As you know, the market of forex obliges least amount of capital to start your day trading, trades for twenty four hour a day as well as offering some potentials because of the leverage is already provided by some forex brokers. These following scenarios will show you the potential that uses a risk which is controlled by the strategy of forex day trading.
Risk management of forex day trading
Each successful forex day trader handles their own risks which is the most profitability elements. Keep the risk on every trade quite small about one percent or less is general. It means that if you get $2,000 account you must not lose more than $20 on a single trade. It might look small, but losses will occur and even a good day trading strategy will also see the losses strings as well. the risk then is handles by using a stop loss order.
The strategy of forex day trading
Whilst a strategy may have lots of components, and is able to analyze for profitability within a wide variety of ways, a forex day trading strategy is generally ranked based on its risk ratio or reward and win-rate.
Win rate is how many trades you have won out of given trades. Say that you win 45 out of 100 trades, then your win rate is 45%. While it is not required, having a win rate above fifty percent is somewhat ideal for most traders. 45% is unattainable and unacceptable.
Risk ratio or reward defines how much capital is going to be risked to attain particular profit. If a day trader losses ten pips on the losing trades, but they can make fifteen on the winning trades, then they are going to make more on winners than losers. Even if they just win fifty percent, they will still profitable. So that, make more winners is a component of strategy you should aspire.
a higher win rate actually means more flexibility with your risk ratio or reward that also mean your win rate is going to be lower if you’ve got high risk ratio or reward and you are going to be profitable still.
How much money can I make forex day trading?
Suppose that a trader gets $5,000 in their capital, and they also have a straight win-rate of fifty five percent on their own trades. It means that they will only risk around one percent of the capital they have, or about $50 each trade. It’s accomplished by making use of a stop loss. For this case, an order of stop loss is left about five pips away right from the entry price as well as the target will be eight pips.
These simple risks are controlled by strategy that indicates around fifty five percent as well as making more on winners rather than losers. Therefore, it’s possible to accomplish returns north of twenty percent each month. Most forex day traders should not expect to make it too much even though it may sound so easy but in fact it’s quite difficult.
Also read: how to build a winning trading plan