Growing a Small Forex Account
Let’s all agree it is way difficult to trade on a small account as compared to trading with equity in thousands. That’s when your patience and skills are thoroughly tested since there’s not much room for mistakes. Anything out of the box can lead to blowing up your forex account!
However, there are techniques and tips that can help you easily grow a small forex account. If you follow these simple guidelines.
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Having been trading since 2016, I have blown up tens of small accounts due to the lack of a proper trading system and mentor. In this article, I’m going to share everything that I have learned throughout my trading career that will [hopefully] help you become a consistently profitable forex trader!
In order to share my strategies for growing a small forex account, let me first discuss how much equity is considered small in Forex Trading.
What Is a Small Forex Account?
It is more of a subjective matter and depends on your trading style and the pairs that you choose. For example, if you are someone who doesn’t go for big lot sizes and volatile trading pairs such as VIX75 and Boom1000, then merely a $100 account will do but if you are an aggressive trader, then $100 or even a $200 account won’t do and you would need a minimum of $1000 equity to trade.
So, how much equity account is considered a small account for forex trading? Generally, accounts having $50 equity or less are regarded as small forex accounts and unlike bigger accounts, small accounts take a whole lot of effort and technical expertise to compound and grow over time.
How to Grow a $50 Small Forex Account?
There are tons of strategies that you can use to grow your $50 forex account successfully. Here’s what you need to know before you start trading on a small forex account:
1. Avoid Get-Rich-Quick Schemes
Like every other business, it takes time to make money in forex since it involves consistent efforts. You will find a lot of “forex gurus” sharing the stories of how they made $5,000 in a week by trading a $100 account. Well, it is practically possible in forex but there’s a fat chance that you will end up blowing your small account.
Never blow your account!
That being said, follow a realistic and sensible trading approach and focus more on your winning percentage instead of monetary inflows. It will help you become a confident and consistently profitable trader.
The bottom line is: “Don’t set a ridiculous target just because someone else has achieved it. Trade with patience and avoid shortcuts because there are no shortcuts.”
2. Watch your Risk-to-Reward Ratio
The RTR ratio is probably the most important thing to consider when it comes to increasing your equity size organically. With a good risk-to-reward ratio, even if you get to achieve a 30% or 40% win rate, you will end up making a lot of dollars. However, if your RTR ratio is just above 1 then even a single failed trade with extended stop-loss could severely damage your account’s health. Here’s how much risk-to-reward ratio you should keep:
Since you will be using a small lot size on your small forex account, you should aim for at least a 1:4 risk-to-reward ratio in order to make money. That means, if your take profit (TP) level adds $4 to your wallet, you shouldn’t risk more than $1. If you follow this strategy then even a single successful trade is enough to cover your 3 unsuccessful trades and you will break even anyways.
However, it doesn’t necessarily mean that you should avoid trades with a lower RTR ratio. If you can predict the position reliably then it’s worth the try even if the RTR ratio is below the recommended level. The point is: Always aim for a higher RTR ratio. The higher, the better.
3. Know the Power of Compounding
Rome wasn’t built in a day and that’s exactly how you should plan your $50 small account growth strategy.
The thing with a small forex account is that you cannot go for big lot sizes and rely on small profits at the start. However, you should be patient and don’t lose your cool if you see a good entry point. There is no certainty in the market and you would end up blowing your account with ONE wrong move.
Here’s how you should go about it:
If your equity is $50 or less then don’t set unrealistic targets such as making $500 in a week. Instead, set an easily attainable weekly percentage of let’s say 10%. It would mean that you will slowly and gradually grow your equity by 10% by the end of each week.
If you stick to the strategy, you will for sure slowly and gradually grow your account. We have seen traders becoming millionaires over a period of time by merely following the compounding strategy!
4. Ace Trading Psychology
Keep your emotions out of the market!!!
This one is extremely important and is one of the prime reasons why most retail traders fail in the first place. While taking a trade, you should not make assumptions and justify them with your own logic. Instead, here’s what you should exactly do:
- Make your chart and identify trends and patterns in multiple timeframes
- Draw your support and resistance levels and/or demand and supply zones and look for other key levels
- Apply indicators that work for you and take notes of the readings
- Decide where you want to place your stop-loss and take-profit based on the readings
- Place your trade and don’t play around with SL or TP once you have placed your order [No Matter What Happens!]
- If you follow this strategy, it will help develop your trading psychology and you will not rely on emotions or what many call the “Sixth Sense”.
Wrapping it UP…
To successfully grow your <$50 account, you need to incorporate a mix of the above-mentioned points in every single trade.
A good approach would be to start with technical analysis – create your chart neatly highlighting key levels of the market such as demand and supply zones. Don’t be in a hurry!
Apply a few indicators such as moving averages, RSI, Ichimoku Cloud, or whichever works for you, and take notes of the readings. It is noteworthy to mention here that you should shift into different timeframes for further clarity. It will give you a bird’s-eye view of the overall market.
Once you are done, decide where you want to place your TP and SL based on a decent RTR ratio. Generally, your reward should be at least 3 times more than the risk involved (1:3). Thoroughly check everything before deciding on your TP and SL because you should not play around with these levels once you activate the trade since it adversely affects your trading psychology and you will ultimately end up being a confused trader!
That’s it. That’s what you need to follow in order to become a confident trader and gradually grow your small forex account significantly over time. If you have any questions or anything to add, comment down below!
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1 comment
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