Make Money Trading Currency

As a full time professional fx trader, living and breathing forex markets my every awake moment, I get asked a lot "how to make money trading currency". This page will share some important currency trading secrets.

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 study success (success at anything), then one of the main principles taught by success teachers is to "study failure, and then don't do those things". This is very important! You will make a lot more money trading currencies IF you stop losing money.

Picture this if you will. You start your day and note on say EURUSD H1 chart (Euro versus US dollar: 1 hour per candlestick chart) that there has been a huge plunge of say 150 pips, and then things have leveled out for the next hour or so. I love these times, and I look for a rebound trade expecting that the Euro has been maybe oversold and could easily bounce back by 50 to 100 pips. On these days I will hunt with 5 lot trades and expect $2,500 (25%) for the day.

Now while it maybe tempting to buy then and there, I play hard ball with the "forex market maker" I will play against by putting in a pending buy order that will only get executed on a further, sharp dip. That is, the forex market maker I am going to take money from has not learned what I have learned. And I have learned the hard way that even though prices look great for a rebound buy, that there is almost always another sharp dip left in the pair just before it rebounds - and so I pick up my order on that dip.

But on the basis of NOT LOSING MONEY, I also cover my butt by also putting in place an equal trade size 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.

With proper use of stop losses (I won't go into detail about this here), what ever happens will happen, and shortly thereafter one of the trades will close out at a (small) loss but in fact I have lost no money because the opposite trade is in profit to that level.

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 :). If the dip has not been reached when I have finished my shopping then I am happy I missed none of the excitement. Certainly I have locked in my positions, just in case.

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 you must always stop trading entirely for the day if you have lost a total of 10% of your capital in the same day.

Let's discuss these 2 principles in more detail. Imagine I have a $10,000 trading account. That means that I must have stop losses set at no more than a $200 loss in a worst case scenario. If I am trading single, whole lots then my stop must be placed at no more than 20 pips - $10 per pip.

If I do this then I can never bust my account. If I lose $200 by being stopped out, then I have $9,800 left. And a 2% maximum risk for the next trade based on one full lot trade forces me to put my stop at 19 pips. If I lose again, then I have $9,610 left, and can go another trade with a 19 pip, 2% stop. As my trades continue to fail, my stops get smaller pips set, or my trades get smaller lot sizes.

Anyone with no brains or prudence can have their account wiped out. Profitable traders accept they are not God and that they will make bad choices from time to time. They use stop losses according to a discipline of never risking more than 2% on a trade. If you think your trade needs a bigger stop loss to breath, then I say you are not so sure about your trade.

Going back to my first example of the of the 150 pips collapse where I will set pending orders that will only execute on a dip, factor into that idea a stop that limits losses to 2%. Either way, one of the currencies will move sharply after a 150 pip movement in 1 hour. It may take several hours to occur, but it will stop moving sideways soon. Perhaps it will collapse again, or perhaps it will rebound. Either way, with your hedging trades you put in place you cannot lose more than 2%, and even then that loss is countered by your opposite trade.

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 that you know and it costs you money. Based on never risking more than 2% a trade, walking away if you lose 10% in a day gives you 6 consequtive loses in a row before you close your trading for the day.

To make money trading currency is not so hard IF YOU FOLLOW THE RULES.

Make Money Trading Currency

Rule 1: Don't lose money

Rule 2: Never risk more than 2% on a trade

Rule 3: Walk away if you lose 10% in one day (6 loses in a row).

To make money trading currencies begins with you not losing money! Yes, the proper way on how to make money trading currency does involve strategy, but be a winner first by stopping your loses first.