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How to Make Money With Forex?

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Table Of Contents

This post is also available in: Indonesia

According to statistics, a minority of Forex traders achieve success. Whichever instrument you trade, be it currencies, stocks, or derivatives, profit does not come easy. It is a risky way to make money. Still, the safest forms of investment like bank deposits can hardly cover the inflation rate. Nothing ventured, nothing gained. So, can you make money with Forex? 

Is getting rich really possible? Just because some traders fail, it is a mistake to consider Forex a hoax. To succeed, you need consistent effort. Traders should do their homework, develop a plan and stick to it. Forex is not for the faint-hearted: it requires focus, knowledge, and mental toughness. Here is how you can make your first $1 million starting with just $10,000. 

How Soon Can I Make Money With Forex?

You can make money with Forex, but not one million overnight. Let’s look at the basic maths to see how long you need. If the initial deposit is $10,000, you will need an increase of 9,900% to reach the goal in a year. This does not include any deductions due to taxes in your region. Making one million trading looks astronomical in the short-term, so be prepared to work for many months. 

Now, let’s see what happens when the timescale is stretched. What will it take to achieve the same goal in 10 years? Now, the target annual return drops to 58.49%. Not a piece of cake, still. However, if you are willing to take higher risks, the figure is attainable.

The first key to such returns in compounding. This means gaining profit on profit. Your returns will grow exponentially, which is the crucial condition for such gains. The strategy must be developed with compounding in mind. Since the risks are high, your risk management system must be meticulous.

Secondly, you need to understand that these calculations will be valid if the market allows it. Unfavourable conditions can undermine any plans. Trends may not always be strong enough to support your expectation. Sadly, not all conditions are equally predictable.

For example, what factors are necessary for buying stocks? The market must be bullish (rising), and the uptrend must be robust. Despite the best choice of equity and timing, the market may turn against you. 

The same applies to currencies. To buy and sell without delay, you need the most liquid instruments. Discover the most traded currencies today to choose the best ones.

Money Management Essentials

It is not enough to know how to make money trading currency. Your risk must be reasonable and calculated. Generally, you should decide how much you can afford to risk per trade and follow this rule religiously. This protects you against devastating losses.

Still, experts may tell you that aggressive growth justifies less rigid risk management. For instance, you may decide to risk a fixed amount per trade whatever happens. This limit must be reviewed and increased periodically, after each growth phase. This way, you may recover from losing streaks faster, unless they are too severe. 

Your trading strategy and money management approach must be connected. In particular, this concerns the system of deciding when to take profits. These two elements must work in perfect unison. 

The Most Effective Trading Strategies

Naturally, a solid strategy is crucial for success, particularly that spectacular. Traders should focus on the big picture, so they are not too frustrated by minor losses along the way. To make a million, you need a combination of two systems. The first one should produce a steady but moderate profit. The second one should bring a big profit of Forex trading — at least occasionally. 

Therefore, traders need to combine huge occasional profits with a smooth equity curve. This may be done by using a trend-following approach and a range-trading system. We are talking about wealth-building, and it is not achieved quickly. 

Choose regularity over cherry-picking. You cannot rely on candlesticks alone. If you consider yourself a skilled discretionary trader, make your own decisions. Rookies may benefit from using mechanical systems. Still, they will need to decide when to take a profit. It is also important to cancel entries that meet the formal criteria but look questionable. 

Trend Following: Entry Points

So, how do you achieve those occasional lumpy profits? The best way to predict trends is by comparing current prices to charts that are 1 or 3 months old. This way, you will determine which instruments have risen or fallen.  

Here is a tip: compared to other currencies, the US dollar has been trading more strongly and consistently over the past few years. This is also true for the Euro, albeit to a lesser extent. There could be different underlying reasons. This stability may be explained by fundamentals or the fact that both are global reserve currencies.

