Forex Trading Part 3 Using MT4 App

Forex trading explained using the MT4 app.

Our Forex Trading using the MT4 App part 3 includes the following topics; LEVERAGE, LOT SIZE, RISK MANAGEMENT, COMMON MISTAKES BY TRADERS, TRADING PLAN, MT4 INTERFACE.

Lets start with the first topic

LEVERAGE

Leverage is the ability to use something small to control something big. In Forex Trading we say that we are using small capital base to control larger lot size. To understand it, let me tell you how Forex used to be. It was not anyone who could trade Forex. Forex are only Traded by People call KABALS "Men of the wall streets" So only banks, big businessmen, Company owners could trade.

Example, to trade in the New York Stock Exchange, you should be making a specific amount of millions of dollars per year. No owing any mortgage, tax documents updated and a couple of criteria just to limit it only to the Elites. So you and I couldn't have benefited without Leverage.

Now Brokers now set in due to the proliferation of internet, you and i can pass through brokers and also trade online. These brokers have so many customers that could solve the problem of capital for us. Brokers have enough capital and we can now jointly trade with them.

Instead of looking for $1M to start trade, just with $10 you can trade in the Forex market. You went to the market through your broker and the World Bank recognize him as a formidable force. Hope its well understood.

Now your broker is giving you Leverage in the Forex Market that permits you to trade.  The principle of leverage is to multiply that your little capital so that you can use it and buy something bigger.

Example: 1:500, 1:1000 e.t.c... lets say you choose a leverage of 1:500 during registration with $100 as capital, you can be able to place a Trade of $100*500=$50000. So you are actually controlling trade worth $50000. That's what we have in Forex appreciable.

LOT SIZE

Lot Size is the amount or quantity of a trade that you bought or sold. Its some times called your Position size/Trade Size. In Forex Market these currencies are bought and sold in Packs called LOT SIZES. That is what makes profit appreciable if not, your profit would have been very small. But because you buy this currency in PACKS/BULK known as Lot Size, that's what brings us gain.

There are three types of LOT SIZES namely; STANDARD, MINI AND MICRO Lots.

STANDARD LOT, Contains 100,000 Units and is represented on MT4 by 1.0, MINI LOT contains 10,000 units and is represented on the MT4 by 0.1 While MICRO LOT contains 1,000 units and is represented by 0.01. To enter it on the MT4 click a currency pair, the New order and you find in between positive and negative values at the top of your screen.

Example, Lets take three Traders A, B,C dealing on shoe business, for them to make profit, they can't just buy a single shoe from the wholesale. They need to buy in bundles for a reasonable profit. Those bundles are what we call lot sizes.

Assume Trader A bought 100,000 bundles of Shoes and B bought 10,000 bundles while C only bought 1,000. It is obvious that trader A would make more profit than B and C respectively. What determines the bundles of shoes bought is the capital invested in the business. This is a typical illustration of Lot Size. 

In the illustration above Trader A bought Standard Lot Size while Trader B bough MINI Lots and Trade C bought Micro Lot Size.

Standard Lot Size 1pip=$10, Mini Lot Size 1 pip =$1 and for Micro Lot Size, 1 pip=$0.1. If any of the Trade a currency pair and each of them made 50 pips then just multiply by your lot size amount. So A will earn $500, B=$50 C=$5.

TRADING PLAN

There are is a saying that when one fails to plan, you are planning to fail. So you need a trading plan before you start trading in the Forex Market. Follow it judiciously and never twist it to suit your market condition bias.

You need a SMART plan. SPECIFIC, ACHIEVABLE, REALISTIC, TIME BOUND.

Take this into consideration;

1. I would earn 100% of my trading equity in 1 month.
2. I would set a near term goal and make at least 25% of my Trading Capital in 1 week and would plot this target daily.
3. If am behind my trading plan for the quarterly, i would take a brief break to re-evaluate my trading system.
4. I would not trade more than 4 loosing trades in a row, I would take a trading break of 2 days to re-access the market.
5. Anytime I take a break, I would close loosing trades, set protective stops on a winning trade and TP at reasonable targets; should I be unavailable and Market gets to my target.
6. I would take 70% out of my account and invest in non FX related business and reinvest 30%.
7. I would record my daily trade activities in my trading log and review them weekly.
8. I would know my ratios and results and would work to improve on them at least 5% per week.
9. I would invest 4 hours a week to update my knowledge on Forex and learn new Trading strategies.

