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Here is how to grow rich with only a couple hundred dollars

Trading Discussion @ Forex Factory - www.forexfactory.com
Okay, so the title is a bit click-baity, but here is the thing: I see a lot of questions, comments about how much money is needed for you to trade for a living. Most people say you need tens of thousands of dollars, or even more as your equity, otherwise you won't succeed, because you can't sustain such high percentage returns.

That is true, because the problem is with the "high risk per trade" approach, that you will run into such losing streaks sooner or later, that wipe out a substantial part of your equity, and you won't be able to make it back. For example if you lose 50% of your equity, you have to make 100% on the remaining part, to return to the original amount.

The good news is that you can grow a small account to great proportions, while you don't overtrade and risk only a small percentage of your money at the start. The bad news is that you have to know how to control risk properly and your strategy have to be quite steady, which doesn't run into great drawdowns. Notice I didn't mention the returns you have to achieve, or how much time do you have to achieve a certain goal.

If you focus on how much % do you have to make, you are asking the wrong question. The good question to ask related to your strategy is, how can I minimise my drawdown? TRADING IS ABOUT CONTROLLING, REDUCING AND ELIMINATING RISK AS MUCH AS POSSIBLE!

Now this thread is not about specific strategies, so I won't go deep in that matter, but you should develop your trading so, that you don't run into great depths of drawdown (so more, than a couple percents of your total equity). If you manage to do that, you can survive the bad periods easier, make back the drawdown, and continue growing your equity.

Let's say you find, learn, or develop a strategy, which only has a couple percent drawdown. In that case here is how you grow your small account, risking only a small portion of it per trade.

Let's say you open an account with a proper broker with 500$. There are good brokers allowing even smaller account, but let's stay at 500$. You risk 1% maximum per trade, so 5$, BUT DURING TRADING YOU AIM TO REDUCE AND ELIMINATE THIS EVEN MORE, AS YOU MOVE INTO PROFIT! YOU NEVER INCREASE IT BY MOVING YOUR STOP FURTHER!

Okay, from here on, you can change the rules if you want, I'm telling my version, but it is flexible, just understand the logic behind it.

You have 500$ and you risk 1% (5$) per trade. You aim to make 10% (50$) in profits on it, so trading it up 550$. DON'T WORRY ABOUT MAKING A LIVING AT THIS STAGE, just trade it up to 550$. Notice I didn't mention the time, if it is 1 week, 1 month, 1 year, doesn't matter. Just grind you edge and reduce your risk, so you don't run into great drawdowns (so couple percents, I have around 2-5R drawdown at bad periods at max.)

When you reach 550$, so 10% profits on your account, you double the size you trade, so you risk 10$ per trade. You aim to make 10R again, and you rotate back that 50$ you made on the previous level. If you get a full loss 5 times in a row now and you are at 500 again, you go back a level, and trade it up to 550 again with 5$ risk. But it is unlikely if you know how to trade and you keep reducing your risk.

Let's say you succeed, and you make 100$ at the second level, your account is at 650$, the time period doesn't matter again. You double the size and you risk 20$ per trade and use the 100$ as covering the trades on this level. If you hit a very bad period, and go down to 550$, step back a level, and trade it up to 650$ again.

Probably you start to see now how this works. After a time, you can start withdrawing money from your account, because you only need money for the margin of about 10 trades or so. If you don't have large drawdowns, as I mentioned. The levelling up goes on as this:

650$ account, risk 20$, profit target is 200$, account at the end is 850$. Lotsize doubles, risk is 40$, target is 400$ account at the end is 1250$. Size doubles, risk is 80$ target is 800$, account becomes 2050$. Lets say you withdraw 1050$ from here, but since you only need the margins, things follow as this:

Account 1000$, risk 160$, target is 1600$, account is 2600$. Lotsize doubles, risk is 320$, target is 3200$, account is 5800$.

Now you might think, "yeah but how do I withdraw proper money and make a living, if I have to cover my margins with the majority of my account?" Good question.

The answer is, that you keep doing this until you achieve a desired level you wanted, then you stop increasing the lotsize, but you keep trading. At that time you might have a 100000$ account, risking 15000$ per trade, and even if you make a net 1 winner per month, you are +15000$. You also might want to increase your risk per trade, but at a smaller pace, so you can take out more money at every level.

See the point I wanted to make, that the main thing in trading is RISK ELIMINATION, which no-one cares about, and not profit maximalization, which everybody focuses on. The other point is, that this is how you grow a small account, without stressing on how much % do you need monthly, weekly, or whatever, to make a living. Time is not a factor, because for some this process might take months, for others years, and for others it is decades.

It depends not only on your strategy's ability to keep risk to a minimum, but also on how consistent you are, how patient you are, and how much do you love trading, so you can keep at this logic to grow your account.
Date: Jun 18, 2017   


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