Identify where the price started moving 3 months ago, and trade in this direction. This ensures an edge. The best entry positions are taken on breakouts or pullbacks. The latter require extra caution: choose those which have started to turn back in the direction of the trend, and only if this is clear. You should not be targeting each new high. Instead, wait until the price shows the same trend on all timeframes starting from the hourly chart. 

Here is an example of a potentially profitable strategy. A trader monitors different EMAs and SMAs and opens a long position if the following conditions are met. First, the faster EMA indicator must converge with the slower SMA. Secondly, the price must be higher than longer-term SMAs. Thirdly, it must be above its levels from 1 month and 3 months ago. This approach is valid for all major currency pairs that include the US dollar. The only exception is USD/CHF.

You could also focus on the “best of momentum”. This means you buy or sell only the top 5 or 6 pairs. These are instruments that have shown the most dramatic movements over the past 3 months.

Trend Following: Stop Loss 

So, where should you place your Stop Loss? If you follow trends, determine the location relative to volatility. You should be looking at the average true range (ATR) of the last X days (usually, 20). Anything from ½ ATR to 3×ATR will do. 

While the second value is most common, it is also very large. This means you can only capture the biggest trends. Whichever multiplier you use, be it 1, 1.5, or 2, ensure consistency. 

Trend Following: Take Profit and Trade Exit 

Now, let’s identify the best approach to taking profit and closing. Exit strategies are more complicated. Traders have several methods to choose from:

1. Trailing Stop Losses/Trailing Take Profit

Gradually move your stop loss higher as the price changes. Allow all successful trades to be taken out by triggering stops. Use support and resistance if you wish. It is also possible to focus on the peaks and bottoms of the past X days. This way, you can seize big profits without exiting too early.

2. Stop Loss Close to Breakeven

At a certain point, you could shift Stop Loss to breakeven. This move prevents excessive losses, but it requires caution. If you act too quickly, you may be stopped out before the big profit is reaped. 

The price may move back and forth a bit before finally taking off. This is typical for common entry zones. Therefore, if you decide to pursue the strategy, set yourself a fixed waiting period. Wait for at least 48 hours before making the planned move. You could also start trading after achieving a floating profit of a particular size. 

Fixed Profit Targets Based on Risk

Here, you will be looking at multiples of risk, and scale out the results. For instance, you may know that the trend-following strategy has had a positive historic expectancy of at least 3 units. In this case, you could collect partial profits at the same level. The same logic applies to 5, 10 units, etc. 

Exit Based on Time

This can be surprisingly effective when scaled out. For instance, you may collect partial profits 1 month after entry, 3 months, 6 months, etc. Sometimes, the price may remain lower than entry longer than 48 hours, without triggering the stop. In such situations, this strategy is particularly useful. 

Other Trend Trading Issues

A trader may prefer to open as many positions as possible as long as they target the same direction of a particular currency pair. This could restrict profit potential. However, it makes trading more effective due to the following conditions. 

  • In the absence of strong trends, you do not need to open new positions all the time to catch small movements back and forth.
  • If the direction is reversed, or conditions become turbulent, your losses will be limited. 

Another important aspect is psychology. It may be difficult to trade trends, as you need to be patient. It is necessary to wait until your winning trades grow, suppressing the urge to take profits too soon. You should also adhere to the strategy despite any losing streaks. 

Trading Ranges: Entry Points

Trading ranges will help you achieve those minor but steady profits that ensure an even curve. In the best-case scenario, these will smooth out the losses you incur by following trends. 

Which currency pairs to choose? The two most popular currencies rarely move in ranges. Therefore, avoid USD and EUR in favour of currency crosses without them. As a rule, these return to their mean weekly. This should give you a hint about the best entry points. 

A week of solid ups or downs is a reliable signal. Make sure the range is at least 1.5 times bigger than the ATR of the last 4 weeks. If you trade in the other direction the following week, this should give you an advantage. 

