The Forex Trading Paradox How can you make big money with a small capital account
Eve What forexrebatenetwork forex rebateyone is saying that if you want to trade as a means of making a living, then you must have a certain size of capital in your trading account If you want to make a certain profit return every month, then this pressure to make a profit Whatisforexrebate greatly interfere with your decision making ability, though, I think there are still many ways to make a good profit every month One of the ways is wise bestforexrebate aggressive money management Few people can explain this point clearly, if you can, then I can only say that you really have a spirit of research and exploration, especially for mathematics and statistics, you can discover a way to make a small account grow quickly in a very short period of time In addition, if you are good at Excel or Mathlab, it is even better, it will help you greatly Life is not always easy, in the financial markets In the financial markets, revenue and cashback forex are directly proportional to each other, just as you do in forex trading, to make a small account in a conservative risk management principles to make a lot of money, it is unlikely, of course, no impossible you just need to grasp a few key strategic elements can be, this key element is your risk-reward ratio and win rate, when you figure this out, you can develop a risk management model, so as to improve your trading results in the following, I will give you an example of how to develop a risk management model under the premise of a hypothetical trading strategy: Assuming that our risk-reward ratio (RRR) is 1:1.2 (i.e. the average loss of 1 unit per order for a losing order, but the average profit of 1.2 units per order for a profitable order) and the win rate is 60% (i.e. the number of profitable orders accounts for 60% of all orders and the number of losing orders accounts for 40%). In this case, your account will be a large fortune after a short time if we do an average of 10 orders per week, of which 6 orders are profitable, so the weekly gain is 6 * 1.2 = 7.2 units, at the same time, 4 orders are loss, the weekly loss is 4 * 1 = 4 units, which results in a net profit of 3.2 units per week, so the monthly net profit of 3.2 * 4 = 12.8 units If 1 unit represents 1% of your account funds, then your monthly net profit margin is 12.8%. If your initial capital is $10,000, at this rate of growth, your account funds will soon become a substantial amount of wealth, enough for you to live a life of financial freedom. For most of us, $10,000 is a large sum of money, which could be our life savings deposit. Shouldnt we try to put in just $200, which is within the risk tolerance of the vast majority of people, and then use an aggressive money management strategy to pull the account up to $10,000, and later build a stable income strategy with better risk management? There is no reason not to do this unless you have $10,000 to spare and you are a really good trader. The higher your win rate, the more aggressive your money management strategy can be. No matter which strategy you use to trade, I am against setting the risk to reward ratio at 1:1 because simply, your average profit per order must outweigh your average loss per order, otherwise you will never make money! Now, you have to use some software (such as Edgewonk) to predict your future trading performance, you will see your account money curve change, then, you have to keep testing your trading system, constantly adjust, and finally let your money curve steadily rise Of course, your money curve may have a certain retracement, or constantly fluctuate, up and down, like a wave you can allocate your Depending on how much risk you can take and how well you can control it, diversifying your investment risk is good for maximizing your return on investment, and you should diversify your investment risk with every trade you make. Would you believe me? You wouldnt believe me. Also, its important to note that when you make the next trade, you must again take out 1/4 of your money to make the trade. make up for your previous loss which depends entirely on the win rate, we will soon lose all the money if there is a continuous loss, which brings us to the mathematical question, what is the probability of a continuous loss? Has there been a similar situation in history? First, we need to determine how much leverage the broker offers us, some brokers offer leverage up to 500:1, we will assume that we trade with a leverage ratio of 500:1 This means that our own funds of $ 200 can pry 100,000 dollars (200 * 500 = 100,000), in foreign exchange trading, can do a standard lot of EUR / USD orders (1 standard lot of EUR / USD futures contracts worth exactly $100,000) leverage is determined, we can determine the size of our maximum position, sometimes when our account funds are insufficient, the broker will require a margin call next, we have to learn to set a stop loss the less our principal, then the stop loss distance should be smaller if we each trade the maximum amount of risk (i.e., the maximum loss amount) is set to $50, then the maximum stop-loss distance is 5 points, because the value of each point of fluctuation in the exchange rate is $10. Therefore, the greater the stop-loss distance you set, reflecting the greater the amount of risk of each of your orders, the greater the threat to your principal The next step to focus on is the win rate and loss rate assuming a 60% win rate, 6 out of every 10 transactions are profitable (here is the historical data to support If you lose $50 per order, then six times in a row, thats $300, and your account is basically lost, so you have to reduce the risk level a little bit Assume that the risk level of each transaction is $20 (10% of the account funds), so that we have enough risk tolerance to deal with six or seven consecutive losses Now, I Choose a risk level of $20 per trade and we wont change the size of our position until the account doubles When the account grows to $400 you can expand the risk level to $40 per order, when the account doubles to $800 you can set the risk level to $80 and so on or you can take a more conservative approach and when the $200 When the account doubles to $400, take out $200, when the account doubles to $800, take out $400, and so on After two withdrawals in this way, you can play the role of protecting your money and never worry about going broke Recall that at the very beginning, the win rate was set at 60%, the risk-reward ratio was set at 1:1.2, 10 trades per week, and the net profit was 12.8 units per month Of course, you can lose money, but once you get the right approach and control the risk, then you will naturally make a lot of money. Earn a fortune, after all, you lose only $ 200, which will not directly impact on your life security, you do not need to take a lifetime of savings to risk an important point, you have to understand that this aggressive trading strategy is not a long-term solution, it only helps you more likely to achieve wealth goals you also have to properly control the risk, do not feel that the loss of $ 200 is like losing everything like, nothing Our emotional capital is as important as money, so learn to preserve your emotional capital!