Why not looking at your account balance can be beneficial to your Forex trading results
In this video:
01:32 Having controlled low risk
03:15 Taking all the emotions out of your trading
04:13 Made a total of 2.3% on a 1-hour trade
05:18 The Lesson: Forget about making pips
In today’s video and podcast I’m going to explain to you why not looking at your account balance can be really beneficial to your Forex trading results. Let me share more details with you right now.
Hi Traders, it’s Andrew Mitchem here from, The Forex Trading Coach and today, is Non-Farm Payroll day. It’s the Friday, the 3rd of October so be really careful with your trading into the U.S. session today with that U.S. job employment data news coming out later.
Don’t Look At Your Account Balance
But the main point that I want to carry on in today’s video and podcast is why I think it’s really beneficial and how it can help you with your trading, with the emotional aspect of your trading and the psychology behind trading by not looking at your account balance when you’re taking trades.
Now, what I mean by that is, a couple of things depending on which side you are. If you have a relatively small account it becomes really quite easy in destracting and that a lot of people like to take too bigger risks.
You know they say, “Well, I’ve only got a thousand dollars, it doesn’t matter if I lose it therefore I’m going to take “x” amount of risk.” And it might be something that might be risking let’s say $100 on a particular trade. Now if you’re doing that you’re actually risking of course 10% of your account which is far too much. So rather than doing that I think it’s far more beneficial to forget what your account size is right now and look at trading an equal amount of risk per trade and having controlled, low risk. That’s the important thing.
So when I’m trading myself I trade at no more than 0.5% so half of 1% of my account risk on any one trade. That’s the maximum I can lose. I know that in advance but it doesn’t matter what the currency pair is, what the type of trade is, what the time frame of the trade is whether it’s reversal or continuation, it’s a breakout, whatever it is, it doesn’t matter how many pips the trade is risking. If it loses it doesn’t matter how many pips the trade loses because I know I have a set amount of risk, an equal amount of risk in every single one of my trades and that really helps you with the understanding, the psychology, the emotions of your trading.
Take it to the other extreme. If you’ve got a large account let’s say you had a million dollar account. The trouble is when you’re looking at your account balance all the time, is that, the emotions come into it in a different way and it makes you hesitant, it makes you really, “Well, do I take the trade, should I close the trade early?”. You become really hesitant because you could see it your account going up in hundreds or thousands of dollars up and down all the time and it’s very easy to want to take the trade in terms of taking the profits slightly early or meddling with the trade too much. Whereas if you know you have a set amount risk on that trade, again half of 1% (0.5%) then you become comfortable with the trade because you’re not looking at the dollars or the pounds or the yen whatever your currency.
You’re not looking at the amount you’re making, you’re looking at the percentage that you risk as opposed to the percentage that you make on a trade as a far better way of trading. It takes all the emotion out of your trading. So it’s a really important point there.
In terms of percentages we’ll I had a live webinar, (2 ½ hour live webinar) with my clients last night. I had a client who’s been with me for just over 3 years now. He lives in Canada, his name is Bo and he reported that last week he made +6.15% on his account just in that one week but trading 15-minute charts and I believe also a few 1-hour charts so just a fantastic result. Of course that does not happen all the time but it shows what can be achieved.
I took 5 trades last night on the 1-hour charts. I had 3 winning trades and 2 losing trades. The winning trades averaged at 2.2 to 1 reward to risk so therefore that meant with half a percent risk on each of those 5 trades, I made a total of +2.3% on my account. So it’s a pretty good return when you consider they were just 1-hour chart trades and I effectively lost 40% of those trades that I took but still made a +2.3% return with only a 0.5% risk on each of those trades so very low risk, fantastic reward to risk ratios. In other words, making a lot more than I’m risking and ended up with a fantastic account percentage return just on one live webinar over 2 ½ hours, so really pleased with that.
The other thing I was really pleased about was the performance that a lot of my clients were reporting in trades that they’ve taken over a past couple of weeks on all sorts of time frames. People were talking about hourly time frames right through to monthly time frames and everything in between and it’s just really exciting when people are taking good trades and gaining fantastic results on their account. So, really pleased with that.
So overall, the lesson I suppose the point to take from this video and podcast is to forget making pips. Forget that. Have controlled risk on each trade, don’t look at your account balance, look at having controlled risk (high reward to risk trades). And also the important thing that most of my clients were reporting yesterday the ones that had profitable trades was they were taking their trades on a variety of different time frames. If you can, don’t just trade one time frame. Look to trade multiple time frames.
To give you an example, I’ve had a fairly average week this week on my daily charts yet my 12-hour charts have been tremendous and my 4-hour charts have been tremendous. So it just shows by having a variety of time frames, if you have like a losing week or a lesser quality week on one-time frame you generally find that if you trade 2 or 3 or 4 time frame charts you can make up for those loses plus a lot more by having profitable trades elsewhere.
So that’s it for this week, this is Andrew Mitchem from The Forex Trading Coach. Have a great weekend. I look forward to talking to you this time next week.
Bye for now.