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If you have read our previous article, you know that making a million on Forex is possible. In theory, this goal is attainable if you invest at least $10,000 and work hard for a few years. To be fair, this is a tall order, but the target may be reached.
Still, sceptics often say it is only a dream or a marketing trick used by brokerage firms. This is how brokers can lure in clients and encourage them to fund live accounts. Forex is not a hoax, though: while shady companies exist, this does not mean all firms are crooks. A reliable provider will not seize your deposit: it gets revenue from commissions or spreads.
A Look at One Million Trading
Can you make money with Forex? Yes, and a lot! We have already looked at how to turn 10000 into a million. On paper, this result is mathematically possible. In practice, it is an impressive feat. A trader needs to perform excellently at Forex to earn a million dollars, even over several years. Luck also plays a part, as market conditions must be exceptionally positive.
Still, the idea of making one million trading should not be dismissed. With the right approach, your profit will increase exponentially. This is because you will use your initial profit to earn even more.
Your profits will accumulate like interest on a bank deposit: returns on top of returns. The more you gain — the more you can invest. It is all about statistical probabilities, tough nerves, and the right calculations.
How Many Times Does 1000 Go Into 1 Million?
We have shown you how to make money with 10 000 dollars. Do not expect to earn a million with anything less. How many times does 1000 go into 1 million? 1000 times! This is a profit of 99900%! We have established that it is unrealistic. Even over several years, you may not expect to make that much. If you set goals not backed by maths, you are destined to fail. And failure is expensive.
Traders cannot let emotions take over, as short-term losses are inevitable. They must look at the big picture, disregarding temporary reversals of luck. The size of the exponential gain is not fixed. It depends on many factors, including your mindset.
How to Make Money Trading Currency
If you are reading this article, you may have a basic understanding of how to make money trading currency. Traders buy low and sell high, and any trend can work to your advantage. If you expect an instrument to grow, you buy more lots in a long position. Anticipating a decline, you may sell via a short position before the pair loses value.
The Largest and Most Liquid Market
On the over-the-counter level, retail traders buy and sell currency pairs online. There is no physical centre, which is convenient. Platforms and apps allow us to trade from any device, regardless of location. The marketplace works 24 hours a day, 5 days a week.
There are four trading sessions in different parts of the world: New York, Tokyo, London, and Sydney. When any two overlap, Forex volumes increase dramatically. This is because traders from different time zones act simultaneously.
Generally, stick to the instruments you know best. Your potential range of profits depends on the liquidity and volatile of the currency pair. For example, those who know a lot about emerging economies may learn how to trade exotic pairs. If you know what drives the economies behind your pair, you can predict its movements more accurately.
High volatility brings big profits but also increased risks. For instance, cryptocurrencies are known for their erratic behaviour. Discover how to trade bitcoin if you are passionate about digital money. High volatility also characterizes some exotics that are liked to unstable economies. Unless you are really knowledgeable about these systems, steer clear of such pairs.
As the market is decentralized, it also means you have no official data on volumes. Different sources place the daily Forex turnover between 3 and 6 trillion US dollars. This is because brokers can usually evaluate what is traded through them only.
Why Is Volume Important for a Trader?
Some strategies are based on it. It is always best to use at least two indicators to find confluence before opening a trade. This way, you can confirm your conclusions drawn from volume alone. Here is an effective way to open a trade.
Entering a Trade: Reliable Solutions
Entering at the best moment is a tricky task. This article will arm you with an effective method for entry. You will see how it works, and how it may apply to your situation. Try it in practice: this tip can method you achieve a lot. The system has been developed and backtested by industry experts.
Before you start, accept the fact that some of your trades will fail. Losses are inevitable however skilled you are. After all, market trends may not be foreseen with perfect precision. What you can and should do is make losses manageable. Sooner or later, you will hit a losing streak. It happens to the best of us. How will you feel when your trades fail?
Unless you are resilient, losses may discourage you from continuing altogether. Strong emotions are your worst enemy. Even when the markets are in a panic, you need to keep calm and persevere. This means you should be trading mindfully. Evaluate your true motives for opening a trade: are you following the initial strategy, or giving in to emotions?
The consequences of the coronavirus outbreak provide a vivid illustration. In times of crisis, investors get panicky. They start to short-sell assets for fear of losing more. This is a natural reaction to price collapses, but it is not always reasonable.
The market eventually rebounds, and prices reach new highs. If these sellers suppress their initial urges, they may capitalize on growth in the long term. This is only a basic example of how emotions affect decisions.
When faced with losses, traders may start chasing them. They forget about their strategy, and open trades hoping to compensate for what was lost. This is the worst pattern. Instead of covering the loss, you end up losing even more.
What you really should do is take a break and review the results. Why did the loss happen? Was it your fault? If so, what should be changed to avoid repetition?
Do not try to be right on all trades — it is simply impossible. This is obligatory if you are determined to collect a high profit of Forex trading. No perfectionist can become a successful Forex trader, as they cannot accept their mistakes. A loss is neither the end of the world nor the end of your trading career. It is a learning opportunity that should help you improve your strategy and vision.
A trader ought to limit potential losses, so they do not lose too much. Risk management is an essential element of any solid strategy. Those who want to be right on all trades reduce their profit potential. To rookies, this may sound counterproductive. Still, it is true. Here is why.
Dangers of Perfectionism
Most Forex textbooks and gurus will instruct you to be patient and cherry-pick your entries. They preach caution, as trading is such a risky undertaking. Newbies are taught to use all analytical tools at their disposal. They should be extra careful with risk, putting no more than 2% of their deposit at stake with each trade. This may sound like a reasonable approach. You may be surprised to learn that it is actually wrong. Why?
