Forex Futures Trading

Forex Trading : Protecting your capital requires proper position sizing

The real secret in trading foreign currencies is to focus on small losses and big wins. You don't have to have a super high win rate to make money. Instead try to always have very tiny losses and don't take trades where you don't feel the profits will be two times or more than what your risk is.  In a nutshell, you want to focus on maximizing your winning trades.

How do you make sure you don't have a big loss?

Luckily for you, that's easy part.

When trading, I typically place my stops over or under the previous swing's high or low. Use the previous swings low when you're buying, and the previous swings high when you sell.  Also, make sure to add a few pips padding to avoid unnecessary losses.  Proper stop placement is important with any successful forex trading system.

The next step is to decide how much, in percentage, you wish to risk per trade.

You want to risk no more than 2% maximum unless you're a professional trader.

If you risk only 2% per trade then you can lose five times in a row can only be down 10%. It's very easy in the Forex markets with a 30 to 50 pip move to make a 10% return. So one winning trade can bring you back to breakeven.

Being a probable and experienced trader, you will likely have many profitable trading styles and strategies. Most trading systems don't work more than 50 to 60% of time. Some systems have very low winning percentage but they find hugely profitable trades. It's perfectly acceptable to bet bigger on super high probability trades, i.e. the systems that have the highest winning percentage.

For example, if you have a system that is 70% winning, and everything on the chart points to a profitable trade, then instead of risking 2% on a trade you may decide to trade 3% or up to 5%.

Number of lots to trade = (Your account size X Risk % per trade) divided by (Stop in pips * Value per pip).

Say you have a $1,000 account and wish to risk 2%.  That's only $20.  If your stop is 10 pips away from entry than you can trade 2 mini lots.  A mini lot = $1 per pip so a 10 pip stop would be $10.

Pretty simple.

The #1 RULE in Forex Trading is to PROTECT YOUR CAPITAL!

The #2 RULE in Forex Trading is to FOCUS ONLY on trades where the LIKELY profit is 2x bigger than your risk amount.

How can you do this?

Easy, use Support & Resistance areas for setting likely profit targets.  When there are 2+ Support or Resistance areas in close proximity then this is called a Support or Resistance CLUSTER and is very likely to stall or stop a move and makes an ideal profit target.

About the Author

Chris Donnell teaches one of the most profitable forex trading system available to retail Forex Traders.

Signup for our 2 Week Free Forex Training course to learn our methods at no cost to you!

51. Maximize Trading Profits with Correct Position Sizing 2

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