Lesson 3 - Forex Trading How To Make Your First Profitable Trade For Minimal Risk

Forex Lesson

It is undeniable that you can make a consistent income from forex trading.

However when you first start you need to have an understanding of two areas of trading.

  1. How much of my hard earned money is at risk?
  2. What's the simplest way to make consistent profits?

Over the next few chapters I'm gong to help you understand both of these, and in the process help you to start to make some money from forex trading, without risking too much of your own hard earned cash.

How much of my hard earned cash is at risk?

Firstly there are two may ways to trade, depending on your method of trading determines how much risk.

  1. Conventional forex trading using an app called MT4 or MT5
  2. Binary trading using a website like pocketoption.com 
CONVENTIONAL FOREX TRADING

When trading using conventional methods like MT4 or MT5, traded are placed using lot sizes. To determine risk you also need to understand PIP (percentage in points) movements.

What Are Lots?

Lots start at 0.01 and depending on your broker go up to 100.

Depending on the currency and PIP move depends on how much is at risk or how profitable you are...

What Are PIPs?

PIPs are the standard by which forex trading determines price movement.

In general terms the last decimal place visible on the currency is a point movement. A PIP is when price has moved 10 points.

A lot size of 0.01 at a PIP move of 1 is the equivalent of 10 cents. So a lot size of 0.10 with a 1 PIP move is $1.

The USD is the major currency so most brokers will create your accounts in US dollar.

To determine the amount of risk, to your account simply calculate how much you want to risk in terms of PIPs and then set the relevant stop loss.

Example:

 

 BINARY TRADING RISK MANAGEMENT

Binary trading is setup differently in terms of how you manage and calculate the risk on a trade per trade basis.

In its simplest form, whatever dollar amount you place on the trade is the risk of that particular trade.

This is because Binary trading is a little more clear cut in how a result is determined.

With each forex currency a percentage return is given. 

So, if you place a trade of $1 on a 80% currency, you would be risking $1 to make $1.80.

Don't Overcomplicate Your Trading Strategy...

Starting out it is easy to throw yourself into the deep end and over complicate what can be a simple process.

The easiest strategy to follow when first starting out is to use the moving average cross over strategy.

THE MOVING AVERAGE CROSSOVER STRATEGY

This strategy uses the principle of calculating two moving averages on your chart for your timeframe, and when they crossover place your trade.

Setting up this strategy, is simple.

On MT4/MT5 insert an indicator called moving average, in the period input enter 20. Insert another indicator called moving average and in the period enter 200.

There are a few other options in both which you can choose. My personal preference is  MA Method of smoothed and apply to close.

Once both are setup, the rules are simple:

  • Once the two indicator lines cross place the trade
  • If the candles are above the moving average place a buy
  • If the candles are below the moving average place a sell
  • Depending on the instrument you are trading depends on the take profit and stop loss, however my rule of thumb is 5 to 1.
  • So if I am risking 20 pips on my stop loss my take profit will be 100 pips. This means that I can be right once in every 5 trades and still make money.

This method is extremely simple. However, practice it and never risk money you cannot afford to lose.

THE INDICATOR STRATEGY

Ok, yes this is a shameless plug for my indicator, however this method has proven results of over 70% success rate.

Using the indicators on indices like US30, UK100 or US100, we are able to capture 10 to 1 trading ratios.

The simplest part is you don't need any trading experience to make use of this method as well.

Simply attach the indicators and once you get the particular indicators on 1 hour or 4 hour time frames place your trade.

We have some users who use the indicators on the smaller timeframes a little more aggressively to scalp the market over a couple of minutes.

This means they are able to get in and out of the market without risking too much of their hard earned cash.

Review

Which ever method you use focus these simple steps first:

  • Understand your PIPS
  • Become Competent With Risk Management
  • Practice On Demo
  • When You Think You Are Ready Practice Some More
  • Don't Risk Money You Cannot Afford To Lose
  • The Ratios Are In Your Favour So If You Lose A Couple of Trades Take A Deep Breath And Review What You Could Improve
  • Finally, Enjoy Yourself