It is possible to make money from trading Forex, even if you start with a $1000 balance. Success depends on many factors, including your experience.
In this article, we provide guidelines for how to succeed in Day Trading Forex.
By the end of this article, you will have the confidence to start trading Forex.
How Can You Day Trade Forex For A Living?
Trading Forex is different to trading stocks. With stock trading, you need a hefty amount of capital, something in the region of $25,000 if you wanted to day trade.
It's unlikely you will make a living from Forex right away. With less than $1000, it will take time. But, it will be worth it if you are patient.
Succeeding as a Day Trader depends upon the following:
- Your Forex Trading knowledge and experience
- Your risk management skills
- Time available to trade
- Whether you trade low timeframes or work with the higher timeframes
- Choosing the right broker with a low spread
- A good trading plan
- One or two back tested strategies
Getting Set Up In Forex
Choosing a Broker and Account Type
Forex is risky. There is a danger of losing money, especially as a novice trader. It's crucial that you weigh up the risks and only invest money you can afford to lose.
There's a 95% failure rate with retail Forex traders, so time spent now can help you to avert being part of those statistics.
With a starting capital of less than $1000, we suggest trading with an ECN Broker. They offer low spreads and low commission. With an ECN broker, you are buying and selling directly with the Forex market, not opposing the broker.
These are called No Dealing Desk Brokers.
Another option is an STP Broker (Straight-through processing). They also have low commissions and are not competing against your trade.
It's best to avoid Dealing Desk brokers as they take the opposite trade to yours, which means they have a vested interest in your trade losing and, typically, their spreads are bigger.
In this article, we will discuss ECN Brokers. Click on the links to explore further discussions for other broker types.
With an ECN broker, a typical spread is less than 0.1 or 0.5 pips. The exception is during session crossovers (UK to US etc.) or economic news. At these times, volatility increases and spreads widen. Avoid entering trades at such times.
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Limit, Stop and Market Orders
As a day trader, you won't sit staring at your chart all day. You will do your chart analysis and set a limit or stop order at an area on the chart where you assess the potential for a high-probability area to enter a trade.
You may prefer to set an alert on your chart and jump onto a trade when the price hits your alert zone.
Another crucial aspect of an ECN broker is the speed of order pick up. A time lag with the order processing can mean the difference between profit and loss.
Micro Lots Availability
With low trading capital, under $1000, you want a broker with micro lots as an option, namely '0.01 lots'. Micro lots are fantastic for a small account. You can fine-tune position size and the amount of risk on your account.
For instance, you spot a low-risk, high-reward trade, and your analysis suggests a high probability. You risk 1% of the $1000, which is $10 for a stop loss. The trade requires a 20 pip stop loss, say, $5.00 with a 0.01 micro lot. For this trade, you can either take two 0.01 micro lot trades or one 0.02 micro lot. Either way, the risk is still $10.00. It's a brilliant way of leveraging micro-lots.
To protect your trading account, never risk more than 1% of your capital.
Leverage
When you set up your broker account, ask for 30:1 leverage. You do not need more. Most regulated brokers cap leverage at 30:1. Intend not to use leverage, but it's there if you need it.
What Type of Forex Trader Are You?
Scalping Forex – Trading the one-minute chart
The one-minute chart moves fast. But if you wait like a sniper, you can grab fast gains from the lower timeframes. If you catch the price action at the right time, you can exit with 10– 30 pips profit, sometimes more if the price has burst out of consolidation and gained momentum.
The other benefit of scalping Forex is using a small stop loss, such as 5-10 pips.
You can catch mini trends on the lower timeframes but do work within the overall trend. For instance, if trading the 1-minute, 5-minute or 15-minute charts, check the higher timeframes. Take a glance at the Daily chart. Is momentum upwards or downwards? It is best to go with the flow of the market.
The Day Trader – Playing the Long Game
If you prefer more significant moves in the market, you may enjoy trading the 4-hour or daily chart. Trading the daily chart, you can realistically aim for 200+ pips and, if you are savvy, with a relatively small stop loss.
Trading on the daily chart takes patience. You may prefer the 4-hour chart, which is a favourite for many Forex traders.
Whether you scalp Forex or trade the Daily chart, aim for two to three hours trading. Any longer than that and you will start making mistakes or become impulsive.
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Risk to Reward Ratio (RTR)
One way to grow your $1000 trading account is with a high RTR.
For instance, if you risk ten pips for a return of forty pips, you have a 4 to 1 RTR.
Aim for a minimum of 2 to 1. It's common sense. It's a principle that most professional day traders adopt to make consistent profit from Forex.
Below is an example of how to maximise profits from Day Trading Forex
The above chart is GBP/USD on the 15-minute chart.
GBP/USD had been in an uptrend but had pulled back to a support zone. There were two options here for a great trade.
- The price broke through the trendline and attempted a retest of the trendline, followed by a big green candle
- After the retest of support, the pair broke out then came back to touch the zone
At the left of the picture, you see the potential target for this trade. The daily chart shows an uptrend, which means you are trading with the momentum.
The price made a higher low after the trendline break, and it broke the last high before dropping to the support zone.
Grab a couple of these trades each day and watch your $1000 trading account grow.
The above image is the USD/CHF 15-minute chart.
The daily chart revealed the pair was in an uptrend. It had, however, encountered a historical area of resistance.
The horizontal black line is resistance, and the price broke through it twice. Many novice traders would have entered a long trade here. They figure it broke through a significant area. Ah, but look, it comes back and drops through the zone. Now, novice traders are entering sell trades. Oh, dear.
