Jan 152014
 

Forex Day Trading with $1000 (or even less)

Forex Day Trading with $1000 (or even less)Forex day trading with $1000 (or even less) is possible. It even offers good profit potential, because you can control your position size down to  precise levels, and also take advantage of leverage. When trading stocks, this is a bit more difficult. You need to trade larger amount of shares. Plus… in order to establish and maintain a day trading account in the US you need to have a minimum capital of $25,000 in the “pattern day trading account”. Forex accounts allows you to start day trading with $1000 or even less. That does NOT mean you’ll be able make a consistent living from your forex trading right away, but you can build your account by following proper risk management, using a broker that offers low spreads  and placing a few quick, but well planned  day trades in the span of a few hours. Here’s a strategy for doing it.

 

Trade Setup – Account Type and Forex  Broker

If you are  trading with less than $1000 and you still want to increase the size of your account quickly I would highly recommend trading through an ECN broker. They offer very small spreads in general as well as trading on a short time-frame (such as a 1-minute chart) with a trend following strategy.

I like using an ECN broker because I can capitalize on short-term opportunities and still manage my risk. Using a normal broker with a 2 pip spread on the EUR/USD means that you’re paying 4 pips to get in and out of a trade. If you are trading a mini lot, each pip is worth $1, so that trade is really costing you $4. It is an opportunity cost, because it eliminates the possibility of you making those four pips. On the other hand, my ECN broker charges  about $2.5 on 100K, so a forex mini lot (10K) only costs me about $0.25 to get in and $0.25 to get out (that’s only $0.50 in total). A micro lot (1K) only costs about $0.05 to get in and out.

So my ECN broker  is way cheaper. During active times, such as during the US and London session the spread is typically around 0.1 pips (and quite often 0 pips).  if you open a demo account and make a  few trades you’ll see that it’s a huge advantage when you don’t  havin to worry about the spread.

When dealing with an account less than $10,000 (and especially $1000 and under) always make sure you have the ability to trade micro lots, also referred to as “0.01 lots”. Micro lots give you the ability to really fine-tune your position size and risk.

I also recommend using 40:1 or 50:1 leverage. You’ll see why later…

Why trade the 1 Minute Forex Chart?

With no spread, I can actively trade price waves which are usually about 8 to 15 pips from start to finish. I set a profit target of 6 to 9 pips (potential more on certain trades), and a stop loss of 3.5 pips (maximum, but can be reduced once the price moves in my favor) and am able to trade those price waves you see on the 1-minute chart during the London or early US session. If paying a 1 or 2 pip spread, this is virtually impossible, because just by getting in and out half the price move is eaten up.

I believe in never risking more than 1% of capital on a single trade, which means if I trade off a 15-minute chart I may only get a couple trades in each day, and I need to spend most of my day watching to make 4% maximum (if I win two trades with a 2:1 risk-to-reward ratio). Now 4% is a great daily return, but that is best case scenario. Now, check out a 1-minute chart in the EUR/USD and you’ll often notice these nice rhythmic and repeating trends during the London and early US session (don’t trade around major news alerts!). When you don’t have to worry about the spread you can get about 4 to 6 trades in within a few hours. Let’s assume you win all those trades, your looking at a 12% gain in a matter of a couple of  hours (assuming all trades win and a 2:1 reward to risk).

It’s ridiculous to even assume you’ll win all your trades and make 12% per day. You will NOT, but your upside potential is greater by taking a few more trades (which are still high probability though), confining your trading to a few hours only and being able to capitalize on the 8 to 15 pip waves that occur regularly during the London and early US Forex session.

Also, by trading on a smaller time frame you can still risk 1% of your account and try to make 1.5% or 2% on the trade (1.5 or 2:1 reward-to-risk), which means you potentially make a 1.5% to 2% profit (on your account) in 10 or 15 minutes instead of a couple hours trading a longer-term forex chart. The small time frame combined with well controlled risk also allows leverage to be utilized effectively to produce an income.

Forex Day Trading with $1000 (or even less) – What to expect…

If you really put in some work on a demo account practicing strategy implementation, and stick to not risking more than 1% of your account, you can steadily grow a $1000 account day trading forex, and potentially even make an income from it.

Assume a win percentage of 55% (with strategy implementation + refinements, this can be increased over time), 4 trades a day, and using a stop of 3.5 pips and a target of 6 pips. I actually find 7 to 9 pips to be quite realistic using a trend following strategy on the 1-minute EURUSD chart, but to be conservative we’ll use 6 pips.

