Contract Sizing when Trading Forex
Good day everyone!
There’s a constant debate on how many contracts one should put when trading Forex.
I personally recommend that you put on a $1 per pip mini contract for every $1000 of your capital.
So let’s say you have $10,000 in you account.
You can trade up to 10 mini contracts or $10 per pip movement.
The question is should you put all 10 contracts on one trade or stagger the opening of trades.
There are three ways to do this. Let me explain.
1. Put 1 mini contract as a Scout
You take 1 mini contract to “test” the market and get a feel of the market. This is done especially if you are unsure of the market or you are at a point where you don’t want to risk too much as you are busy with other things but at the same time you see a good opportunity and a good setup and signal and don’t want to miss out on the trade.
2. Put all 10 mini contracts one shot.
Some traders believe in doing this. But let me warn you those traders who do this are experienced traders and they have traded with their system for years and they are disciplined and only take a trade based on their system and signals given out.
They know their system so well that it’s at the back of their heads and they memorized everything about the system and know the nuances of their system. Hence, they will take a trade that puts in the maximum contract size. You don’t have to until you have reached a later stage where you know your system like the back of your hand.
3. Staggered Entries
You enter 4 contracts first. The market goes your way and you enter another 3 contracts. The market goes your way again and you enter another 3 contracts. This is the staggered method where you add on to your trades only when the market is going your way. Your initial risk is smaller and it allows you to follow a trend. This method is also good if we are in a trending market.
So let’s say all three positions we put are profitable. You can take out the first trade with the 4 contracts and lock in your profits. Then you let the other two trades follow the trend. After a while, you can exit the second batch of trade and lock in profits. The last batch of trade, you let it run and follow the trend and when the price closes below or above the 15 or 21 ema on the 4h or daily chart, you exit that last one.
Think through carefully of the info I have stated here. Many ask me how much capital is enough to trade. You can start of. With 1k and trade 1 mini or you can start with 100k and trade 100 minis. As long as you have a stop and put a maximum loss of 2% of capital per trade and you are disciplined and trade the system, you should do ok after 20 trades.
No one trader can avoid a loss. There is no holy grail and you will never find a system that has zero losses. The faster you realize this the better. So that you can trade PROPERLY and not gamble your money away.
If we trade with an edge, meaning with proper knowledge of fundamentals and technical analysis, I believe that is NOT gambling. But if you trade anyhow without a proper system, money management and discipline, it is gambling.
It is a fine line. Don’t cross it.
Let’s remind each other to do the right things.
May we all succeed.
~ Ad Victoriam!