Can you really make money with a small Forex account? (PART 2)
In this weekly video:
00:35 – Your account size does not matter
01:22 – Do not count success in pips
02:52 – High Reward:Risk trades
03:46 – Yes, you can trade a higher time frame chart
05:07 – What type of trader are you?
06:05 – You can make money with a small FX account
07:15 – Listen to my interview with Imre
Can you really make money with a small Forex trading account? This is part two of that subject. Let's get into it right now.
Hey, traders, Andrew Mitchem here with video and podcast number 295, and this is following on from last week's video and podcast, which was about can you really make money with a small Forex account. That was part one. Today, this is part two.
So, following on from last week's video, the main thing from that that you would have gained from that information is it doesn't matter really what the size of your account is.
Your account size does not matter
You have to learn how to be profitable. And that really doesn't matter whether your account is $100 or it's a million dollars. If you can't be profitable, and you don't have a strategy, you don't have a system, you're not consistent, you're not disciplined, it really doesn't matter what the size of your account.
And on last week's video and podcast, I gave some examples about how you can grow the size of your account from other sources of income, from selling signals, from trading from friends and family possibly, but there are other ways you can increase the size of your trading account right now, and of course, the best way is to make gains on your account. But if you're not profitable, the rest of it doesn't matter.
Do not count success in pips
So what can you do to be profitable? Well, one of the things that I find that so many people still fail to understand is they count their success or their failure in the number of pips they make. Now, just yesterday I held a one-and-a-half hour live webinar, free to the public webinar. Never once did I mention how many pips I've made or have lost. Doesn't matter, completely irrelevant. The only time I use pips is when I'm looking at taking a new trade and I'm calculating my position size needed, and that's according to the stop loss and pips that I'm taking on a trade, and that's according to the risk I want to take, and it's according to the currency pound trading.
So, yes I use pips in terms of I'm risking X number of pips on a trade, but don't forget a stop loss should never have a fixed number of pips. Just because I'm trading the British pound U.S. dollar on a one-hour chart doesn't mean to say I only use 20 pips as a stop, let's say. It doesn't matter. The stop loss needs to be in the place it needs to be for the protection of that individual trade, regardless of its currency pair, regardless of the time frame that you're trading because the market moves in different, in different amounts.
So what might be good last week on a trade on a one-hour chart may be very different from the market conditions right today. So yes, I need to know how many pips my stop loss is, but it doesn't mean to say, let's say it was 20 pips. Doesn't mean to say, and the trade goes wrong it doesn't mean to say, “Oh, I've just lost 20 pips.” Doesn't matter. I'm losing X percent of my account.
High Reward:Risk trades
But also you can use that to your advantage because of course we want high reward-to-risk trades. So let's say that your profit target just happened to be 60 pips, for easier calculation, 20 pip stop loss, 60 pip profit target. That gives you a three-to-one reward-to-risk trade.
If it hits the profit, I don't make 60 pips. It doesn't matter to me that I've made 60 pips. What it does matter to me is that I made a three-to-one reward-to-risk trade. For these numbers, let's say I risked one percent on that trade. The trade goes wrong, I lose one percent. Because it's made a three-to-one reward-to-risk trade, and it hits the profit target, I've now made a three percent gain.
I actually use a half percent rule, but that's what suits me. So half percent risk on the trade means I make a one-and-a-half percent gain on my account. So it's really important that you forget that actually counting your success and failure in pips have high reward-to-risk trades.
Yes, you can trade a higher time frame chart
Can I trade a bigger timeframe chart with a small account? Most people think they cannot, but of course you can. It doesn't matter. Your stop loss on a daily chart might need to be 80 pips, it might need to be 135 pips. It doesn't matter because it all comes down to having the correct position size for that individual trade. You're still risking the same amount, whether it be that one-hour timeframe chart with a 20 pip stop loss or a daily chart with an 80-pip stop loss.
The only thing that changes is your position size, your risk is still the same. Let's say that you have an 80 pip stop loss on your daily chart, and you had a 240 pip profit target, it's still a three-to-one reward-to-risk trade, same amount of risk, same amount of reward. So therefore you can trade longer time frame charts. Don't get caught into thinking that just because your account might be small that you therefore can only trade 15-minute time frames or 5-minute charts.
Forget that. You can trade any time frame chart regardless of your account size. You just need to adjust the position size. And if your account is really small, then go to nanolots instead of microlots, and you can then trade accurately again.
So any timeframe chart, I personally prefer the higher timeframe charts, any currency pair, any direction.
What type of trader are you?
What type of trader do you want to be? Do you want to take continuation trades or reversal trades? I personally take both. Time frame charts, look at the higher time frame charts.
So all those type of things can really help you. Now just because your account is small doesn't mean to say that you cannot trade exactly the same as someone with a 10,000 account or a 100,000 account because treat it like it's real. Don't go, “Oh, my account's just $500; therefore, it doesn't matter if I lose.” Or, “I'm gonna just leave the trade open over the weekend, and I, if it loses, who cares? It's just $500.” Do not trade that way.
Every trade should be there with your checklist. Has it met all these criteria? Yes or no? If it has, great. Take the trade. Manage the trade, or put your stop loss in place to protect your position.
You can make money with a small FX account
So you have to treat your account real regardless of the size of the account is small or large. It's very important that you do that.
So that's pretty much covered the things that you need to know.
Can you make money as a small-time Forex trader? Absolutely you can. Look at how much you're making as a percentage gain. How much am I risking, how much am I making? Because if you make, let's say, a 20% gain in six months on your $1,000 account, don't just look at that and go, “That's just 200 bucks. It's pointless.” Look at that as a 20% gain in six months. How incredible is that? That's a massive, massive gain.
So think of it in terms of a bigger picture. Think of it in terms of global scale. Or, go to your bank and find out how much they're gonna pay you in six months for a term deposit. It's probably one percent, you know. You've just made 20%. Think of it that way. That's how you make money as a small-time trader because you have to learn how to trade properly first.
Listen to my interview with Imre
So I hope that helps. Now one thing that I'd like you also to do before you finish is have a look at my home page. There's an interview there with a client of mine from Toronto, Canada, called Imre Gams. It's an amazing interview from someone who started in the corporate world who gave up the rat race to learn to trade Forex and is now trading full time.
I really urge you to spend 30 minutes, watch through that video. It is fantastic. It is on my home page. I also put a link to it below this video and podcast.
So once again, this is Andrew Mitchem from the Forex Trading Coach. I'll see you this time next week. Bye for now.