In this episode of Truth About FX, Walter digs into micro trading, risk management, and how to avoid intra-day trading. According to him, finding the right broker is the first step to finding the right system. Is your broker giving you some flexibility with your account?
You will also find here the best place to find the perfect broker for you.
Download (Duration: 05:04 / 5.79 MB)
In This Episode:
00:51 – strike rates
02:12 – too much or too little
03:38 – a big difference
04:20 – not limited
Decide whether risk too much or too little [Click To Tweet].
Remember: risk management is the key. [Click To Tweet].
Choose a broker that will allow you to take really small positions. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Another listener wrote in and they’re saying that they’re reading the 15 to 240 minute forex charts with Elliott Wave and they are trying to improve their win rate.I guess is what they are trying to say here. They have small accounts and they want to know how to avoid intraday trading and not watch in the market so much.
Walter: So, this trader is using Elliott Wave which is, that’s cool or whatever works for you and the strike rates are going well. So, high win rate, that’s excellent. You don’t have a lot of money to trade? Well, here is the thing that I think because this is a good question because this person is aware that it might not be a good idea to get sucked into the lower timeframe charts.
So, here is what I would have to say about this. Maybe what you want to do here is you simply want to go ahead and change brokers to a broker that will allow you to take really small positions.
There are brokers that will allow you to change your lot sizes so that you can trade at 3 cents a pip, or 13 cents a pip, or 43 cents a pip, or whatever it is instead of having a trade for a dollar or $10 a pip. This is something that people forget that they feel like they’re stuck, that they have to trade micro lot — sorry, mini — lot at a dollar a pip or sell a lot at $10 a pip.
There are micro lots that are $10 a pip but even beyond that, there are brokers that will allow you to trade 2 and a half cent a pip or whatever. These are the sorts of brokers you need to look for because, otherwise, you are going to make it a really poor risk management mistake.
Which means that you can have a great system that falls apart because you are running to a massive drawdown because your position size is too big. Even worse, you could have that situation where you have to decide whether risk too much or too little on every single trade.
You might get unlucky. You risk too little on the winners and too much on the losers. These sort of things people don’t think about but the risk management is really — I don’t think you can really over-state that risk management and the psychology behind it is probably the fastest path to your trading goals.
To work on risk management and the easiest way to do this correctly with a small amount of trading capital is to make sure that your broker that you are using allows you to trade in any lot size you choose. That would be my advice and I know it’s probably a bit dry and maybe not what you are looking for.
The key here is risk management. It really is and this is what it’s at. There’s a link underneath this episode in the shownotes where you can click on that calculator and work out exactly how much you can risk, so that you don’t hit that drawdown that you think will freak you out.
Some people hits 20%, or 15%, or 30%, or whatever it is. Use that calculator and figure out, giving your system parameters how much you can risk per trade so that you don’t run into. You’re very, very unlikely to run into that drawdown that will ruin you.
Then, get a broker that allows you to risk exactly that amount and you’ll see a big difference in your trading. I promise you, I just want you to keep in mind that risk management is the tool that allows you to get to your trading goals.
That is something that I think a lot of people miss. It’s a great question and I’m glad that it came up.
Hugh: Yeah, that’s awesome. At the top of your head, do you have any brokers in mind that would allow that kind of trading?
Walter: Yeah, you can go to Oanda. Oanda will let you do that. There’s actually, I think also a link here where you can look up at many different brokers who will allow you to do that. I’ll put that in the shownotes too for you.
Basically, you are looking for broker that will allow you to setup odd lot sizes and things like that so that you are not limited to micro, mini or standard account, or standard lot sizes.
Oanda is pretty cool because it’ll actually tell you the amount of money you’re risking. Let’s say you have $10,000 account and you want to risk $100, Oanda will tell you as you adjust the lot sizes, will say that your stop losses are $101 away, or $99 or $98 cents away or whatever. That’s really cool in their platform that does that for you. That is something that you should have a look at if this resonates with you.
Hugh: Yeah, for sure. I love that. I use Oanda too and I love that.
Walter: Excellent! Thanks, Hugh.
Hugh: Thanks, Walter.