Double money in a month - theory on minimizing risk/maximize profit

Trading Systems Free Forex Trading Systems
1

I have an idea of how to double any sum of money over the course of month, and while in theory it sounds great, wonder how much weight it would carry. I’m in the process of testing it now on demo.

For example, let’s take a standard initial demo account balance of $5,000 (the goal is $10,000 in four weeks), with leverage of 100:1. Ideally, one would place a trade once a week with a goal of 50 pips. However, you’d set a stop loss of 25 pips.

When a trade seems appropriate for a currency weaker than the U.S. dollar, the first two weeks one would buy/sell two lots (therefore, no more than 40% of your money is at work). Assuming those trades are successful, the next two weeks one would increase their lots to three (now 42% of your money is at work).

In theory, it would look like this:

Week 1: 2 lots, 50 pip gain = $6000
Week 2: 2 lots, 50 pip gain = $7000
Week 3: 3 lots, 50 pip gain = $8500
Week 4: 3 lots, 50 pip gain = $10000

Of course, with losses inevitable, with stop losses of 25 pips, one would lose 10% of the total amount. Should that happen, also reduce the lots proportionate to the “40/42% at work”. Doing this, one successful trade could recoup a loss plus a little more (though two to reach the goal).

Any thoughts? Still a bit too ideal? Apologize if too complicated, but that’s who I am. Thanks for the feedback.

2

A few comments:

You’re risking far too much (10%! ouch if you should get three losers in a row!) and this kind of approach always ends with a blown account, sooner or later.

I’d recommend that you focus on the risk per trade and not so much what you can gain.

Also, a 25 pip SL will get hit quite easily so you’d need some sort of method for picking tops or bottoms to get in on, and as I hope you know, that’s among the hardest things to do in trading.

3

I agree with everything MacGyver said. No matter what your trading system is you’ll hit a losing streak eventually. When that happens your account is gone. :slight_smile:

Can you explain what you mean by “42% of your money at work?” I don’t get it…

I though you were talking about used margin at first, but the math doesn’t work out.

4

Just a theory anyway, sort of playing with the math a bit (my area of expertise). Anywho, how much “cushion” would you recommend if you were shooting for 50 pips in a trade? You could still lose no matter what, but what would be a reasonable stop loss in this case?

5

In answer to the question of “42% at work”, having hit $7,000 level after two $1,000 gains, you would buy three lots instead of two, buying no more than $3,000 worth of lots.

6

The answer we all hate: It’s different for each and every trade.

Many things like what time frame we trade, our entry method, etc affect the size of the stop loss.

7

Only one thing I disagree with MacGyver, Picking tops and bottoms is really quite easy. all you have to to is enter a buy and that creates a top and price plunges. Enter a sell and that creates a bottom and price rises… well that’s the way it works for me anyway…

:eek:

(weekend humor alert)

but seriously… that’s over leveraging, if you are a beginner like me, you’ll be lucky not to loose half your money the first week. (now on the slow road to recovery)

8

The math always looks good but having a system in place to achieve that math is another story. You’ll see even the most tested systems do have losing trades and larger risk would increase your drawdown, even wipe out profits from before.

I’ve new also but have been playing with the rule of risking no more than 2% per trade. Still takes some time to get that math down but slow and steady. Many of the threads I’ve read on management of money suggest the hastier road to profits results in quite a disheartened trader. If I intend to make this a full time job I’d like to get it right while I can.

9

Math is most definitely not my area of expertise. :slight_smile:

I still don’t see where you’re getting 42% from those numbers. I’m not saying you’re wrong, I just don’t understand what you’re saying. :smiley:

10

3 lots = 3000
3000 is 42% of 7000

actually its 42.857142857142…

interesting, one of those repeating decimals where the 857142 part repeats to infinity. Infinity is an interesting subject, did you know that some infinities are bigger than others.

11

I do, indeed. Infinity itself is not a number, but a limit.

Anyway, as to me risking that percentage of money, 10%, yes it is a lot. However, my goal is 20%, want to keep a risk/reward ratio of 2:1. I don’t plan on going live for several months, want to refine my system and risk management. I have big financial goals via FOREX and am determined to fulfill them; however, want to prepare well.

