You don't need $10,000 or even $1,000 to start trading forex or crypto-currency. This guide will teach you a customizable money management strategy for the advanced beginner.
The Goal
To begin trading without startup capital, create a low-risk psychological environment and gain experience in the market without accruing debt.
Advantages
- Loss limit per month adds security
- Years of savings aren't at risk
- Allows for up to 50% margin use
- Never risk more than 2%? Trade a $100 account like it's $1000
What you'll need
- Monthly income
- Know how to calculate margin and risk on paper
- A tested trading strategy
- At least one plant (OK this is not necessary but taking care of plants has made me a better trader)
Learning from emotions
Like it or not, risking $20 of a $1000 account is not the same as risking $2000 of a $100,000 account. Both accounts are risking 2%, but for most people $2000 is a lot more. Different income and lifestyles come with different tolerance levels for how much money we're willing to risk.
There is a belief in trading that you should only risk 2% per trade. A good tip for beginners, but is it necessary? Instead of saving a bunch of money and starting big, why not start small?
With a monthly income and the ARPT, the 2% rule becomes obsolete.
Making losses matter
You don't learn to fight if getting hit doesn't hurt but if it hurts too much, you might end up quitting.
Do you go to the movies or out for dinner? How much do you spend? How much would you spend per month to learn to trade? It has to be an affordable amount that you can save monthly. The price of a movie? Maybe I'm just starting out and decide $20 is an acceptable risk per trade(ARPT). Easily affordable with minimum wage.
Optimal performance only occurs when risk is involved. A loss that stings forces you to learn.
Budget the ARPT into your expenses.
If you don't have a job, read my guide, "learn to trade crypto-currency risk-free." In one month anyone can start trading.
After you've saved at least $100 or five times your ARPT
Deposit the $100 with OANDA or the broker of your choice.
Making a trade!
Use more than 50% margin at your own risk. Stick to your ARPT for at least three months.
If you win, take a break and wait for another strong set-up. If you're stopped out, wait for the end of the month. When payday comes deposit your ARPT.
Increasing the ARPT because of a winning streak is a bad idea. The outcome of one or even five trades is not enough data to know if your strategy is successful. It's a good idea to wait until you've been trading for at least three months (six is better) before giving yourself a raise.
Growing plants
Taking care of plants is a great way to learn patience, consistency, and discipline. Three qualities you'll need for success.
By having a risk per month limit that is never more than what your monthly budget allows, you prevent overtrading and can rest easy knowing you will never lose more money than you can afford. Finding your ARPT will help you take advantage of leverage, trading $100 like it's $1000. In this way, an environment is created that cultivates a low-risk psychological attitude allowing you to relax and enjoy trading.
Use this guide as a template. Modify it to fit your trading style. Have fun!
Two examples assuming the account is in CAD with a max leverage of 50:1.
You've made your initial deposit of 100CAD.
Example 1
Daily set-up on USDCAD. The Canadian margin requirement for USDCAD is currently 2.4%.
Stop = 1.35393, Short Entry = 1.33770
Risk = Stop-Entry = 0.01623
Units = $20 ARPT/0.01623 = 1232.29
Required Margin = (1.3377 * 1232) * 0.024 = $39.55
$Risk = -$20.
With this set-up, it is possible to risk the $20 ARPT with 39.55% margin.
Example 2
4H AUDCAD. The Canadian margin requirement for AUDCAD is currently 3%.
Stop = 1.00645, Short Entry = 1.00082
Risk = 0.00563
Units = $20/0.00563 = 3552.4
Less than 3% margin required to risk $20.
Units = ($50 * 33.333)/1.00082 = 1665.3
Required Margin = $50
$Risk = -$9.37
With this set-up, the bracket size made it impossible to risk the $20 ARPT without using more than 50% margin. With 50% used margin risk is -$9.37.
Use more than 50% margin at your own risk. Stick to your ARPT for at least three months.
Thanks for reading! For more posts about trading and life follow @skypal