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With careful planning and risk management, you can grow a small Forex account.
This article assumes you are not a new Forex trader and that you have successfully completed a thorough back-test of your trading strategies, as well as performed an acceptable forward-test on a demo account. Many recommend at least 30-50 trades before you can assess a trading strategy’s effectiveness. Of course, this would be down to the Forex trader regarding how many trades are considered acceptable. Many professional Forex traders prefer testing more thoroughly in different market conditions: uptrends, downtrends and rangebound markets.
The steps above are critical. This cannot be emphasised enough, and there are no shortcuts. Without the statistics to validate that your trading strategies possess an edge (positive expectancy) derived from back-testing and forward-testing, you would be trading blind and lack confidence. Four consecutive losing trades might be normal with your trading strategy, which would only be evident through the work you did before (back-testing and forward-testing). In a live trading scenario, experiencing four losses in a row can be emotionally challenging to remain objective and continue if you do not possess those statistics to know that this occurred before. The absence of statistics can lead to the trader exploring other strategies, and the circle tends to continue until the work is done beforehand.
It is recommended to begin with a small trading account size, and for good reason.
Starting with 1,000 USD, as an example, and risking only 1% would allow traders to familiarise themselves with trading with a live account and become accustomed to the risk. Find the amount of money you’re comfortable with trading (this will be different for us all as we have different risk appetites). This cannot be overstated. A trader opening their first live account with an unnerving amount of money and attempting to trade this objectively (following your trading strategy’s rules) is difficult and unsettling and likely to culminate in account ruin.
Once you’re comfortable with the risk and generating a consistent return on your initial trading account (1,000 USD, for instance), you can consider increasing your account size and, by extension, the risk per trade. Continue working this way and building your account size in a structured and logical way.
Irrespective of the account size, risk management is a core aspect of a professional trader’s toolbox. This, among a handful of other things, is one of the factors that a trader has control over and without it a trader’s account is unlikely to survive in the long term.
One of the key facets of risk management for any trader is protective stop-loss orders. This helps limit the downside in unfavourable trades. Additional forms of risk management range from understanding margin and leverage to calculating one’s position size effectively.
Another imperative element to consider is to trade only the markets that have been validated. Suppose you have only back-tested the EUR/USD, the GBP/USD and the S&P 500 (if you also trade stock indices). In that case, it is suggested to trade only these markets as you’ll have the confidence to know you’re trading in markets where your trading strategies possess positive expectancy, and you have the statistics to back this up.
The overall trading plan will encompass everything you need to operate in the Forex market. It will detail aspects such as your trading strategies, risk-management and money-management methods, your trading goals as well as the currency pairs of focus.
How you navigate the Forex market is trader-dependent and is determined in the early stages of your testing, as highlighted above.
Technical and fundamental analysis are the primary vehicles of analysis for FX traders. Technical analysis focusses on historical price and volume data; chartists assess the direction of a currency pair based on price action and technical indicators, such as moving averages and the Stochastics Oscillator.
Fundamental analysis in the Forex space is driven towards macroeconomics and the respective monetary policy of a country’s central bank. Widely followed macroeconomic statistics are the Gross Domestic Product (GDP) to determine an economy’s economic growth, inflation (reveals aggregate price levels) and unemployment, measured as a fraction of the labour force (this represents the sum of employed and unemployed).
To summarise, ensure that you test your trading strategies. Then, start trading with a small (comfortable) live account and only trade tested markets. Once consistency is achieved, you can consider adding to the initial amount and, thus, allow you to build a small Forex trading account in a slow and structured manner.
Trading successfully is a journey, one that offers a mixture of ups and downs. That said, anything worth having takes hard work and determination. Successful trading is a continual learning process.
To help further your learning, check out the FP Markets Traders Hub, a place crammed with market analysis from industry experts. Additionally, consider visiting the FP Markets Trading Academy, a dedicated educational hub that caters to beginners, intermediate and advanced traders.
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