How to Kickstart any Trading Account

Hey traders, this is a guest post from an expert trader at Rockwell Trading.

 

He is also offering a FREE trading book that is extremely helpful to traders of all levels. Click here to check out!

 

Many traders are familiar with position sizing and risk management, but few really grasp the power of a sound money management strategy. This is unfortunate. I’d argue that money management is the single most influential factor on your financial growth as a trader. In this article I’ll share my favorite money management strategy, and how small conservative weekly profits can have a substantial impact on your trading account.

 

Let’s talk money management. Money management can be broken down into two categories: Martingale Money Management (increasing position size with losses), and Anti-Martingale Money Management (increasing position size with profits). At Rockwell Trading we believe that the safest way to grow your account is to increase your position size with profits. Although the idea is simple, when to increase and decrease your position size is very important.

 

There are a few strategies that fall under the anti-martingale money management umbrella, but the money management technique I use and teach is the Fixed Ratio Money Management strategy by Ryan Jones. The idea behind Fixed Ratio Money Management is to increase your position size every time a specified profit, per lot, has been made. In a sense, you are “buying the right” to trade a larger position size. What I like about this approach is that the emphasis is put on your performance, instead of your account size. The amount of profit necessary before increasing your position size is known as your “delta”.

 

Let’s assume that you are a Forex trader, and that you start trading with a $10,000 account. Since you haven’t proven yourself as a trader, and don’t have any accumulated profits yet, you should begin by trading 1 lot. So ask yourself, “How much profit can I average daily, or weekly trading 1 lot?” Ultimately this will depend on your experience and your trading plan, but let’s keep it conservative and say that you are an active trader and able to average $150 a week, or $30 a day consistently.

 

Now using Fixed Ratio Money Management, let’s say that you’ve decided on using a $900 delta. With a $900 delta, you must accumulate $900 in total profits trading one lot, before you have the right to trade 2 lots. If you average $30 a day, or $150 a week, you would be on track to increase your position size in 6 weeks ($150 x 6 weeks = $900). When your delta is reached, your account equity is $10,900 and you can now increase your position size to 2 lots.

 

# Lots Ave Weekly $ Profits to Increase Position Acct Size Next Level
1 lot $150 $900 (delta) $10,900 2 lots

 

Trading 2 lots, your goals and trade selection should stay the same, but you’re now averaging $300 a week ($150 x 2 lots). If you’re able to maintain this average, you’ll be on track to increase your position size again in another 6 weeks ($150 x 6 weeks = $900, x 2 lots = $1800). Once you’ve reached your $900 delta again ($900 per lot traded), it’s time to add a 3rd lot.

 

# Lots Ave Weekly $ Profits to Increase Position Acct Size Next Level
2 lots $150/lot $1800 ($900 delta x 2 lots) $12,700 3 lots

 

Trading 3 lots, you continue to make more money each week simply due to your larger position size. If you continue to average $150 per lot, you’ll be on track to increase your position size again in another 6 weeks.

 

# Lots Ave Weekly $ Profits to Increase Position Acct Size Next Level
3 lots $150/lot $2700 ($900 delta x 3 lots) $15,400 4 lots

 

Before we go any further, I want to be clear that the numbers shown here rely on consistently averaging a profit of $150 a week, per lot. When trading live there will always be some ups and downs, and of course weeks when you might not reach your weekly goal. But if you’re able to average a conservative weekly goal over time, you can stay on track, and the results are impressive. If you have a down week and your account dips, you simply drop back to the previous position size.

 

Let’s see what happens when we add another lot.

 

Trading 4 lots, you’re still trying to achieve a conservative $150 profit per week. However, trading 4 lots you can realize a $600 profit by week’s end.

 

# Lots Ave Weekly $ Profits to Increase Position Acct Size Next Level
4 lots $150 $3,600 ($900 delta x 4 lots) $19,000 5 lots

 

Do you see how powerful conservative weekly profits and a sound money management strategy can be? In less than half a year (24 weeks), averaging $30 a day and using a $900 delta can almost double an account.

But here’s where things really start to get interesting. Let’s see what happens by the end of the year…

Date Lots Traded (Phase) Profit/Week Profit/Phase Account Size
1/1/12 1 $150 $900 $10,900
2/12/12 2 $300 $1800 $12,700
3/26/12 3 $450 $2700 $15,400
5/7/12 4 $600 $3600 $19,000
6/18/12 5 $750 $4500 $23,500
7/30/12 6 $900 $5400 $28,900
9/10/12 7 $1050 $6300 $35,200
10/22/12 8 $1200 $7200 $42,400
12/3/12 9 $1350 $8100 $50,500

 

Of course these are hypothetical results based on a conservative weekly goal being reached every week, and ultimately YOU must prove that you can be consistently profitable, but the numbers don’t lie. It just goes to show that you don’t always need to hit homeruns in order to grow your account.

 

The great thing about Fixed Ratio Money Management is that you can create a money management plan based on your experience and how aggressive you want to be. If $150 a week isn’t realistic based on your trading, you can be more conservative targeting $50 a week. Of course traders with more experience can benefit from a more aggressive weekly average. You can also adjust your “delta” depending on how conservative or aggressive you would like to be (higher delta = more conservative, lower delta = more aggressive).

 

Many traders overlook money management, or never learn to appreciate money management and the power it can have your account. So start small, grow BIG, and let money management be your guide to greater profits.

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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  • Austrader

    Ok. You have given me a great challenge. Part of my biggest weakness is not being consistent with my lots. So it is good to set goals that can be achieved if you follow the discipline!

  • Zan123123

    hi

    great post,and do you maybe have Excel for that?