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Wednesday, March 28, 2012

Yes, size does matter.. #FX #trading #truth

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I know there are a lot of people out there who found themselves unemployed, saw a commercial on forex trading on TV and decided to give it a try..

Many of these people, and others as well, hope to use forex trading for such noble causes as putting food on the table and paying bills.

But to be brutally honest if you have $5,000.00 or less in your account you will find it virtually impossible to make a living.. And if you do not fully understand leverage you will very likely lose everything that you invest.

Sorry..

My recommendation to you if you have $5,000.00 or less in your account is to trade ONLY microlots. That is virtually the only way to have a chance of being consistently profitable because it allows you to realistically control your risk.

A microlot controls $1,000.00 worth of currency. If you have a $5,000.00 account you can have up to 5 microlots open at a time and still remain "leverage free".

Work hard at becoming a successful trader before increasing your risk exposure. Trust me on this.. If you cannot make money when trading microlots then you will not be able to make money trading standard lots.

The painfully obvious drawback of trading microlots is that, even if successful, you will find it difficult to make enough money to cover the everyday expenses of life on this planet.

I mean say you have a great week such as +400 pips? At a dime p/pip, which is what a microlot is, you just made yourself a whopping $40.00 in profit.. I doubt that will cover many of the bills you find yourself faced with.

So you go full in on every trade, yet use no leverage, you would have $40.00 x 5 which = $200.00. Better but I promise you it's VERY difficult to average +400 pips p/week consistently, week in and week out. And I doubt that even $200.00 a week would pay the bills you hope to pay..

Use your small account to "learn to trade". When / if you become consistently profitable the best thing to do at that point is to fully fund your account. If you have been trading 0.10 p/pip on $5,000.00 then you need $50,000.00 in your account to be able to trade with the same risk profile. This is very important!

Once you have adequately funded your account to handle $1.00 p/pip trades that $200.00 week becomes a $2,000.00 week and THAT will pay a few bills ;)

I have learned, after blowing up my first two accounts, thousands of dollars, to watch my leverage very closely! Seldom will I ever be leveraged more than say 3 or 4 to 1. I begin to get uncomfortable much beyond that. At 10 to 1 or higher you are just begging for disaster to strike.

If you do not control your risk you are only gambling and you will lose.

Be safe and protect your capital or you will no longer be able to play at all.

Good luck everyone! I wish you the best and great trading success! I also wish that was all it takes ;)

Greg

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