Compounding your Forex account is the best way to maximise your returns whilst also protecting your account during losing periods. The first factor when trading the Forex market is the risk and I’ll present you with the perfect tool to control it on every trade.
I started my trading career 30 years ago, in the trading pits, but I still remember the first advice my old boss has given me: “Don’t lose the bank’s money.” Trading is more about “don’t lose”, rather than “go and make a fortune”. And this still resonates with me.
We all know that losses are an integral part of trading, and an honest trader will never tell you that they don’t have losses. Trading is a risky business and far too many traders fail because they don’t know how to control and manage the risk to their advantage.
To achieve long-term success, a trader needs to understand and implement the compound theory.
How do you apply the compound theory of Forex trading?
It requires a lot of calculations to implement the compounding approach. You need to calculate the size of each trade based on several ever-changing variables. It’s important to take into consideration the constantly changing balance of the funds in your trading account and the predetermined percentage risk applied to each trade.
The size of each trade is also dependent on where is placed the stop. And that is the price level where you would exit the market if the trade goes wrong.
Compounding will increase the amount of money you’re risking in profitable periods, but it will reduce it and protect your account in losing periods.
I’ll offer you a tool that will enable you to look at risk in a different light. You will consider the risk with respect and this is the only way to consistently grow a trading account.
Download it now and I’ll guide you through this powerful tool: https://www.forexsignals.com/lp/riskmanager
It’s an expert advisor or an EA and it means that it works with MT4 or MetaTrader 4 trader platforms.
Within this tool, there is a green line representing the take profit target and a red line which is the stop-loss level.
The important thing to note is the risk analysis, which is set up by 1%. And 1% on a $10,000 practice account is about $97.
If you need to move the stop-loss level lower, then the lot size will change. On the image below you’ll see the pound/Australian dollar. One lot is 10 Australian dollars, but for the tool to work it out, convert it all, tell you exactly what you need, I worked in US dollars. (the lot size in this particular currency pair, is the pound against the Australian dollar)
If you’ll click “buy entry”, it’s going to know that you want to place a buy order. And you’ll see when the buy order has been entered. If you’ll place the profit target below from where the current market price is, then the tool is going to work out automatically that you’re going to be a seller and it would click to sell. It would default as a sale.
You can move the profit target lower down or the stop-loss level in. You’ll only risk the 1% of the account, so less than $100. Your dollar risk is never going to change, but the risk-reward ratio will change as you’ll move the profit targets or the stop-loss levels. “Click to sell” will place an order there as well.
Another cool feature is the pending orders, which will allow you to place an order away from the current market price. Let’s say the current market price is trading at 7658. If you’ll want a pending order, you will have one above where the market price is at the moment. Basically, this is making you a seller and it’s going to maintain the maximum risk, which is 1% of the account. Clicking to sell limit would place that order in as a sell.
Only by keeping you focused on the risk, on maintaining the same risk, you’ll successfully compound in the markets. And that is the only way to make long-term gains on a trading account.
I hope you have found this valuable and if you would like to learn more, join me in the Trading Room. I hope to see you there!
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