Blueprint for Forex Day Trading with $1,000 (or less)
Here’s how to start building a small forex account using day trading, including what type of account to open, what time frame to focus on, strategies, and expectations.To get more news about forex day trading, you can visit wikifx.com official website.
Forex day trading with $1,000 (or less) is possible and even profitable. Forex trading allows you to control your position size precisely, and utilize leverage, both which aid a small trading account. We will discuss both these concepts a bit later on.
How can you Day Trade for a living?
For the US stock market, you need a minimum of $25,000 to day trade. In the forex market, you can start trading with less than $1,000. That doesn’t mean you’ll be able to make a living off trading right away, but you can build your account by following proper risk management, using a low spread broker, and placing about 3 to 6 day trades in the span of a few hours. In this article we will cover how to start day trading, what type of broker to use and a few important tips to keep in mind. Here’s the blueprint for doing it.
To keep the article to a reasonable length, links are provided to articles or resources with more information on a given topic. Please read those as well to get a full grasp of the concepts.
Using an ECN broker means you can capitalize on short-term opportunities and still manage risk. An ECN broker allows you to buy and sell directly with the market (other traders and institutions). That translates to lower spreads, and you can instantly buy and sell whenever you like.
Non-ECN brokers typically charge larger spreads and are acting like a middle-man between you and the market. Orders may be slow to fill, and there may be limitations on where you’re allowed to place orders. For example, they may not let you place limit or stop orders within a few pips of the current price…because they want you to use market orders which give them discretion on which price to give you.
Limit, stop, and market orders are our three main order types as day traders. All three order types are fine when day trading (with a non-ECN broker), although we prefer using limit and stop orders as much as possible, and market orders only when we need to get in or out quickly and don’t have time to put out a limit or stop.
As a day trader, one of the most crucial factors is the spread you pay. It has to be low if you expect to succeed. During active times, such the US and London session, the spread is typically around 0.1 to 0.5 pips (less than half a pip) with an ECN broker.
Another crucial element is order speed. When you hit buy or sell you want to know that you will get into or out of that position instantly. If there is a time lag, that is a big concern because lags can cost us a lot of money in fast-moving markets.
When dealing with an account less than $10,000, and less than$1,000, make sure the broker offers micro lot trading, also referred to as “0.01 lots”. Micro lots give you the ability to really fine-tune your position size and risk on a small account. Currencies are traded in different unit sizes, and micro lots are the smallest one. If trading a $1,000 account, make sure the broker offer micro lots. For a more thorough introduction to forex, how prices move, lots sizes, and all that basic info you need to know before getting started, see Introduction to Forex.
Also, when setting up an account, request 30:1 leverage. You won’t need that much, but if you don’t need it you don’t have to use it. A little extra is ok. Leverage will be discussed more later on.
Day Trade Using the One-Minute Chart
With a near zero spread, I can actively trade price moves that are about 8 to 25 pips from start to finish. I set a profit target of 6 to 10 pips (potential more on certain trades), and a stop loss of 4 pips (this may vary slightly by trade) and am able to trade those price waves you see on the 1-minute chart during the London or early US session (see How to Day Trade Forex in 2 Hours or Less for the strategy).
Volatility is always changing, which means how many pips are risked and captured also changes. Where stop losses and targets should be on a particular day/trade is addressed in the comprehensive forex article linked above.
If I trade on a 15-minute chart I may only get a couple trades in each day, and I need to spend most of my day watching to make 4% maximum (if I win two trades with a 2:1 reward:risk ratio). Now 4% is a great daily return, but that is the best case scenario (because you are risking 1% of your account per trade, if you make 2:1 on those trades, you are up 2% on each x 2 trades).
Now, check out a 1-minute chart in the EURUSD and you’ll notice multiple small trending moves during the London and early US session we can capitalize on (don’t trade around news, so ignore crazy big price bars which are typically news related).
Here’s a chart of the London session from April 27, 2018. While the pair only moved 30 pips during the entire session, there were multiple waves to trade. With stop losses of 3 to 5 pips on most of these trades–placed on the opposite side of the consolidation or engulfing pattern–all these trades would have hit a 1.5: or 1.6:1 target, and in several cases a 2:1 target.
Losing trades have an “x” with them, like the one on the far right where it is likely a short would have been taken, there was a bit of a pop higher stopping out the trade, and then the short trade would have been re-entered when the signal emerged again. Even with following the strategies and guidelines provided in the various articles that have been linked to in this article, it is likely most traders would no take all the exact same trades, as there is subjectivity involved in analyzing markets and determining which trades to take. The actual strategy is one thing, determining which trades to take is another, and for that velocity and magnitude is key. If you study the trades above and consider the velocity and magnitude of the price moves prior to the trade, why that trade was selected will start to make sense.