by Phil Jarvie
You can make big money, specifically you can make money trading currency IF you follow some simple rules. Break these rules and you are a loser with a capital L, but follow them and you don’t need a degree or rocket science to be a winner and full time 4x trader like me.
The first rule will sound silly, but the first rule to make money trading currency is DON’T LOSE ANY. Yes it sounds silly, but far too many 4x traders forget this fundamental rule.
If you are into Forex, you are saying you are into making fast, leveraged profits. It therefore should make sense to you that to make money trading currency, your study should also include how to not lose money trading currency. Study losers and avoid their habits.
Candlesticks make a useful tool. They break down into time sized parts what has been happening. You wake in the morning and see a 170 pip drop in the Euro versus the USD. Time for a rebound, or a further collapse – to me nothing is more boring that a market moving sideways.
Human emotions come first – the first thought is to buy. Get over it. I am a machine when I trade. I never care about missing out on a trade; I only care that I never lose on a trade. So, I picture in my mind the currency market maker that I am going to take many thousands of dollars from. I play the man who is weaker than me in this money making sport! He is tempting me to buy now, but I say (in my mind) nope, I will only buy on a further dip.
But on the basis of NOT LOSING MONEY, I also cover my butt by also putting in place an equal trade size of Sell Stop at the same or near same price. That is, I put in place 2 pending orders that carry/equal/cancel out each other. Two things can now happen, either the currency pair completely falls out of bed, in which case my short position is in the money, or I was right about the bounce and my long position is in profit. Of course the other trade executed at the same time cancels out any profits.
And I have each trade with a stop loss that is set at 2% of my account balance. Eg, 20 pips if I am trading 1 pip lots on a $10,000 account. One of these trades will be stopped out. On face value it looks like I therefore have lost 2% of my account, but think about it more carefully – I have lost nothing because the opposing trade is 2% in profit.
Crazy as it may sound, but I use this strategy when I know I must go out shopping but don’t want to miss out on the trade 
.
This matter of not losing money however raises the issue of correct money management. Never, and I do mean NEVER have more than 2% of your capital at risk in a trade. And stop trading entirely for the day if you have lost a total of 10% of your capital in the same day.
Some people cannot for some reason understand what a 2% maximum risk is calculated. Just grab your calculator and multiple 0.02 by your account balance. 0.02 x 10,000 = $200. Full lot trades are $10 per pip, so $200 is 20 pips. Mini lots are $1 per pip, so $200 is 200 pips.
By applying the 2% rule to my maximum risk per trade means I can never bust out my account. Each trade I lose means the dollar amount of my next risk is smaller.
OK, next point – walk away if you lose 10% in a day. I can’t remember the last time this happened to me, but it is a rule I will always follow. The simple fact is that some days you just cannot put a foot right. Everything you do just crosses over everything you know and costs you money. Based on never risking more than 2% a trade, walking away if you lose 10% in a day gives you 6 consecutive loses in a row before you close your trading for the day.
Summary on how to make money trading currency: Rule 1, don’t lose money. Rule 2, don’t risk more than 2% on a trade. Rule 3, quit the day if you lose 10% of your account.
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Mar 28 2010