Setting yourself up for Success
Hey Traders. Welcome to the Advance Forex Strategies course. This is Corey Mitchell. Video 1, Setting Yourself up for Success. Brought to you by Investoo.com.
In this video series, we’re going to look at a total of 23 Forex strategies, plus an odds enhancing video. That’s going to be the final video where we look at a few interpreting price actions that you can really fine tune your trading.
This video, probably not the most fun of all the videos we’re going to do, but this is stuff that you really need to know if you want to be successful at Forex trading.
So, the first thing we’re going to look at is we always place a stop loss in our trades. Each strategy has its own stop loss, and in each of the videos, I’ll show you where to place those stop losses.
The stop loss controls your risk so that we’re not letting our losses get out of hand. We put a stop loss out immediately with the trade. This way, we know our risk is controlled and we don’t have to worry about it.
All strategies also have a target price, or target area where we’re looking to exit profitable trades. Nothing’s worse than you have a profitable trade running in your favor, and you don’t take your profit, and then it comes all the way back.
We want to know what our profit potential is before we take the trade. So we set a price target, we have our stop as well, then we can look at our reward relative to our risk. So, if we’re risking 20 pips and our potential reward is 40 pips, that’s our target. We know that our risk/reward ratio is favorable, we’re making more on our winning trade than we’re loosing on the loosing trade. And that’s the kind of set up we want for each of our trades.
The trading is based on a plan. There’s no question once we’re in the trade. We know where our stop is, we know where our target is, there is no question, we can sit back. And it’s much less stressful this way than thinking while you’re in the trade, “Where am I going to get out?” By setting a target, setting a stop, we take care of that.
Money management and position size are a trader’s best friend. We want to limit risk to 1% of your account per trade. So, what that means is on a $5,000 account, we’re not going to risk more than $50.
So risk is the difference between your stop price and your entry price, multiplied by the pip value, and the number of lots you’re trading. So that may sound a little complex, but it’s actually not.
The reason we only risk 1% of our trade is that even great trading systems can have a string of losses. Great traders have strings of losses. If you loose five or six trades in a row only risking 1%, you’ve only drawn down your account 5 or 6%. If you’re risking 10% on a trade and you lose six in a row, you have more than your account value is gone.
So let’s look at a position size example. On the $5000 account, as mentioned, you can risk $50 per trade. So let’s say we’re buying the EURO/USD, we find a nice set up that we like. We place an order to buy at 1.3990. We place a stop 20 pips below at 1.3970.
So, this may be a review for some of you but, pip values, we have three different pip values in the Forex market. You can take a micro lot where each pip movement will give you a profit or loss of $0.10, a mini lot fluctuates $1, and a standard lot, when it moves a pip, is going to give you a profit or a loss of $10.
So, for this trade, with a $50 risk limit, and a 20 pip stop, we can take 25 micro lots. So, what’s the easiest way to figure that out? If you’re using less than a $10,000 account, typically you’re going to be trading in micro lots or mini lots, but I always calculate it in micro lots because after the fact, it’s very easy to convert that to mini lots.
So we have a $50 risk limit, so we take $50 divided by 20 pips times $0.10, so 20 times 0.1 is 2, so 50 divided by 2 is 25. So that’s 25 micro lots or 2.5 mini lots. If you notice the micro and mini, a mini is simply 10 times bigger than a micro. So, if you divide this by 10, 2.5 mini lots.
Let’s say you have a larger account. $30,000, you have a $300 risk limit per trade. With an account over $10,000, you’re typically going to be dealing in mostly mini lots. So instead of $0.10, we’re using the pip value of $1 for a mini lot. So 300 divided by 20 times 1 is 20, that is 15 mini lot; 300 divided by 20.
That is your fine tune position size for the exact stop that you’re using and your exact account size. We do this for every single trade, that way you know that you’re risking less that 1% of your account per trade.
Every trade is planned ahead of time. We are not making impulsive or emotional trading decisions. That’s why you’re watching these strategy videos, why we want to have a strategy, because it puts the odds in your favor. We have a detailed plan for when and what we are going to trade. On what time frame, how we’re going to enter. That’s the strategies that we’re going to cover. And your maximum risk per trade, which we just discussed is 1% per trade.
This is your trading plan. We don’t deviate from it. Write this plan down.
As you see strategies you like, detail it out. When are you going to trade it? What time frame are you going to trade it on? What pairs are you going to trade it in?
So in the next video we’re going to start to look at strategies. While I am telling you how to trade these strategies, I want you to test them out in a demo account before trading them with real capital. This way, you know if the strategy works for you or not. Something I may want to trade it on an hourly time frame, or recommend trading it on an hourly time frame, but you’re a day trader, so you want to try trading it on a five minute. It may work on a five minute time frame, test it out on the demo account.
Forex trading does involve substantial risk of loss, and these videos are not personal investment advice. Make sure you’re only using risk capital to trade. If you are using money that you need to trade, that can put a lot of undue stress on a trader. Trading can be stressful as it is, so don’t put that added stress by trading with money that you absolutely need.
So a little review. Every trade has a stop and a target. We’re going to discuss exactly where those go in the videos, but those orders must go out when you place your trade. We only risk 1% of our account on our trade, that way even if a string of losses occurs, it won’t significantly draw down our account.
We only take trades based on a well laid out plan. If we see something that we want to trade, but we don’t have a specific strategy for it, we leave it alone. We’re going to give you 23 strategies to trade. There is no reason to make impulsive trading decisions or emotional trading decisions. We’re giving you the strategies, only take trades where you’re using a well defined strategy.
Test out strategies before using them to make sure you are able to actually implement them, and that they work for you on the time frame that you’re trading, and in the Forex pairs that you’re trading. In each of the strategy videos, I’m going to look at the time frames that I typically trade these on.
And trading does involve substantial risk of loss. Only trade with capital that you can afford to lose.
So on the next video we start looking at strategies. Review the material in this video and keep coming back to it. This is the stuff that’s really going to make you effective as a trader, and ultimately successful. We can have the best strategy, but if you start risking too much on a trade, it could wreck the strategy. So, we need to know this stuff inside out and backwards before we implement the strategies.
Until next time, happy trading.