Forex money management is the magic ingredient for super-successful forex trading. Don't take my word for it - let the numbers speak for themselves. Take a look at this chart...Put your own numbers in - Click here to download the Excel spreadsheet
What it's saying is this. If you can grow your account by just 1.56% every week (or about 0.3% per day) - then after one year you will have grown your account balance by 120%.
Starting with an account balance of $20,000 - a 0.31% increase in equity every day gives you $44,731 at the end of the year. Assuming you don't make any withdrawals during that year.
How about if you start with an account balance of $100,000? - Winning 0.31% every day gives you $223,656 at the end of the year. Again, that's 120% of your starting balance.
It actually doesn't matter what the starting account balance is - it's all proportionate.
We're using the power of compounding to grow equity here.
This is the key thing to remember. Think about setting your goals proportionally in terms of equity growth % - and not traditionally in absolute pips or cash $$$. Compounding does the rest for you.
So how many pips do you need to win daily, in order grow your account balance 0.3% a day, do you think?
Well, it all depends on what the pip value is - but on the day I did this analysis for the eurusd, you only needed to win 11 pips, in order to make 0.31% for the day - which (if you did that every day) would mean a growth of 120% in your starting balance in one year. No matter how big or small your account balance.
How do I know it was 11 pips? Take a look at this...
This is the Trade Plan Calculator from www.ForexSmartTools.com - a really neat piece of software I use for modeling all my trades before I take the trade.
I use the Trade Plan Calculator to tell me how many lots I should trade for my risk to be a max of 1% of account balance (1% being my preferred trade risk profile).
It uses currency pair pip value, entry and stop loss info to calculate my actual risk and equity as a % of account. That helps me to balance my risk/reward and optimize my trade returns.
Before using this software, I used to trade 2 or 3 same-size lots all the time. The Trade Plan Calculator showed me I was undertrading - trading with risk too far below my risk limits and not optimizing my profits.
In this example - the purpose here is to show that just by making 11 pips on this trade grows my equity by 0.31%. If I did this every day of the year - my account will grow about 120%.
And - once I've made my daily target, I wouldn't need to trade any more today! I could shut down my computer and do something else - go to the beach - or whatever!
Do you think 11 pips every day is possible? It certainly seems feasible to me.
This is an illustration - in reality I would only consider taking a trade if the Risk /Reward was 1:2. So I would be looking for 70 pips on this trade. But I could close it out after +11 pips and make my daily target if I wanted to.
Wall Street hedge funds typically make 12-17% a year. And they have waiting lists of wealthy investors queuing up to invest with them for those returns.
Imagine you were making 120% yearly - Wouldn't that make you feel good? It does me! You would have investors forming a queue outside your door too!
My weekly target at the moment is now between 2% and 5%. I look for about 0.4% - 1% a day on average. That gives me an annual growth projection of 175%-1104% on my start-of-year account balance.
Plus I always keep my risk profile per trade down to 1%-2% and my leverage below 5:1
Why does my target vary? I vary the number of lots I put on a trade depending on the circumstances of the trade.
For instance, a well-structured pattern with a PRZ at a strong turning point (strong Supply or Demand zone) with Reversal or Divergence RSI signal deserves a heavier trade than where you have a not-so-well structured pattern, or price at a weak supply/demand zone, or with no RSI signal.
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