Making and growing pips in the forex market is the basic and most important process for increasing the size of your small trading account into a real large one.
It sounds easy but it may be difficult, especially for the newbie traders.
Generally, a small trading account can refer to an account with less than $1,000.
You can start trading in the forex market even with a $50 account. However, it’s strongly recommended that you avoid that deadly path.
In the forex market, you can trade with one micro lot (0.01), which adds or subtracts $0.10 for every pip you gain or lose.
According to this calculation, if you trade with a $50 account, you will have 500 pips in your budget for trading. This sounds very much limited in comparison with the size of the market and the dynamics you’ll have to deal with.
If you have a trading account of $250 to $350, you will be having about 2500 to 3500 pips for trading micro lots.
This way, even if you lose 100 pips per trade, you will still have 25 to 35 similar chances to prove yourself in the market.
Thus, you will feel more protected in the market without having to start pulling your hair with every single losing trade.
Here are seven essential tips to assist you effectively take care of your small trading account.
- Set up realistic trading goals
Expecting some profit from the market is not illogical but expecting illogical profit from the market is itself illogical.
In that sense, you really need to set a standard daily or weekly goal according to your trade volume and account size.
Suppose, you have a $250 account and you target to earn 25 pips per day (which is equivalent to $2.50), it means you are earning 1% of you total capital each day.
If you can manage to do that, then in less than four months, your account should be double of your initial investment.
And, once your account gets doubled, you can also raise your trade volume up to two micro lots.
If you can manage to earn only 25 pips consistently, you will be doubling your earnings in less than four months.
Truth be told, winning and losing is part of trading. You may not win every trade and achieving your daily target of 25 pips may also be difficult. Some days, you may lose 25 pips while other days you may earn more than 50 pips.
Therefore, you should have a flexible mind and convert your daily target into an average you can earn over an extended period of time.
- Choose the right time frame for trading
In the forex market, you can choose to trade using the one minute, five minute, hourly, daily, weekly, or monthly time frame.
Newbie traders with small trading accounts are strictly recommended to avoid shorter time frames, which are less than 1 hour.
Smaller time frames produce less reliable signals and should only be used by experienced traders.
Particularly, traders with small trading accounts are mostly affected by such weak trading signals, which cause frequent losses.
Larger time frame charts are less noisy, smoother, and more reliable. They produce stronger trading signals, which gives the “source of energy” to grow up a small trading account.
For a day trading plan, you can combine one hour or four hour charts with daily or weekly charts.
Those time frames will give you better relaxation and enhance your trading strength.
- Adjust the trade volume
It’s recommended that you risk about 1% of your total capital per trade. If you do this, you will have 100 chances in your hands to trade without any pressures.
So, you’ll have to adjust your trade volume according to your risk limit amount.
Some traders with small trading accounts get excited just after a couple of winning trades and raise their trade volume hoping for some quick profits.
This is a very destructive plan that can blow your trading account completely.
You need to be calculative and disciplined while setting up your trade volume.
- Set up stop loss and take profit target
Never leave a trade without a stop loss limit. Furthermore, setting a take profit target is also important. Both stop loss and take profit limits have to be set at key market levels where there are certain possibilities of price to bounce back.
You can use moving averages, support/resistance or trend lines to define market key levels.
For small trading accounts, this is important because the protection of the capital is the prime priority.
The market could go against your trade by more than 100 to 200 pips in a single run, which will not only damage your trading account but also break your psychological strength.
- Maintain your risk to reward ratio
You need to set a standard ratio between the amount of risk you are taking and the amount of profit you are targeting to pocket.
The ideal risk to reward ratio should be 1:2. This means that if your risk amount is $10 for every trade, then your profit target should be $20.
If you see that a particular trade has less potential to meet your standard risk to reward ratio, then simply don’t take the trade.
Thus, you can filter potential trades with better success probabilities. If you maintain the ratio at least 1:2, losing 50% of your total number of trades will still result in profits at the end of the day.
- Know when to analyze your trades
Before entering a trade, you will analyze the market, set stop loss and profit targets, and determine your risk to reward ratio.
If everything is ok, you will press the button to enter the trade. And, what happens after you’ve successfully made the trade entry?
Some traders keep analyzing the market and adjusting their trades thinking that their profits or stop loss targets will be prematurely hit.
Your trade may not reach your targeted profit straightaway. Sometimes, the market will retrace back and forth and even threaten to hit your stop loss limit.
Some traders panic and close the trades manually with partial loss thinking that it might save them from more losses.
This trading approach is not recommended because it may lead to more losses and regrets, especially when the market eventually sails to your profit target.
Making such mistakes with your small trading account is dangerous.
The ideal solution of such dilemma is to do your analysis well before placing a trade and ‘forget’ about the trade. After making an entry, let the market “do what it wanna do”.
Over modification can really spoil a good trade.
- Trade quantity vs trade quality
The number of trades you are taking in a day matters a lot. Frequent trading habits may hamper the quality of your trades and lead to more losses in the long run.
A small trading account usually has several limitations, which you need to deal with. Importantly, maintaining trade quality by decreasing the number of trades is imperative.
Using only larger time frame trade signals can be the key to filter out unnecessary weak trades and to move on with good quality entries. Several professional traders out there do trades once or twice in a week!
Conclusion
If the forex market is a sea, then a small trading account is just like a tiny little boat. So, you need to be cautious and work hard to your dream island.
If you make mistakes, you will blow your small trading account faster than anticipated. Therefore, following the above guidelines will assist you navigate smoothly the scary forex waters with a small trading account.
De disciplined and move forward with patience and positive approach. Good luck!
