In this forex faq, we have a question from one of our fellow traders asking me to recommend him a forex day trading strategy.
Below is the question:
Please suggest a day trading strategy for a very small trading account ($1000). The goals of the strategy would be:
(a) Grow the account by 6% per month, and
(b) Risk no more than 2% of the trading account on each trade.
I ask this question because I want to build confidence in trading by starting small, and starting slowly.
I must first tell you that you have the right mindset to start small and then slowly build your accounts up. This is exactly what new traders should do. The problem with most new traders is they tend to be very eager to make a lot of money in trading and start trading with a big account without any good working strategy.
Most of the time, they ended up with all their hard earned money wiped out. You should start trading small and then slowly build your experience and confidence in trading.
To answer your question (a), I will suggest you to trade with strategy that has a risk reward ratio of at least 1:2. This means that you cannot be a scalper.
Below are 2 forex day trading strategies that you can try as both of them have risk reward ratio of more than 1:2.
The reason why I recommend the trend line strategy is because it usually comes with a sudden burst of price in a particular direction when you get a valid trend line break. If you are able to capture the sudden movement, you will be able to make a good profit.
As for the forex trend trading strategy, there is nothing better than being able to ride the trend. In this technique, you will have to identify the current trend and strength of the market. Once you have done that, all you need is to wait for the price to retrace and then enter a trade to ride the trend.
As for your question (b), the key lies in your discipline to stick to your trading plan. Let says that you have adopted the trend trading strategy that is able to give you at least 1:2 risk reward ratio.
If you are entering a trade risking 2% of your trading account and you will make a profit of 4% if you are in the right trade based on 1:2 risk reward ratio. You will make 6% profit every month if you manage to trade with 2 wins and 1 loss.
The number one enemy of most new traders is their finger. They tend to want to get into a lot of trades everyday and therefore they will get into trades that are not according to their trading plan. This usually makes them lost all their profits.
To be a successful trader, you need to have the discipline to stick to your trading plan. Let says that you decide to trade the forex trend trading strategy. This means that you will never enter any trade that is not according to your trend trading strategy. In this way, you will be able to protect your profit and be able to make 6% every month.
Remember this; you do not need to trade everyday to make 6 percent profit. You just need 2 winning trades every month to achieve.
Some of you may be thinking that 6% is not enough but let us do some mathematics here.
If you have $10,000 in your account, you will be able to double your account every year.
First year $10,000
Second year $20,122
Third year $40,489
Fourth year $81,472
Fifth year $163,937
What better way to grow $10,000 to 163,937 within 5 years.
I hope that I have answered your question and do feel free to give your comments below if you have anything to add or share with us.