If a trader is so extremely cautious, they feel on edge all the time. They are always looking out for reliable signs and long-awaited setups. When they think the right moment has come, they risk a large chunk of their capital on a single trade. After all, they have been waiting so long, and it seems to fit every criterion.
Once the position is open, the trader watches the market with a rapidly beating heart. If the result is positive, they feel the urge to collect profit too early. If they hit a stop out, they feel frustrated and insecure and overanalyze their previous analysis. This style of trading is likely to cause an emotional breakdown sooner or later. There is just too much pressure, and it never subsides.
A Better Approach to Risk
Do not fret over every single step. Instead, learn to ‘let go’ when necessary. This means you should trade often, but keep the size small, This way, you will not experience the same level of tension over the next 100 pip movement. Seek out safer entries.
Entries have low risk when you can place a very tight Stop Loss to catch the emergence of a direction or reversal. No need to wait for breakouts, or join in when too many traders have already taken the same action. These approaches are not flawed by definition. However, the best moment to enter a trade is when the price is reversing. This gives you the highest statistical chance of success.
Trends can give the best results, but they are not always observed. On the contrary, most of the time, you will need to work in a ranging market. This means that any ups are quickly followed by falls, rather than reinforcement. Such short-term fluctuations are seen all the time. Luckily, they are not that difficult to identify and predict. Here is how to use this knowledge to your advantage.
Open small-volume trades, and collect particle profit when the market conditions are favourable. Allow the rest of your trade to run. This exposes you to big-scale movements that may continue for weeks or months. At the same time, you will not be risking too much of your funds.
A Great Trade Entry Method
Here is a method worth considering. It is not rocket science, but the results may be impressive. You will need an hourly candlestick chart, a 5 period EMA (exponential moving average) and a 10 period SMA (simple moving average). Follow this sequence of steps.
- Open the chart.
- Add both indicators, and set them to close.
- Watch what happens next. You need either of the following situations to take action:
You may see that the 5-period EMA is higher than the 10-period SMA, and a candlestick which closes expresses a range which is completely above the 5-period indicator. This is a possible signal to sell, as the price has shown a solid rise. Open a short position.
In the opposite scenario, you should wait until the 5-period EMA falls below the 10-period SMA, and a candlestick which closes expresses a range completely below the 5-period indicator. This indicates an opportunity to buy. Open a long position.
Next, you need to act quickly. Your entry must be located one tick above or below the closed candle range (for a long and short trade, respectively). Remember to use Stop Loss as well. It must be 1 pip apart from the opposite side of the closed candle, beyond it.
You may see the price change direction and breach the opposite side of the candle. If this happens, stop and abandon the trade altogether. Naturally, the next candle may give you another trade signal. If its range is entirely beyond the moving averages, and the latter are in the correct positions, you may have a second chance.
Traders who use Expert Advisors may program them to handle the task. These pieces of software are compatible with the MetaTrader platform. A digression is necessary here.
EAs may be bought or rented online. However, not all of them work, and scams are common. After all, the idea of a robot making decisions for you is irresistible. Therefore, be very cautious with such offers.
This scenario of entry allows one more possibility. You may see that a candle pointing to a long trade is immediately preceded by a candle with a lower low. A similar pattern may be discerned by shirt-sellers. They may see a short-trade candle preceded with another candle which touches a higher high. In these cases, it is best to position your Stop Loss 1 pip beyond that new level (i.e., higher high or lower low).
Backtests must be run for every strategy you consider. Look back and see if the theory coincides with historical data. We have tested the suggested method, over a period from April 2001 until the end of 2014. It demonstrates how effective this system can be.
Have a look at these results for GBP/USD. This is one of the most popular pairs, as it represents two large economies. Major pairs provide the highest liquidity, so they are definitely worth considering.
Here are the facts. Over the period, 11,112 trades were entered in total. The spread was set at 1.5 pips, and no slippage or overnight fees were included.
What about risks? The target reward to risk ratio was 1. This meant that if Stop Loss allowed you to lose 20 pips, potential profit was of the same size. It was also important to note down the deepest collapse. Over the period, the worst case of peak-to-trough decline amounted to -14 units of risk.
So, what would this mean for a trader with $10,000 in their account? With this initial balance, replication of the backtest would produce impressive results. Provided that you risked just $10 per trade, you would end up with $385,500 as your closing balance. The maximum decline would amount to $140. This means that over those 12,5 years your total profit would reach 3755%.
Conclusion: Making Money on Forex
So, can you really make money with Forex? We have shown that it is not impossible to turn $10,000 into $1 million. You need the right strategy, mindset, perseverance, and a few years.
You may decide to diversify your portfolio and trade several currency pairs you know best. This will reduce the overall risk, and boost potential profits.
Of course, this is not a task for beginners. In general, high profits in Forex require experience. If you are only starting, start small and set realistic goals. Focus on honing your skills and strategic vision. After you see consistent results, you may increase the stakes, but only gradually.
There are a few more important considerations. First, you need to know which pairs are really worth including. Secondly, you need to manage risks on several instruments at once. Finally, there are other ways to exit trades beyond the scope of this article.
Finally, make sure you have the right tools to achieve success. A slow trading platform or unreliable brokerage will render all your actions fruitless. Even the slightest delay may cause unexpected results. Therefore, choose powerful systems with lightning-quick execution. Remember: the speed you see in the demo mode may differ from the system’s live market capabilities.
This post is also available in: Indonesia