If you trade your $1000 account for 20 days out of the month, and use a fixed position size of 27 micro lots (which keeps risk below $10 or 1% of the account), here’s what you can potentially make in a month:

20 days X 4 trades = 80 trades

55% of 80 trades are profitable = 44 winning trades and 36 losing trades

A winning trade is 6 pips ($0.60 per micro lot) X 27 micro lots = $16.2

A losing trade is 3.5 pips ($0.35 per micro lot) x 27 micro lots = $9.45

Winning trade total is 44 trades X $16.20 =  $712.80

Losing trade total is 36 trades X $9.45 =  $340.2

Monthly profit (excluding commissions) is $712.80 – $340.20 = $372.60

Total commissions are 80 trades X 27 mirco lots X $0.05 (round trip) = $108

Monthly profit (including commissions) is $372.60 – $108 = $264.60

Forex Day Trading with Less than $1000 – 26% per month!

That is 26% per month. That seems very high, and for most traders it is. Take a step back though and realize leverage is being used extensively. The account is only $1000, but we are taking positions of $27,000 (the 27 micro lots). In other words we are leveraged 27:1 to make these returns. Therefore, the account should be leverage about 40:1 or 50:1, although there is no need for more leverage than this. Without leverage you’d be making less than 1% a month because you couldn’t take the larger position size, but with leverage you make 27%. Trading this way allows leverage to be utilized effectively to increase returns.

I have no problem with leverage because each trade has a stop loss on it and I never trade within about 5 minutes of news releases. Therefore, while I may get some small slippage on the odd trade, it is very unlikely the slippage is even enough to hurt my trading day, let alone the account (but yes, it could happen). I also generally only trade the EURUSD (or other very popular pairs) during the late London session or early US session when liquidity is at its peak.

My broker also provides a MetaTrader plugin which automatically places stops and targets. I set what I want the stop and target be (in pips) and when I enter a trade the stop and target are automatically set. If I want to adjust the target slightly once in a trade I can just drag the order to the price I want, right on the chart.  I strongly encourage this type of plugin so risk is controlled as soon as the order goes out, and trades can be made very quickly.

Forex Day Trading with Less than $1000

It is unlikely most traders will ever reach a level where they can make a profit of 26% per month (even with the use of leverage), even though the simple math here makes it look considerably easy. The point is, it’s possible to make a consistent and also  large return even with a $1000 account.

I strongly believe you do actually need to control your risk and keep it small – risking 1% of your capital or less per trade –  in order to make good and consistent profits. By using an ECN broker and placing your trades on a very small time frame, you can make about 4 to 6 trades within a few hours. Since the risk is kept quite small (about 3 to 5 pips) you can increase your position size with leverage which allows for larger returns overall (including added risk), assuming of course your trades are  profitable overall.

START Forex Day Trading with Less than $1000 TODAY with our:

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Cory Mitchell, CMT

Dec 022013
 

Successful Day Trading1. Successful traders stay neutral:

Staying neutral means to be emotionally detached from your trading decisions. I’ve met many day traders that were emotionally suffering for the rest of the day after losing $100 or even less and when they made $1000 they would be “on top of the world”. They are definitely not trading neutral.

If you are like that, then your trading will definitely be driven by fear and greed; if you are down $100 you probably don’t want to take a loss, just because you know that you will be emotionally suffering. If you are up $1000 you might want more, even though you should take profits. Or you might end up taking profits way too early because you are afraid that the position might turn against you. The professionals don’t let the day-to­day oscillations in their account faze them. The results of one week don’t matter much, not even the monthly results. It’s just a small blip of time in their career, so the day-to-day oscillations don’t really matter. Emotional ups and downs are pretty normal for beginners. If they influence your trading decisions too much, then I would strongly advise you to go back to paper trading in order to gain the confidence you need to not let those oscilla­tions affect you too much.

Staying neutral also means to see the price movements like they really are, not how you want them to be. You might all know the situation where a trade is going against you, and you start looking for other reasons why it is still a good trade and you should hold it. This is very dangerous since it leads people to breaking their stops and to lose big. Your entry and exit crite­ria has to be absolutely clear before you make a trade. Switch­ing strategies while you are in a trade is one of the worst things you can do. You can always find a reason for your position to go up or down, but you don’t see the actual price movement anymore. You are shifting from reaction to prediction! A day trader should under no circumstance try to predict future price movements. As traders we have to play the actual price movement, not what we think the movement should be! Please leave pre­diction to investors. A lot of times I see traders taking positions in stocks they know very well fundamentally. They mix trading with investing. This is very dangerous too. While there might be reasons to enter a position for a short-term trade they often end up holding it as an investment if it goes against them. Just think about Enron.

