Money Managmement Part 2: 3 Strategies for Small Funded Traders (Forex)

Money Managmement Part 2: 3 Strategies for Small Funded Traders (Forex)


Hello, it’s Kei from Japan. In this video, I will be talking about the
pitfall of winning rate and 3 strategies when you have a small amount of money to invest. Not everyone can start trading with a big
amount of money, I guess most of the people start with a small amount of money but there’s
a certain strategy to remember if you have a small amount money for investing. And if you don’t have this knowledge, your
account can be blown up easily in short time of period. You know, there’s always a strategy for
the strong ones, and at the same time, there’s always a strategy for the small ones to win
battles, and that’s what I’m gonna talk about today. So if you like this topic already please press
a good button, and let’s get started right now. Alright, let me introduce an email I got. His name is David from UK, and he asks “Kei,
since I started trading, my asset went from $10,000 all the way down to $1,000. So may I know if you change your strategy
depending on how much you have? And may I know if your strategy has changed
ever since you started forex trading? Thanks in advance.” Thank you Mr. David for your email. In fact, I get similar questions like this,
like how much do I need to have to start trading? or how much the risk should be when I start
trading with $1,000? things like that. So first, let me talk about how you think
about the amount of money to trade. Let’s say I have $10,000 and you have a
million dollar. And let’s say we both know the trading strategy
that can give us 5% per month. In that case, how much I earn every month
will be just $500, you know, 5% of $10,000, but you can earn $50,000 consistently every
month and you can live free by that amount of money. So simply the more you have the money, the
more you can earn every month when we use the same strategy with 5% return, right? You know I might have to do other jobs to
make living with the $500 return monthly, but you don’t have to. All you do is just keep on investing on that
strategy that can bring you 5%, right? And this is one of the important thing about
the amount of money, you know, the more you have, the more you get. And this is very simple but you know what,
whether you have a lot or not, this is something very important to remember about the size
of your asset. Like I said, the more you have, the more you
have advantage on investing things to get returns. To better understand this, imagine there’s
a game like this. Imagine, there’s a box here. And in that box. there are two kinds of balls, red and green. And every time you pick, it costs $2,500. You know when you think about stocks, there
are stocks with $2,500 per share. So just imagine every time you pick, it costs
$2,500. And put your hand into the box and grab a
ball. And when you pick a green ball, you get double,
you get $5,000. In contrast, when you pick a red one, you
get nothing and you just lose $2,500. And in that box, there are 6 green balls,
and 4 red balls. And every time you pick a ball, you return
that ball into the box. So when you think of the probability of this
game, the chance you pick a green one is 60% and the chance you pick a red one is 40%,
right? So you know, you have better chance of winning
than losing and the more you do, the more you earn in theory, right? However, this is what I wanted to say. If you have small amount of money, you might
not be able to grow money by this game. For example, let’s say poor Kei only has
$10,000 and rich you have $100,000. And when I do the game, if I pick the red
ball 4 times straight, then I go bankrupt, you know, $2,500 times 4 is what I have. So if I pick the red balls 4 times straight,
then I will lose all the money unfortunately. Or, if the red balls appear slightly more
than green ones, then I go bankrupt, too, like, green, red, red, green, red red red,
things like that, then eventually I lose all the money, you know, there’s a possibility
to lose all the money. And that’s because, $2,500 is the quarter
of what I have, 25% of what I have in my account so the impact of each loss is huge, right? On the other hand, rich you have $100,000
and $2,500 is only 2.5% of what you have. And you never go bankrupt unless you pick
the red ball consecutive 40 times, or unless you pick as many red balls as possible in
the beginning, you won’t lose all the money. So, you have better possibility of growing
your account as you keep picking up the balls from the box and you get rich eventually. And this is just one of the simple examples
to make it easier to understand. In actual trading, whether it’s stock or
forex, it becomes more complex. But you know how it’s important to have
more money when it comes to investing, right? In other words, remember if you have less
amount of money, by that alone, you have disadvantage from other players. You know, even if there’s a game that you
can win overall, if your fund is small, then there’s a higher possibility to lose that
game and no matter how much you study and how good the strategy is, if you just have
the small amount of money, then simply you have disadvantage. This is something you need to remember. So, what should you do when you want to start
trading with a small amount of money? Now, there are 3 strategies you can take. First one is simply not to trade. Until you save up and have enough money, you
keep studying by books or videos like this or by demo account, and do other jobs to get
and save money until you have enough amount. This is a strategy of waiting, like you wait
