This is going to be the first of two articles where I outline some profit building techniques for you to be able to use to increase the size of your trading account quickly and safely.
Turning a small account into a big one is the dream of many forex traders, unfortunately for most traders this is what it will remain as….
Most of the trading advice found online and in books advocates certain principles for trading which sound like good advice on the surface, but in reality when applied to your personal situation is actually very silly.
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How To Make A Million From Forex
To make a million on one trade requires that you place a 1000 lot position. This means for every 100 pips the market moves in your favor you will make £10,000, since we want to make a million we need the market to move 10,000 pips.
Let me give you an idea of how far that is.
This entire down trend on EUR/USD is only 3500 pips.
If you had placed a 1000 lot position on the high right at the beginning of this down trend and then proceeded to exit at the low (which would have been impossible) you would have made £350,000 which, while a lot of money, still isn’t the million we want.
The only way to make a million from a movement like this is to stack multiple trades onto one movement, this way we are increasing the size of our profit even though the market is moving a smaller distance.
If we were to have three 1000 lot trades placed onto the downtrend above we would make £350,000 on each trade which works out at just over 1 million.
The problem is most traders when staring out do not have the funds required to be able to place 100 lot positions let alone 1000 lots.
For me to be able to place a 100 lot trade require me to have £400 available in my trading account, this is probably more than what most people are starting out trading with.
Then there’s the issue of stop-loss.
A 10 pip stop-loss on a 1000 lot trade works out at £1000 risk, so before we can even think about placing trades this size we need to scale up from lower amounts.
Scaling in requires us to find a pre-existing trend or movement in the market then place multiple trades onto this trend with each successive trade being placed at a higher amount than the last.
This method begins innocently enough, our first trade will be at our typical trade size which we usually trade with, then, as the profit begins to build up on our first trade we will take some of the profits off the position and use them to place another trade in the same direction at a higher leverage.
Now we have two trades in the market both making money for us, the important thing to remember is the second trade we placed will make more money then the first in a shorter amount of time, meaning we can place our third trade sooner rather than later and at an even higher leverage.
After taking even more profits of our first two trades we can placed our third trade. The size of the third trade will determined by the profits we have taken off of the previous two trades.
If you’ve looked at my article ‘Daily Charts Vs 1 Hour Charts’ you might remember this image:
In that article I described how I traded the one pin bar above on the daily chart as well as trading another three which were found on the 4 hour chart.
Now although I didn’t scale in on these trades I thought they highlight a good example of a how scaling in should be done correctly.
Let’s run through how you would have scaled in using the example above.
Our first trade would have been on the pin bar marked with an x below It on the chart, this is what we call the initial trade.
The initial trade is always taken with the same trade size as you usually use on all your other trades.
The trade we take on the second pin bar will be placed using a portion of the profits we’ve made on the first trade, looking at the image you can see the distance the market moved from then first pin bar to the second is around 500 pips.
This equates to around £500 profit if your trading at the lowest possible amount.
When we see this new pin bar we move the stop on our first trade to the price at which we would be in £250 of profit, this is marked with a red line on the chart.
Now no matter what happens we have secured £200.
We are going to use this £200 on our second trade with the newly formed pin bar.
The distance of the stop from the entry on the second pin is 80 pips, meaning we size of this trade is going to be 3 mini lots: £250 ÷ 80 = 3
We place the trade at 3 mini lots, its important to note that we still have the first trade running, as the market continues higher this trade will accumulate additional profits for us.
The Last Trade
On the third and final trade we are going to use profits from both of the previous trades to place an even bigger trading position.
When this 3rd and final pin bar forms our first trade is in profit of around £1270 with the second trade in profit of £2400 even these two trades on their own have made really good profits for us, because of this, we only want to use the total amount of money made on the first trade to decide how much higher leverage to use on this third and final trade.
50% of £1270 = £635
So £635 is the maximum we are going to place on this last trade.
Now the stop-loss distance on the last pin is 100 pips.
Which means we can place a trade at 6 mini lots, twice as big as the second trade! Don’t forget we also have the first two trades still running making us money!
The third trade gets placed, after 7 days the profit has already topped £1800 at this point it would be worth considering to take profits on the last two trades.
Both of these alone will of netted you £5200 and this is without counting the first trade!
What I would suggest you to do is upon closing the final two trades, keep the first trade running so if you see any more pins you can keep using the profits from the first trade to then scale in again, repeating the proceeds I’ve outlined above.
This method can be used on all time frames, the example above is best suited to a longer term trader such as someone using the daily chart, a day trader could see a trending movement on the 5 minute chart and scale in, in the exact way described above, there really are endless variations you can come up with when implementing this method.
Why Having Multiple Positions Gives You More Freedom
One other benefit of scaling in is it gives you the ability to play around with your trading methods a bit.
Even if you only have one trade placed in a trending movement the possibilities it will open up to you are endless, for example, instead of placing your second trade at a higher leverage than your first why not place it at the same amount?
Think about it
Instead of having two trades placed, one big and one small, you can have lots of small trades all running at the same time.
If you place ten trades at the lowest leverage available that’s basically the equivalent of having one 10 lot position running anyway.
This gives you more freedom because the individual risk on each one of these 1 lot trades is still really small yet your making equivalent profits to that of a single 10 lot trade!
Another benefit to having multiple trades running at once is the effect it has on your psychology.
I think most traders trade in a way where, they place one trade then, wait for the outcome before placing another trade, usually the thought never occurs to them to place more trades, their eyes will be glued to the screen watching the market to make sure they don’t lose on the current trade.
If you’re in a winning trade you should be placing more trades onto that same currency in the same direction, you can use the profits you’ve taken so far to increase the size of the stop-loss on the new trade, so although another setup you use may not appear in the market you can still place a trade based on something else just to get another trade placed.
Turning a small account into a big one is no easy feat to accomplish, there usually aren’t many opportunities to scale into trades like I’ve shown you in this article however ,I’ve developed and refined one more technique you can use to build your account up.
This method does not require you to have much money in your account nor does it need you to place many trades, all it takes is you to be able win on two trades in a row in order for it to be successful.
To find out more about this method click here.