Yes, there were points during the Enron sell off where a trade would have been justified. Even I held Enron for a short recovery from about $8.5 to $10. The problem is, that if you base your entry on the belief that the company is cheap and it has to recover, you will be more and more inclined to hold your position or even add to it once it goes lower. The stronger your opinion on a stock, the harder it is to make decisions based on the actual price movement. I would strongly advise you to have a separate account for fundamentally based trades. A day trading account gives you too much leverage, making it very tempting to take risks that are way too high!! I am not saying that it is not good to have expectations; everyone should know what his potential trades are most likely going to do. Should those expec­tations be wrong though, then we have to accept that and react according to what is really happening.

2. They are not afraid to place a trade:

Fear or a lack of confidence in your trading decisions makes it hard to enter trades in the first place. You will often find yourself letting good opportunities pass by, or you are waiting for additional confirmation that the stock is going your way, which makes you enter trades too late and you end up chasing the stocks; often getting in at the end of the movement. Fear of losing money makes it harder to take losses. To much fear will either make you not take losses at all and cause significant draw downs, or it will make you take losses to soon, before the actual stop price was hit. Confidence in your ability to make good trading decisions will help you to be patient since you know that eventually there will be good opportunities. Traders with a lack of confidence tend to look for different trading strategies every time something goes wrong for them. They are therefore never able to focus on one strategy and master it. Even if you are a experienced trader you might lose some confidence once in a while. Go back to paper trading or to trading small shares in order to get yourself back on track.

3. Successful day trading –  only use risk capital for trading:

If you are day trading with all the money you have without having another income you will be way too scared in order to make any neutral decisions. There is a saying that scared money never wins. I have yet to see a trader who was able to live off a 5K trading account without any additional income.

4. They focus on a few strategies that suit them well:

Many traders try to implement too many strategies at once. They think they have to make money every day. The most suc­cessful day traders I know only have a few strategies that they are highly successful with, sometimes only one. The goal is to find a strategy that YOU are comfortable with and to master it. This won’t come overnight. Of course you need to have a look (and try) different strategies until you find something that you are comfortable with. Keep in mind that no strategy works in every market. Therefore it is normal to sit on the sidelines every once in a while. You don’t have to make money every day. The key is to only trade when the odds are in your favor and to stay in the game. Once you have established a “bottom line” strategy you should slowly move on and implement other strategies.

5. They are patient:

This starts with patience in your learning process. Take time to trade on paper for a while. You will make mistakes and it will take time to get comfortable with your trading decisions. Please make your mistakes on paper; this will keep you in the game. If you absolutely want to trade live right away please do so with a very small amount of shares. You can make a lot of mistakes if you are trading a small amount of shares. If you use your full buying power though one blown stop can wipe you out. I have yet to see a trader (including myself) who didn’t blow a stop at least once!!

Patience to wait for trading opportunities is very important too. As stated above, not every strategy works every day. You might have to wait a while to find a good trade. It can also happen that you have a losing streak. A good trader will not worry too much about that and will do something else. Sitting in front of your computer trying to make back losses is the worst thing you can do. I would strongly advise you to set maximum losses per day, week and overall. Stop trading immediately if your maximum losses are hit. Remember, as long as you stay in the game there will always be another day with new opportunities.

6. They are great money managers:

A good day trader will never risk more than 2% of his trading capital on a single trade. This means that if he has to take a stop, the amount of money he is wiling to lose will be no more than 2% of his capital. 2% is the absolute maximum. You should attempt to risk less than that. The reason why this is so important is that even if you are right 99% of the time you can still lose 10 times in a row. Every once in a while this might happen to you. Only if you risk little money you will be able to survive such a draw down.

7. Successful traders – Trade with Confidence:

I believe that trading with confidence is by far the single most important secret to successful day trading. The most successful traders I know only use a few basic strategies based on simple technical analysis, candlestick charts and chart patterns.

What made them so successful was the confidence in their trading strategy, their ability to stay neutral and to execute their trades according to what they see.

Learn more about successful day trading in my free day trading ebook.

Disclaimer: Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risks. You must be aware of these risks and be willing to accept them in order to invest in these markets. Don’t trade with money you can’t afford to lose. This article is for educational purposes only.

AZ6ZCMHMPQHW

Oct 102013
 

Master Day Trading Course

 

Download The Complete Master Day Trading Course here.

