Small Capital Forex Strategy
Most beginners that decide to try themselves out as traders on the foreign exchange market do so without access to a large number of funds, the maximum being in the $50-$100 range.
In this case, there are two ways of approaching this issue.
The first is to trade in small volumes, gradually increasing the deposit.
The second — to immediately start trading in substantial amounts and grow the capital at a very quick rate.
Both options come with their own risks and benefits, so it’s entirely up to the trader to decide was is best.
Obviously, the first option is less risky, but in order to see a noticeable profit, it will take a while, and no one can give you any guarantees that you won’t experience drawbacks and lose more than you earned in that time.
Trading in small volumes is considerably more suitable for those traders who have the funds, but do not want to risk them, as they are not entirely confident in their trading abilities yet.
The second option comes with increased risk, but there is a chance to actually significantly increase your available capital in a relatively short time frame.
There are quite a few examples of traders multiplying their investment capital several times over after making successful big stake transactions.
Truth be told, as risky as it is, multiplying your investment capital quickly is entirely possible, however, there are a few important moments without which you are doomed for failure:
- Set real and achievable goals. You are unlikely to make $10,000 out of $100, so have realistic expectations;
- Not all brokerage companies allow scalping, so open an account with those that allow for such strategies. At the same time, do not forget to specify the minimum transaction time via the broker’s technical support, as they can occasionally change the terms of trade;
- Withdraw your profits every now and then. Never forget to make reserves;
- Your luck isn’t infinite, once your capital reaches the 4-digit length, transition towards strategies that are less risky;
- Use the “Pipsing” strategy based on the Stochastic Indicator mentioned below, as it is one of the best and quickest ways of accelerating trading income.
Currency pairs – EUR/USD, USD/JPY, USD/CAD, GBP/USD, AUD/USD, EUR/GBP, EUR/CHF, USD/CHF.
The timeframe you want to use is M1, with the duration of the transactions rarely exceeding more than a few minutes.
One of the advantages of this strategy is its relative simplicity, as all trading is based on repeated fluctuations that are easy to identify and follow using the two methods mentioned below.
The first is by building a price channel on the M1 time frame. If it’s possible to draw a clear price channel, you can trade in both directions.
The second method involves opening a parallel transaction, that is, opening an additional transaction with minimum volume for the same currency pair, but in a different trading terminal. Tracking the financial changes, open new trade deals when it is most convenient.
In terms of the Stochastics Indicator, it does not give 100% guarantees, but in the majority of cases, it helps to open a deal in the right place.
The indicator’s work is based on supply and demand, and to be more precise, on overbought and oversold areas, which are naturally formed during trade sessions on the foreign exchange market.
Any product, including currency, has a certain price, which is affected by the number of people willing to sell it, and the number of potential buyers. In forex, these two factors are expressed by Buy and Sell orders.
When the price rises, an uptrend is formed, the basis of which is formed by the prevalence of bids to buy over the currency’s supply.
Eventually, a moment comes when the trend enters the oversold zone due to the high prices.
It is precisely at this time that the probability of a trend reversal increases, hence, the price reaches its peak and rushes down afterwards.
Now, everything is happening according to the opposite scheme, and a downward trend is prevalent in the market, which continues until the price enters the oversold zone and reverses in the upward direction.
Additionally, keep in mind that:
- Pipsing is to be performed only if there are repeated fluctuations in the exchange rate;
- Deals are to be closed with losses of 2-3 points, or with profits of 3-5. In exceptional cases where there is an obvious growth of profit, you can hold on to the deal a little longer;
- Take mandatory rest breaks away from the computer. Emotional stability is crucial to success.