until you prepare enough money to invest on. The second strategy is you trade with a good
strategy with low leverage. And while you keep on trading, you do other
jobs and do trading as a part time until you have enough money to invest and enough money
to be able to win every month or every week. And this is the strategy I recommend to do,
you know, you just invest on a small amount of money with low leverage, and keep on trading
so that you can experience the real trade and acquire more knowledges and wisdom from
what you learned on books. Because there’s a huge difference between
the knowledge on a book and the actual experience, and better to have the experience than just
studying on a desk. And like i said on the previous video, the
money you are investing should not be from what you need for living. Always make sure to use the money that’s
only saved for your trading, and don’t touch the money for living, alright, because like
I said earlier, when your amount of money is smaller, then there’s a higher possibility
of losing every thing. And especially when you are a beginner, think
the money you are investing is like a lesson fee because it will definitely comes back
to you as an experience and wisdom. So while you get a stable income from your
job, you save money for your living, and use the money from the second wallet, the wallet
for trading, not the wallet for living. And if you cannot create a wallet for trading,
then you are not ready yet. You need to do some extra job to earn money
for trading, and use that money only, but don’t touch on the primary wallet. And this is the second strategy. The third strategy is trading in high risk,
high return and you trade the same way as those who have big amount of money, knowing
you are trading high risk high return manner. When I first started trading, I was doing
this way. So this is an aggressive strategy, you get
money fast, but you lose fast too. And of course this is a risky way to trade,
but besides the winning rate, there are other factors in the actual trading, like the right
timing for entry and exit, how to manage the money, and these are something that you can
learn to be better. I mean you can increase the trading skills
from ideas and knowledges, and you can apply those skills and trade with higher leverage
and cover the risk by those skills of management. You know, even if you have small amount of
money, you can cover that disadvantage by trading knowledges and ideas and you can still
keep on trading this way. But remember, make sure to take the money
from the wallet for trading, not from the wallet for living. So, all the strategies I introduced are effective,
waiting without trading, trading with small amount with low leverage, or trading with
small amount with bigger risk and high leverage are all effective. These are effective when you know pros and
cons for each strategy, and depending on your own type of personality, and depending on
your motivation and the level of determination, you pick the one you go for. And if you lost your money recently in the
market like Mr. David, first question is if that was acceptable and something expected
from the beginning as a lesson but if you lose like 90% of money already, I recommend
you to stop trading, look back how you have traded, and study again because if you’ve
lost 90% of what you have , then most likely you will lose 90% again within the same time
period if you keep on trading the way you do. So when you have a draw down of like 20% of
what you have, you need to stop trading and look back, or this is what I do but when you
have 3 consecutive loss, then stop trading because there must be something wrong. But if you know which of these 3 strategies
you are taking, and if you know what you are doing, then your asset must keep growing as
a result. Alright, that’s it. On the next one I’ll be practical. I’ll be talking about how to position each
trade with risk reward ratio and the way to come up with correct lot sizing. This is also one of the major risk management
strategy that I’m using every time I trade, and I’m sure it will be a good lesson to
you too. So if you don’t want to miss the next one,
make sure to subscribe and hit the bell so that you get an notification when it’s uploaded
on next Monday. Alright, Stay Gold, Matane!

7 Comments

  • Ibukun Akinbami

    October 24, 2019

    Thanks for sharing useful information always

    Always learn from your wisdom

    Reply
  • hidekin

    October 24, 2019

    I have another strategy to grow small trading portfolio. After a winning trade I use the profits as the money I am willing to lose on the next one, by doing that you can increase your position size on your next trade and still be at break even if you lose and if you win it can be really rewarding. Of course you need to chose the setups and doing that after a few winning trades to be in a winning trades tendency. But it's a way that can work with some experience. The winning rate must be good of course.

    Reply
  • Japanese Forex Trader Kei

    October 24, 2019

    Starting big or small doesn't matter. It's the plan, strategy, and experience (and a bit of courage) that matters.

    Reply
  • Gary Roe

    October 24, 2019

    thank you for this great advise. just what I needed.

    Reply
  • job moses

    October 24, 2019

    Very good example

    Reply
  • Felino Co

    October 24, 2019

    What’s the range considered as low leverage. For example, Is 1:50 low for 1000k capital?

    Reply
  • Peter Thailand

    October 26, 2019

    You really are a good teacher. Thank you. Regards.

    Reply

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