How to Select Your Trade Entries: Forex Perfect Entry Guide

How to Make Money With Forex

Trading Ranges: Stop Loss 

There are several ways to approach risk management here. The first option is entering once the following week begins, calculating Stop Loss as a multiple of 4-week ATR. The second option is to wait for oversold/overbought conditions to reverse in a favourable direction. 

Trading Ranges: Take Profit and Trade Exit

The strategy is based on weekly reversion to the mean. Therefore, time-based exits are the most preferable. When the week is ending, close all of your open positions. 

It is possible to also use fundamentals. For instance, you could increase the volume if the economic factors are pointing in direction of your trade. Currencies with high-interest rates are a good example. Over the short term, they tend to grow against currencies with lower interest rates. Interest rate is an important fundamental factor that could prove helpful. 

Backtesting

Do not forget to look back, leaving the recent year or two out of it. Before adopting any strategy, run a backtest to see if it works for you. Any course of action you consider should be verified first. Never assume that the future will repeat the past. This is not the purpose of backtesting!

Although trends do reoccur, there is no way to know this for certain. What this test will tell you is the likelihood of different scenarios. You can evaluate the chance of making a certain profit or loss by looking years back — for instance, 15 years is an appropriate scale.

Pay close attention to the worst results observed over the chosen period. This may be perceived as a safety margin and used to calculate risk per trade. At the same time, it shows you what may be expected in the future.

Forward Testing

Now, shift your focus onto the present. Once your strategy is ready, project it on the recent year or two. If you see the results diverge from the backtest data, your program may be over-optimized.

Who Are Million Dollars Traders?

The largest traders are institutional investors. Hedge funds, major banks and businesses can make millions, but they also invest a lot. In theory, a retail trader may make a million. But this is not an easy task to pull off. These are the true million dollars traders.

Now that we have seen how $10,000 can turn into $1 million in a decade, how about the same goal for someone with $1,000? How many times does 1000 go into 1 million? Unfortunately, this is too much to hope for. You would need to take fantastic risks, which would be reckless. The only case when this actually happened was in the 1920s. Back then, stock trader Jesse Livermore managed to turn 500 shares into approximately $100 million. 

Importantly, he went bankrupt a few times in the process, and only help from wealthy creditors helped him to succeed. So think: is there anyone who would lend you thousands of dollars to help you reach your goal? And how will you repay the debt if things go awry?

FAQ

Can I Start Forex With $10?

Many people ask, can I start Forex with $10? Indeed, it is possible to start using a live account with just $10. These schemes are known as cent accounts, and they make Forex accessible to anyone. Some brokers even allow trading without deposit. However, your profits will also be insignificant. It is also easier to end up empty-pocketed, as you can only afford a loss of 100 pips at most. 

How Much Can You Make With $1,000 in Forex?

The result depends on two things: your style and risk tolerance. Generally, you may expect to double your investment in a year, but this requires talent and perseverance. A few years is a more likely timescale.

How Can I Make $100 a Day in Forex?

It is not advisable to pursue some fixed amount. First, it is next to impossible, as the market is not entirely predictable. Secondly, if you set this goal and fail (which will eventually happen), this will demotivate you. The market gives ample opportunities for profit, but these profits may not be scheduled.  

Can You Double Your Money in Forex?

This is a realistic goal, but you need leverage to achieve it. This magnifies your risks, so think twice before trading on margin. A single misstep may wipe out your account instantly. Leverage requires extra caution.

Conclusion

Can you really make money with Forex? Absolutely. Now you know how to turn 10000 into a million. This goal may seem daunting. Still, it’s not impossible. In fact, this could be your most important financial undertaking ever. If you are really determined to work hard and achieve a lot, go for it! All in all, it all boils down to homework. Traders who begin their journey well-prepared have better chances of succeeding. Learn how to make money with 10 000 dollars if this is the biggest you can invest. Success is possible with a consistent and effective plan. It will prevent you from giving up. Choose the best currency pairs, learn as much as possible, and don’t be afraid of occasional losses!

This post is also available in: Indonesia

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Updated  October, 2020

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