Introduction:

The Master Day Trading Course is designed to introduce you to the exciting world of active trading. Active trading means to actively participate in everyday price movements of the financial markets. Active trading enables you to actively manage risks and to participate from both rising and falling prices. The trades I am describing in this book can be from as short as a few seconds to as long as a few days. Many of the strategies can be applied to various timeframes. The difference between active traders and investors is that active traders trade the actual price movement versus investors who make their decisions based on the anticipation of future price movements. I tried to make this book as complete as possible. However, you will find as many strategies as traders. As you gain more experience you will realize that most strategies are based on the same basic principles and that there is really no holy grail out there.

I have been trading and coaching for many years now. The need to be independent certainly was the biggest reason for me to enter the world of trading. In what other job do you have the freedom to work from anywhere in the world where you have access to the Internet? I started with investing but always felt that there has to be more to the stock market. That’s when I started watching quotes in real time and realized how big the profit potential must be if I could just cut out a small piece of the everyday movements. There are many obstacles to conquer though in order to get to a consistent success. A solid strategy, a neutral state of mind and rigid risk management are only some of the key traits needed to be successful.

Whether you are planning to trade full time or just part time, this book will give you very valuable insight into the whole business. Even if you are just planning to invest you should read this book and take some of the basics of technical analysis into consideration when making your next decisions.

Types of charts:

The most common way to display charts is the line chart fol- lowed by the bar chart. In the bar chart the vertical line marks the high and low, the left horizontal line marks the opening price and the right horizontal line marks the closing price. If you selected a 5 min chart, that means that each bar reflects the price movement of only 5 minutes. In a daily chart each bar/ candle displays one entire days movement.

The type of chart used most by active traders is the candle- stick chart. This type of chart has been in use for over 100 years and has its origin in Japan. It is also referred to as a Japanese candlestick chart. The color of the candlestick itself tells us if there was an up – or downtrend in that par- ticular timeframe and makes reading them very easy. There are also numerous indicator based on the shape of the candlestick itself. I will talk about the most common ones later.

The following candlesticks are open candlesticks, meaning that their opening price was lower than the closing price and therefore reflect an overall uptrend in the timeframe you selected. The color used here for an open candlestick is green; sometimes people will use white instead.

If the opening price was higher than the closing price you get a closed candlestick that reflects a downtrend. The colors used are usually black or red.

The vertical line on the top of the candlestick is always the high, no matter what color the candlestick has. The line on the bottom always marks the low. These lines are also called shadows (upper/lower) or tail. There might be no shadows at all if the opening price marks the high and the closing price the low or vice versa. The colored part is always referred to as “the body” of the candlestick.

The pivot setup:

The pivot setup is a reversal setup that I am looking to trade long (buy). It is taking place on a 15 minute chart. Once in a while I will also trade it based on the daily chart. I am looking for a stock that is in a strong intraday down trend that extends over a few 15 minute candlesticks. After this sell off I will be looking for a consolidation marked by one or more candlesticks with a tight range. Preferably there will be a doji candlestick (see candlestick indicators) forming, which is a reversal indicator itself.

My buy entry criteria is met once the high of the current candlestick goes over the high of the previous candlestick. The initial stop is set below the low of the previous candle- stick, which is ideally the intraday low. The more narrow the range of the candlestick prior to the entry candlestick is, the smaller my stop! I will only trade this setup if the stop is small enough for my risk tolerance.

Sometimes the chart can be a little irritating. Make sure that the stock has actually fallen a significant amount to justify an entry and there is enough potential. My criteria is that the stock had at least a $2 sell off, unless it is a low priced stock. Remember, a

$2 sell off leaves you with $2 room to the upside whereas a $0,5 sell off only gives you that amount. In case the stock is not re- versing it might also be shorted (see continuation pattern).
Note: Recently the pivot pattern has worked best after pull- backs (price decrease) in stocks that were in an overall uptrend and up for the day itself. This scenario is less risky as well.

Continuation patterns:

Continuation patterns are trend-confirming setups. They can occur in virtually every timeframe. I was especially successful using this setup based on 15-minute charts. Continuation patterns allow you to find an entry in stocks that are already in a trend and moving. I find the pattern equally interesting for both longs and shorts. My example here describes a long setup. Again, vice versa is true for shorts. The pattern consists of three candlestick bars:

A wide range bar (a candlestick with a relative large range in which the lows are near or at the open and the highs near or at the close of that particular time period).

A narrow range bar (a candlestick with a small range). The candlestick has to be in the upper half of the first candlestick and the high can only be slightly higher than the high of the first candlestick. Ideally, the range is in the upper half (or higher) of the first bar and builds a doji candle, which serves as an additional continuation indictor in this example.

