Trading Forex is about finding pips in the market and gain a profit. The trading platforms give the traders access to a lot of advanced trading tools like indicators and chart updates illustrating the currency rates with various time intervals. Some of the most known indicators are the Bollinger Bands, the Stochastic Oscillator, Parabolic SAR, Linear regression, Williams %R.
Indicators are one trading strategy; another is fundamental analyses where the trader review and assess the value of each data in connection to the currency pair he want to invest in. An example of data could be the retail sales or the changes in the unemployment rate; in other words data that could be considered as macro-economic data.
The mindset in this article is to describe how smaller trades can make a better profit in the long run; the mindset is also to describe how to test a trading strategy in connection to how smaller trades can make a better profit in the long run.
How to test a strategy and the benefit of testing a strategy
A test is several trades with the same trading strategy. A test could be 20 trades with the same strategy. An example could be a test with the Bollinger bands as a primary indicator and the Stochastic Oscillator as a secondary indicator. The objective of the test is to improve skills and profit margin.
A test could also include the invested capital; should the invested capital of each trade be 1 percentage or 2 percentages of the trader's equity or even more to generate better profit margin?
The answer is individually and only the test can answer the question as profit generation is connected to the trader's background, dedication, desire and motivation.
How smaller trades can make a better profit in the long run
A general rule is that smaller is better; in other words trade with smaller amounts and make a bigger profit in the long run. It sounds strange but the trader has to consider both rewards and losses overall and not just for each trade.
A trade could consist of a standard lot, mini lot and a micro lot. The definition of a standard lot is a lot that represents 100.000 units of the currency the account is founded with. A pip change is worth 10 dollars. A mini lot is 10.000 units of the currency the account is founded with and a pip change is worth 1 dollar. A micro lot is 1.000 units of the currency the account is founded with and a pip change is worth 10 cents.
Considering a trader who has three trades during a day; one winning trade and two losses; as it is a simple example the trades are only changing one pip; if the trade consists of a standard lot the lost is 10 dollars; one winner trade gain a 10 dollar profit and the two losses a minus of 20 dollars. If the same trade was made with a mini lot and micro lot with the same condition the trader would have lost a dollar if the trade was a mini lot and 10 cents if the trade was a micro lot.
In connection with the trader's equity the loss would consider of a larger percentage of the traders overall equity if the trader trade with standard lots instead of mini and micro lots.
Conclusion
The general rule is to trade with smaller amounts and the overall profit in the long would be better than trading with larger amounts. The reason is it can be difficult to regain larger losses even with the bigger profits larger invested capital gain. As profit and the trader's background, dedication, desire and motivation are connected it is important each trader include profit in testing trading strategies and find the right amount to invest.
Thank you for reading my article. If you like to share your trading knowledge or copy and follow other traders trade watch the video on my Forex website and see how you can benefit from a Forex Social Trading network.
I hope you will watch the video and consider the trading platform as your future trading platform.
Article Source: http://EzineArticles.com/?expert=Martin_Grippen
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