Are a good trader (LINK)
(b) Using a good trading system (LINK)
(c) With 1000USD trading capital (LINK)
- It also assumes that either;
(a) You are in a favourable, volatile market that can net you 50 pips a day OR;
(b) You are in a market that is in sync with your trading strategy eg if you trade ranges you are in a ranging market or if you chase trends then you are in a trending market.
3. Finally, this article assumes that are trading UNDER NO PRESSURE! No borrowed money or money that you cannot afford to lose. In short, you are trading a relaxed style and not trading to pay rent or trading to get food money. TRADING UNDER PRESSURE IS WHAT MAKES ANYONE, EVEN PROFESSIONALS, BLOW THEIR MILLION DOLLAR ACCOUNTS!!
- THE PRACTICALITY OF THIS
You will probably have noticed that to use 1000USD to get another 1000USD at the end of the month is to ask that we double our account every other month. It is possible, and it has been done by many traders, but it is not a very practical thing in the long run. Why?
Let us look at the math again.
We divided 1000pips by 30days. This is not correct. The market is not open on Saturdays and Sundays, so minus these two days every week we are left with (30-8) 22 days. We also (more often than not) don’t trade on Mondays and Fridays due to gap impact on Monday and Big investors closing positions on Friday leading to unpredictable swings. That now brings out total trading days to (22-8) 14 days.
Now, let us assume that all 14 days, Tuesdays Wednesdays and Thursdays, you are making awesome trades. What is your target in this case? 1000pips divide by 14 is roughly 72 pips a day. We suddenly are faced with a tall order there. Factor in the fact that not all your Tuesdays Wednesdays and Thursdays will be purely profitable and you begin to see the house of cards tumbling down…
So, what is a realistic target for this account size? Well, for conservative traders, let us put it at 30 pips a day for the 10 or so days you remain profitable. Minus spreads, losses and commissions, that is Kshs30,000/= per month.
Sound like money you would like to make working 3 days a week?