This is a guest post by Ahmad Hassam
Many new traders waste their money on buying expensive forex software while searching for a Holy Grail that can make them rich. But most get disappointed when the forex software does not work. In this article we will discuss a simple strategy that if properly implemented can turn $250 into $1M in 12-24 months. This strategy does not involve becoming a master of forex trading. But you need to have a some manual forex trading experience plus understand how the forex market works.
Using forex signals is a much easier method of trading forex. You don’t need to do complicated technical analysis. All the hard work is done by the forex signals provider team. You just need to enter the forex signals correctly onto your account and that’s it.
So, the first thing that you will do is search for a good forex signals provider. This might take some time on your part as you will need to test the forex signals on your demo account for at least one month. This testing will tell you whether the forex signals are going to work or not. There are many forex signal services, so make a list and test a few of them.
Suppose, you find a forex signal service that does work on the demo account. Again suppose the forex signals make on average 50 pips daily on one currency pair. Suppose it is EURUSD. 50 pips daily will translate into around 1000 pips per month on average. Now, suppose the stop loss size on average is 30 pips. You will need this statistic that you can get from the trades made during one month of demo trading.
Now, make a deposit of $250 to open a mini account. The most crucial part of any trading system is the Risk and Money Management System. This is where most new traders fail. What should be your position size? It depends on the level of risk that you are comfortable with. If you trade with a lot size of 0.02 lot and use a stop loss of 30 pips on a deposit of $250, your risk comes out to be 2.4%. And if you use a lot size of 0.04 lot, your risk will come out to be 4.8%. Suppose, you are comfortable with 5% risk level. So, we will use this lot size of 0.04 lot when we start trading on the mini account.
If the forex signals work well, at the end of the month, you will have made let’s say 1000 pips and the equity would be $250+$400(profit)=$650.
Trading on the mini account will be a good practice for you as well. In the second month, double the lot size to 0.08 lot. If the average stop loss is 30 pips, your risk would be 3.69%. So, in the second month, your risk will have reduced to 3.69% from 4.8%. Again, if the forex signals work well and there is no unexpected drawdown, you make a profit of $880 and your equity will grow to $1,530.
Let’s take the worse case as well. Suppose, there was a drawdown of 300 pips during the month. The forex signals did not work well during the month. How much did you lose? $240. Your equity will be in this case $410. But you had only invested $250, so you are still profitable.