You no doubt already know the Forex markets provide you with 24-hour access to trading opportunities at a level of liquidity unrivalled in other markets. Today we’re going to look at three key things you can do to build your confidence in trading Forex, scale up and do it in a risk-averse, calculated way. Let’s jump straight into it...
Professional traders practice their trading on a regular basis. This is one of the first lessons aspiring traders need to learn from the professionals. And to practice your skills you need frequency.
Consider two football teams both looking to improve their ability to get a goal from a corner. If Team A practices their corners 100 times per week and Team B only practices ten times, the strong likelihood is Team A will convert more opportunities.
The beauty of the Forex markets in respect to practice is twofold:
Let’s say you’re looking to test and hone your skills using an end of day technical entry setup.
You can dial down your timeframe to a 5-minute chart and test your entry criteria and speed to execute across 100 entries in a short space of time, relative to using end of day charts. And, given the low transaction costs and access to micro trade sizes, you can test your skills in a live environment using small position sizes.
This ‘keeps it real’ so that even if you end up with a losing system your downside is relatively small.
The Forex markets are ideal for being able to start small, build your confidence, then scale up.
Imagine having absolute confidence that your micro trading across 30-50+ trades generated a steadily rising equity curve. How confident would you be in trading your system with a scaled-up amount of risk? For example, instead of risking $20 per micro trade, you risk 1% of a $20,000 account – equivalent to $200 per trade.
This is the true beauty of the Forex markets. Once you build your Forex trading system with an edge in real-time, you can then start to scale up to a risk amount that fits your profile. You can then rinse and repeat this process for each new Forex trading system you have across any time frame.
Van Tharp, a world-renowned trading coach and best-selling author of trading books, is a big proponent of trading multiple trading systems to smooth your overall equity curve. So if your trending system goes into drawdown your range-bound or breakout trading system starts kicking into higher gear.
Your goal is to start small, build your confidence in several trading systems with an edge by trading them in real-time and then scale up as your risk profile allows.
All Forex trading carries some risk, but it’s important to remember that you control the level of risk allocated to each trade.
As mentioned above, professional traders test their new trading systems on a relatively small amount of initial risk, so you’ll benefit greatly by copying this idea. Once you’re comfortable with what you’re doing you’ll naturally build confidence around your systems and be able to scale up your risk in a calculated manner.
For example, on the face of it 400 to 1 leverage is a high amount of risk, but your focus should be on how much you risk on each open position relative to your account size. The fact is you control the amount of leverage you want to apply and can keep it at 0.25%, 0.5%, 0.75%, 1% or even 2% risk per trade.
Smart traders focus on the process of building risk-averse trading systems, and you can do that too. By trading your systems in a risk-averse manner, with a focus on allocating a small percentage of risk per trade, you know you can handle any relative drawdown. Your testing should show this in real-time, with real capital at stake.
Hopefully, you can use these three key ideas to build a scalable side income in the Forex markets.
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