12

Well one thing good going for you for sure is you’ve got a vision of what you’d like. No doubt it’ll be hard, everything takes work. Just stay motivated and prove the naysayers wrong :slight_smile:

13

Ah! I see it now. It was so obvious I’m not sure how I missed it…

Thanks Talon. :slight_smile:

14

I agree. Personally I don’t think you’ll meet your goal, but I’d love for you to prove me wrong! :slight_smile:

You have a good attitude about it (unlike many others), so as long as you’re demoing it first and not risking real money I say go for it! You’ll ether succeed and prove it can be done, or learn it can’t and not lose your money, so whatever happens there will be a good outcome. :slight_smile:

15

I don’t think it will go nearly as smoothly as a mathematical system, but I don’t think I’ll lose everything. My end goal is over $1 million dollars in 12 months, though realistically it may take 2-3 years. On a subjective note, I want to be an inspiration to those in and out of FOREX that anyone can live their dreams.

16

Totally get where your coming from.

Im a ‘Begginer’ myself. Now 1 Year 8 months into trading. Ive lost I reckon 1,000 dollars. Sounds horrendous, but it was drained rather then threw away on the most part. I think that in fairness, it could of gone the other way. And id be sitting on 10,000 plus easy. Just the way the cookie crumbles.

The main things that ive learnt from trading in that time?

  1. Never, ever, ever give up. Realise that dream. it is possible. you can do it. sure the statistics are against you, the market wants to eat small fry like you. It will eat into your time, your life, people will be bored hearing about forx and how the price done this and that. Never give up. Live the dream because even though the chances are slim. if you get it right. life will be very different.

  2. Patience is king. end of. forget everything you know, patience is king. I cant count the amount of trades i rushed into as a beginner, even with a system in place that previously worked. I didnt stick tyo it 100%. If I had taken all that money and time and trading ive done over my trading life. Wait for that trade. Stare at that damn screen till your eyes hurt. Keep that finger off the mouse. Wait. wait. there it is. BANG. money made. its almost like taking candy from a baby.

  3. you have to have an edge. everywhere you read you read about this ‘edge’. Its almost farsicle. everyone talks about it but doesnt explain what the hell it is. The reason is? it totally depends on what you ‘percieve’ to be an edge. Anything which takes you over that 45% (its never 50/50 trade due to spread) into the 55% area, anything, be it a trend following ema, jumping in on spikes, anything. add to your plan to just take you over.

  4. its harder to hold onto money then to loose it. The key to trading. is the perception of trading to YOU. not to other traders. Not to what the boss of some bank says. The market is relevant to YOUR eyes only. What you see in the market determines what you will do. know when NOT to trade. and youll save money, that may add to your ‘edge’, taking you over that threshold.

  5. Your trading plan doesnt have to be complicated. Take a 21 EMA. stick it on your screen, look at it. stare at it. it wiggles up and down. Now look at the price. See what the price does when it crosses that line in a way of a BIG drop and a BIG rise. Not simply flowing over it. Now if your patient, and you wait for that BIG drop. And you sell or buy in that area only as soon as it crosse that line in the direction, and your take profit is always more then the loss also covering the spread. youve increased your chances. But you have to trade on the big drops only. Its patience. and knowing when the lines horizontal, watch out or dont trade. Its perception of the factors that makes it hard. Its sticking to the regime thats hard. Its doing the same thing minute after minute, day after day thats hard. Its sticking to the plan even when YOU can see the price making big moves but it hasnt crossed that line. Thats the hardest thing. Fighting you.

  6. Compounding. Its fricken great.

Anyhows, just my 2 cents, prolly worth not much, but hey.

Best of luck dude. seeya on the battlefield.

17

Short answer, forget it.

Longer answer, there’s a reason any trader suggest 1-2% risk and that’s to protect assets you’re trading with. 10% risk only needs a string of draw downs (3-4) to get you 30-40% down. You can do the math how many times you need to win to get that loss back. It’s a losing proposition because even the best traders will have those 3-4 losing trades in a row.

The angle you should have is find a system that over time proves itself and use the power of compounding to ultimately get you to that 1 million. It will take much longer, but it’s guaranteed results over 10-20-30 years.

Big draw downs equals account busted in a short time. But don’t take this from me, read any book out there by established traders and they will tell you the reality of the markets.