What happens next? The price breaks through resistance AGAIN. Now, all the traders stopped out with the first break of resistance are buying again. And, yet again, they lose the trade. Stung, frustrated and with reduced capital, they don't know what to do next.
At the second move up, the trader placed a trendline. The price popped up to touch it again and then plummeted.
Where On Earth Do You Enter a Trade in This Situation?
You wait.
You could have taken the second touch of the trendline. Hey, but hold on. The price has to overcome the resistance zone. It could become a support zone, bounce off and head up again.
What Would a Professional Forex Trader Do?
In our view, the better trade would be to wait for a retest of resistance. Despite it looking like momentum is building for a short trade, it's on a 15-minute chart, so it seems more than it is.
Wait for the retest. It's a high probability. Then once it has touched the resistance zone and broken away, look for a short entry.
It may or may not work out. Forex success depends on probabilities, and it doesn't always go the way we expect.
Expectations for Trading with $1000 (or Less)
Look, you're not going to be getting the yacht any time soon. But, if you manage your account like a pro, you will be surprised how quickly your $1000 will grow.
Trading Forex is a steep learning curve. You will likely experience frustration and confusion for a long time before reaching a pivotal point in your Forex education.
It's hard work. 95% of novice Forex traders fail because they don't put in the effort. Most novice traders would probably never get started if they knew it might take six months to a year, or sometimes longer, to become a proficient trader.
The trick is to study the market every day. Instead of blindly entering trades, spend time watching the charts, mapping out areas of interest and testing out what the price does. After a while, you stop being surprised at random moves in the market. You realise that it isn't unexpected because you have seen the patterns a hundred times over the last few months.
In the two examples we gave above, you will see these patterns repeated on every chart, every time frame and with every pair. It is not uncommon. And that's the secret sauce because NOW you know what to do and also what not to do. Perfect, now you can enjoy day trading like a pro.
Set Realistic Expectations for $1000 Account Growth
There are twenty days to trade in each month.
At first, it would be unrealistic to set profit goals. It is better to aim for improvement goals. We tell you this, but we know you will want to set personal targets. So let's see what is possible.
Earlier, we discussed the Risk to Reward Ratio (RTR). Let's present a few scenarios –
RTR 1 to 1, with a 50% win ratio and twenty trades taken in a month.
- Win $100
- Lose $100
Oh, er, well, that didn't work.
OK, 2 to 1 RTR and twenty trades
- Win $200
- Lose $100
Ah, now you're getting the picture.
How about a 4 to 1 RTR for twenty trades?
- Win $400
- Lose $100
At the end of the month, you have increased your $1000 account by 40%.
Now, realistically, these figures are not always going to be achievable. Most Forex traders end up losing, and they never learn from their mistakes. If you want to be in the elite 5% of consistently profitable traders, you must assess your errors continually.
Your mission is to protect your capital at all times. You only take the high probability trades, and there isn't one, then you don't trade.
Trading Forex can be addictive, so get into the mindset of accepting that you may have to wait a while for a good set up to appear on the charts.
Professional Forex traders say that it isn't the trades you win that grows your account. Indeed, it is the trades you DON'T take that makes the difference.
Now, you're getting it.
A high RTR IS how to grow a $1000 account, and surprisingly fast if you manage your trades. You'd have to lose four trades to get back to breakeven. Doesn't this make sense to you? We hope so because so many traders fail to grasp the power of using a high RTR for their trades.
Yes, there are commissions to pay on your wins, but, as you know, with an ECN broker, your commission payments are small, especially on micro lots.
Can you Make 20% a Month Growth on Forex?
Yes, it's possible, but at what risk?
Professional Forex traders with significant capital, say $100,000, are more than happy with 5% - 10% growth each month.
Starting with low capital under $1000 is harder because novice traders don't see the possibility of making an income as a Forex trader with so little money. Well, you won't. Not for a while, anyhow.
Compound growth is your aim. Imagine those months when you have gained 20% on your capital. Now, you are trading with more money but still only risking 1% of your capital.
Your gains are more considerable and 20% the next month is more money than the 20% from the previous month. That's compound growth.
It takes a LOT of practice to get to a level of proficiency with Forex, and practice means a lot of time. Time spent watching the charts is never a waste and is part of your Forex education.
Recap for Growing a $1000 Forex Account
- Forex is risky, but you can minimise your risk. Never risk more than 1% of your capital & trade micro-lots
- Open an account with a regulated broker with ECN availability and maximum 30:1 leverage
- Decide what type of trader you are and limit trading time to two to three hours a day
- Have a risk to reward ratio of a minimum of 2 to 1
- Don't trade around news announcements
- Always have a stop loss.
- Only use leverage if you have to. If you over-leverage your account, you may get the dreaded margin call from your broker. You could lose your account or have a catastrophic loss. You may not be able to get out of your position, or your broker will close your open trades
- Have a trading plan and one or two strategies. Take trades when the signal appears for your strategy. Don't take trades when there is no signal.
- Be patient. Some top professional Forex traders spent years losing before they suddenly cracked the Forex code. Forex can change your life. As long as you commit to the long term process, there's a good chance of joining the 1% of successful Forex traders.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Forex may not be suitable for all investors as it does involve risk and the possibility of a loss of capital.
And before we go, here's what happening with the USD/CHF trade
The price retested support and is now heading down. As we said, once you have seen these patterns multiple times, you begin to understand that nothing in Forex is random.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Forex may not be suitable for all investors as it does involve risk and the possibility of a loss of capital.
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