Well, as promised, I am going to share with my kind readers one of my most effective money management system that I have been using successfully and robustly whenever I am having a good week or months with scalping techniques. There are a few sets that I invent on my own but this is among the most effective one, proven with good profit records.
It is up to you whether to use it or not as you have to remember that trading is somehow personal. Something that works for me may not necessarily works for you and vice versa.
Anyway, let's begin.
As most trading and forex gurus would tell you, money management is vital in order to ensure your long term survival in this market. But sad to say, most of these gurus hardly shared their specific strategy but instead always tell you not to risk more than... you name it... 1%, 3%, 5% etc of your trading capital.
It is indeed true. But when I first put my feet into this forex world, I am somehow confused with the statement of this percentage of your account until I later discovered it on my own from the pain of losing my account several times. Luckily the amount wasn't that big since otherwise I wouldn't be around writing this post.
Ok, let's cut the crap and straight to the points. But before that, let me share with you one of my best live account experience that you may not want to repeat.
1. From my observation and real account experience (I have several accounts with different brokers), it is always best to start with a micro or mini account with deposits not more than USD1000. My best optimum start is always between USD500 to USD1000 only. You may ask why... the reason is...
2. If you don't have a proper money strategy on how should you approach the market with the margin that you have as your buying/selling power, I tell you... anybody can even destroy a 1 million dollar account in one single day of trading. So, the point is...
3. There is no point of putting, say USD5000 and later lose USD4500 (if not all) and have to start back with that 500, cause it's very painful and tedious. Why not put in USD500 and turn it into a USD5000 instead. In case all your trades go bad, you got only 500 to lose instead of 5000. This is said base on my real experience. It is do-able cause I have done it before and many many times. Believe it or not, I had once turn USD16 into USD7100 in 3 weeks in March this year with my real account. I swear this is NO BS, I can show the record if anyone ever demand. How did I do it... well...
4. You got to come up with a specific plan for sure base on your equity size. When my margin was USD16 (from USD500 deposit down to USD16 actually), I could only play with micro lots with a USD2.50 as margin (for 1:400 leverage with FXCM Micro) and USD13.50 as free margin (or 135 pips as max stop loss). Of course, I feel like nothing to lose since I lost almost all already, but... it took patience since even if you got 100 pips, it only brought in 10 dollars. But when you got it right all the time, as happened to me (perhaps got lucky or I was a little bit clever in reading the market), I brought that 16 to 500 in the 1st week (awesome), and later turned that 500 to 1800 in the 2nd week (superb), and 1800 to 7100 in the 3rd week (wow!).
5. Yes, there were times that I over leveraged my account with even 25% risk, but what the heck, when you got it right, it doesn't matter. But...
6. I later discovered that this is a very bad habit that would not survive me in the long run. Because you know why, in the 4th week, I destroyed that USD7100 account... you may think that I am kidding, but that is the most expensive lesson that I ever learned and surely, I remember everything by heart. (I do not wish to have any other expensive lessons after this but I guess this is just part of the game. I heard others even lost millions, just couldn't imagine how they took such losses)
7. Please do not repeat the same mistake that I did... The main culprit was : GREED !
8. It was a few days before the closing of the month and I was still in the running for the 25k Trading Competition by FXCM Micro. Without I realized, I was so obsessed to become the champion, I try to double up that 7100 within that 3 remaining days and I became very very careless, unlike when I was trading with USD1800 and below.
9. I forgot all my plans, I forgot to protect my profit, I forgot almost everything. I went against GU and I had 3 std lots buying position when the GU fell down to 1.4111. I was trying to averaging my positions but I was meant to doom in that 4th week.
10. By the closing of the month, I was back to USD500 with my original deposit. The actual flow of my equity level in March was 500 - 710 - 16 - 500 - 1800 - 7100 - 500. See?
11. If you don't plan your money properly, anything can happen to your account.
So the Money Management Strategy that I am using right now is as follows:
A. I always deposit (between 500 to 1000) and withdraw on monthly basis (still a part time trader). At the moment, I do not hold a big account intentionally since I'd rather love the challenge of turning a tiny account into a mini-monster. For example last month, I managed to turned a USD1000 account into USD6000 and withdraw 5k by the end of the month. That was a total of 500% profit for the month. Profit varies accordingly to market condition but I'm doing quite well at the moment (but still striving to improve my skills and weaknesses).
B. Say I have 500 with my FXDD mini account (1:200 Leverage), my trading plan is like this.
- Initial position (1st time entry) is always at 0.1 lot with USD1 per pip.
- My Stopp Loss is fixed at maximum 50 pips. I don't set it at 100 anymore.
- I am very much particular with my entry timing. Accuracy is important so trade only when you believe the market setup is in your favor.
- My target is to score 100 pips = 100 dollars per day within the same week.
- Doing it consistently enough, it is actually an easy target to double this 500 within the 1st week. (USD100 x 5 days)
- Yes you are right, I am actually risking 10% of my account. I couldn't risk smaller with this kind of margin.
- In simple mathematics after considering your position's margin, you can't have a losing trade more than 3x in a row or you're out. Simple.
- This strategy is pretty robust but effective and best of all... you risk small...
- Making 10 trades with 10 pips profit per trade is something easy to get base on my experience.
- This is especially true during major news release.
- All you have to do is to scalp carefully and 100 pips per day base on 10 pips x 10 trades is pretty easy. Try it... If you can't make it 10 pips, try 5 pips x 20 trades ect etc. It can be done.
- Just be extra careful with your entry timing and analysis. When you feel wrong, be objective, get out and stay out for a while. Come back after 1 hour or so... minimum. Remember if you don't trade, for sure you won't lose your money.
- If market breakouts, take more than 10 pips as you shouldn't be too rigid with your system.
- I always enter at the 1 hr interval, if I got it right and see a major reversal or continuation of the price movement, I normally hold it up to 30 or 45 minutes, before the next hour approach.
- Ok? Got it?... Next...
C. So, what if your trades goes wrong...
- You have another bullet... by opening a double 0.2 position with 20% to risk this time, taking 50 pips SL into consideration.
- Say you are going long on GU and it doesn't seem going to that simple 10 pips target.
- When it stays within less than -20 pips range, you should hold as this is a normal swing. Do not panic.
- But if it breaks that -20 pips range, you should look back at the volatility and immediate consideration on taking a short position instead, before your 50 pips SL is hit.
- This is solely base on your jurisdiction and perhaps one of the hardest part to master.
- DO NOT JUMP. Analyse first as you can only do this ONCE.
- I did this numerous times with success statistically so I believe this is a pretty good method. For sure it's not 100% but it works well for me.
- So say you close that -20 pips position with USD20 loss and open a reverse position with 0.2 lot, all you need to take is 10 pips to cover your recent loss or perhaps take the extra miles by going for 20 pips or more instead.
- In this way, you are not going against the market and perhaps you could even ride the position as long as you want.
- If the market fools you again this time, close your position and stay out for the day.
- Who says trading is easy? ;)
In conclusion, I would rather emphasize the importance to start with a small position and increase it accordingly once you feel the market is moving in your favor. In this way, in case you're wrong, you lose small and you can immediately double up your position size comfortably in order to recover.
Your equity is like your ammo and you should carefully use your ammos or bullets according to your enemy size. You sure don't want to shoot a monkey with a bazooka right? So... save the best for last...
In case you need further explaination, you can always email me as indicated on the right side of this blog.
Have A Nice Weekend...
p/s: Pretty long post this time... sorry this is the shortest I could write about this subject...
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