A breakout bar that breaks above the highs of bar 1 and 2 and signals the entry.

Trade Management:

For most traders entering a position is no problem, the exit however is by far more difficult. I use four different types of exit strategies for my trading:

The initial stop: The initial stop is your insurance against big losses and by far the most important aspect in trading overall. You should never enter a trade without knowing exactly where your initial stop is. Not keeping stops is the biggest reason for potential failure.

Partial gains: Taking partial gains means to sell part of your position after the first “reasonable” move in your favor. A reasonable move would be a move into a resistance area (for longs). This resistance can be of technical nature or of psychological (whole number resistance). Partial gains play an important role in my trading. I have seen many of the most successful traders using this concept. Taking partial gains is especially powerful in conjunction with setting the stop for the remaining shares to breakeven. Many traders have trouble with letting profits run. Taking partial gains can be a tremendous help because of it’s very positive psychological influence…imagine being in a position where you already took partial gains and the stop for the rest of your position is set to breakeven…you can let profits run without having to be afraid of potential losses.

The breakeven stop: This stop is getting interesting once your trade is inside positive territory enough so that you won’t end up loosing on it, but there is still more room for potential gain. Breakeven means to set the stop just below the price where you initially bought the stock or where your entry price was set at.

Keys to success – psychological aspects:

I believe that the right state of mind is by far the single most important key to successful trading. Yes, a solid strategy is an absolute necessity too; but without being in the right state of mind it won’t make you successful either. I state in the “philoso- phy” section of my website that I don’t think trading needs to be complicated and that keeping it simple is the way to success.

The most successful traders I know only use a few basic strate- gies. What made them so successful was their confidence in their strategy, their ability to stay neutral and to execute accord- ing to what they see. Other people I met had very sophisticated and complex approaches using several indicators. And guess what, a lot of them were successful too. I doubt that the indica- tors themselves made them successful though; more important was their confidence in their strategy. Some people can only work with very sophisticated approaches just because they don’t believe that simple things work. They say: “it can’t be that easy”. My point is that there are many approaches. I don’t want to judge whether one is better than the other. As long as they work for you the goal is achieved. No one holds the Holy Grail to success. Personally I don’t like advanced technical indicators too much. The reason is that there are too many variables that can be adjusted. I like to get clear entry signals based on abso- lute prices (i.e. highs and lows), which I am not able to alter.

This gives me less room for personal interpretation and more clear signals.

Going back to the mental aspects, I would like to point out some of the key traits of successful traders:

1.They stay neutral:

Staying neutral means to be emotionally detached from your trading decisions. You probably know guys for whom the world sucks if they take a loss of $100 and if they make $1000 they are on top of the world. They are definitely not neutral.

Disclaimer:

THE RISKS OF DAY TRADING

This book is dedicated to providing sound and proven trading techniques and support for those who wish to enter the business of day trading. Most of those who attempt to day trade are thwarted by their own lack of understanding and discipline. They have no rules and lose money trying many unproven strategies.

None of the techniques discussed in this book should be undertaken without extensive study, back testing and paper trading analysis. The author makes no warranties or guarantees to the content or accuracy of any information.

Please be aware that the risk of loss in electronic trading can be substantial. You should therefore consider, whether such trading is suitable for you in light of your circumstances and financial resources.

Potential Daytraders should be aware…

That day trading can be extremely risky. Customers should be prepared to lose all of the funds that they use for day trading. They should not fund their day trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership or funds required for current income.

That customers should be cautious of claims of large profits from daytrading. Customers need to be wary of advertisements or other statements that emphasize the potential for large profits in day trading. Day trading can also lead to large and immediate financial losses.

That day trading requires knowledge of securities markets. Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through daytrading, an investor must compete with professional, licensed traders employed by securities firms. An investor should have appropriate experience before engaging in day trading.

That day trading requires knowledge of a firm’s operations. An investor should be familiar with a securities firm’s business practices, including the operation of the firm’s order execution systems, procedures, and should confirm that a firm has adequate systems capacity to permit customers to engage in day trading activities.

That day trading may result in large commissions. Day trading may require an investor to trade his or her account aggressively, and pay commissions on each trade. The total daily commissions that they pay on trades may add to losses or significantly reduce earnings.

That day trading on margin or short selling may result in losses beyond the initial investment. When customers day trade with funds borrowed from the firm or someone else, they can lose more than the funds originally placed at risk. A decline in the value of the securities that are purchased may require additional funds to be paid.

Download The Complete Master Day Trading Course here.