Please you can print and paste it beside you trading Table or desk.

For a little capital of $100- $200, you can make a target of $20 to $40 earning daily. If you can hit $100 a week then $400 a month is ok.

Eliminate the factor of greed and earn exactly what you need for that day. Take the market slow and steady and you will always be comfortable with trading.

COMMON MISTAKES BY TRADERS

Another important principle in life is to learn from people's mistake. Remember we talked of Fundamental Analysis which we trade the Market using News. Never wait to learn from your mistakes. Those that have gone this part ahead of you would tell you these are what people have done which didn't yield positive results and hence you should modify your own actions.

• Not having a trading plan is a fatal mistake as well
• Don't demo trade or paper trade for too long it makes you own less emotions. Here you are dealing with real cash.
• Next is not using STOP LOSS. Always remember to put it in all your trades. Here it's technology protecting your account.
• Always look at economic Calendars before beginning of every week.
• Never open many trades because you will not be able to monitor them. I call it greed. You can't grab all the pips in the market. You may not go back with half the market volume of $5.3 Trillion liquid cap my friend. At least three Currency pairs are ok at a time. To get News about the market, go to Forex Factory , Fxstreet, Investing or Daily Fx any you can get important News releases for the week especially when you click on their economic Calendar.

Forex analysts come up with the same value to come up with what we call a consensus. This consensus are published in various platforms before the main News is released by 8:30 am. EST (12:30 GMT). With the forcasts, many traders will go straight with the aim of making huge profits which is not good. Wait for the main News.

RISK MANAGEMENT

It is composed of all these topics we have been teaching from Part 2. Lot Size, Trading Plan, Stop Loss, Greed Elimination e.t.c...Because i told you that 1.0 Lot size gives $1/pip, you would see someone trying to use 1.0 Lot Size on a $100 or $200 account. You can not get rich overnight. That is what we call over trading in Forex. Stick to Lot Size that suits your account. $50 per day is not bad for a starter, its at least $250 a week. It may still go to $70 and finally $100 a day.

If you set your Lot Size to 0.01, 1pip will be $0.1.

RISK MANAGEMENT GUIDE;
You are expected to choose a lot size depending on the amount you invested as below.
Balance.....Lot size:
$100-$590...0.01 (5 open trades=0.05)
$600-$990...0.02 (4 open trades=0.08)
$1000-$2000....0.02 (open trades=0.12-0.16)
$2001-3000...0.05-0.08 (4 open trades=0.36-0.4)
$3001-$6000...0.09-1.0 (4 open trades=0.6-2.0)
$7000-$10000 ...0.15-0.50(4 open trades=0.6-4.0)
$11000-$20000...1.0-2.0 (4 open trades=4.0-8.0)
$30000-$50000....3.0-5.0 (4 open trades=12.0-20.0)
$60000-$100000...6.0-10.0 ( 4 open trades=24.0-40.0)
$100000-1000000....20.0-50.0 (4 open trades=80.0-100.0)

Never open a trade without Stop Lose (SL).

MT4 INTERFACE

Now you should know how to place your TP(TAKE PROFIT) and SL(STOP LOSS)

When you click and hold a pair of currency, take New Order. You will find your lot size at the middle of -o.1 -0.1 0.1 +0.1 +0.1 Then 0.1 is your lot and you can adjust it. Below it you find your STOP LOSS(sell) on your Left and TAKE PROFIT(buy) ON YOUR Right.
     Some terms;
Balance: It is the amount you deposit plus your profit.
Free Margin: Available funds to trade on an account. These funds are not being used as collateral in trades on the Forex financial market. These funds can be used in any operation including their withdrawal or to open a new position. To calculate Free margin= Equity-Margin
Forex margin level: is the percentage value based on the amount of accessible usable margin versus used margin. Thus is the ratio of equity to margin and calculated as follows; Margin Level=(equity/used margin)*100.

Thanks for going through the PART 3. Here are the links for Part One and Part Two .