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Forex Swing Trading with $1000 or Less

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Not only is it possible to start forex swing trading with $1000 (or less), but with the right plan making a small income from it each week is also possible (or let the account grow). The forex market gives you such precise control over your positions size and risk, that even a small account can be traded in a same way a professional trades a large account. This is not possible in other markets, such as stocks or futures. $1000 isn’t going to do anything in the stock market, and you’ll likely want to start with at least $8,000 to $10,000+ if trading futures.

I love the forex market, and want to guide you through the process of growing a $1000 account.

While you can start with less than this, I recommend starting with at least $600. As some of the examples below will show, if you start with less than $600 you’ll be constricted on the trades you can take; where as a $1000 gives you a bit more room and you should be able to take a large number of the swing trades you see.

For the purpose of this articles “$” means US dollar. Please make the appropriate adjustment for your own currency if required.

Forex Swing Trading with $1000 - Swing Trading

In general, swing trading is taking trades which last from a day to a couple weeks.

When I swing trade I spend about 30 minutes each night–after the US close but before the London open (see market hours in local time here: Forex Market Hours)– finding trade set-ups. I set my entry price, set my stops and targets and go to bed. Some orders will fill over night and may even be closed out by the morning. Trades that are filled typically last several hours to several days. This is a “set and forget” approach to trading.

Our risk is managed, and our targets and stops are out in the market, so there is no need to constantly monitor our trades. We simple let mathematics increase our account value by setting targets which are larger than our stops. Even if we win only 40% of our trades we will profitable using this approach.

Forex Swing Trading with $1000 – Forex Brokers and Account

Before getting into the mechanics of swing trading, you need to have the right type of forex account. First of all, if you are trading a $600 or $1000 account, your account must allow you to trade micro lots. A micro account allows you to trade in 0.01 lots, which means each pip is worth $0.10 (when USD is second currency listed, such as EUR/USD). A mini account makes you trade in 0.1 lots, where each pip is worth a $1. A standard account requires trading full lots, which are $10 per pip.

I don’t recommend risking more than 1% of your account on a trade (2% at absolute maximum, and I don’t recommend it). Say you find a trade where you need to place a stop 70 pip below your entry price. With a $1000 account your maximum risk on a trade is a $10 (1% of $1000). If you buy micro lot, with a 70 pip stop your risk is only $7 (70 pips x $0.10). GOOD! If you buy a mini lot and place a 70 pip stop your risk is $70 (70 pips x $1). BAD–that is 7% of your account. Several losing trades and your account is severely depleted! Obviously standard lots are a horrible idea for a small account.

The nice thing about a broker that lets you trade micro lots is that you can really fine tune your position. Say you grow your account to $10,000. You’ll still want to be able to trade micro lots! Using the same example as above, with micro lots you can fine tune your position so you are risking almost 1% of your account. On a $10,000 account, risking 1%, you can lose up to$100 per trade. With a 70 pip stop you can take 14 micro lots which gives you a risk of $98 (14 x $0.1 x 70 pips). GOOD! If you are only allowed to trade mini lots then you need to either take 1 mini lot (equal to 10 micro lots) or 2 mini lots. Take 1 mini lot and you are only risking $70 when you could be risking up to $100 safely. Take 2 mini lots and you are risking $140, which is more than the 1% of our account we want to risk.

Trade micro lots and trade with a broker that lets you trade in micro lot increments regardless of account size. I use FXOpen and they are the best broker I have ever used. I highly recommend them.

They offer multiple accounts types; for swing trading I recommend the STP account. With this account there are no commission, absolutely no broker intervention and spreads are about 1 to 2 pips on most pairs. This is fantastic for swing trading. You can check out the STP “trading conditions” here: Account Types - click on STP. STP and ECN means you never have dealer re-quotes and you don’t have a broker screwing you on the spread. To read more about how STP works, see ECN/STP Forex Trading with FXOpen.

Aside from that they have tons of deposit and withdrawal options, and are regulated in New Zealand (sorry, not US residents). They also have a great level II plugin which allows you to quickly place stops and targets for entry orders, then you can drag and drop stops/targets as needed right on your screen. You can read more about that here: ECN/STP Forex Trading with FXOpen.

I like my broker (how many trader’s say that?) so obviously I am biased, but try a demo account and see for yourself.

We are also going to utilize leverage, I recommend 10:1 to 50: 1. We aren’t really going to use more than than about 20:1, but having 30 or 50:1 is fine as well. We have stops on all positions, never get re-quoted (we may get a bit of slippage though) and our stops are usually a ways away from the current price so taking a massive hit isn’t likely. During volatile times our stop will be bigger, and if the stop is going to be so big it causes us to risk more than 1%, we don’t take the trade.

Forex Swing Trading with $1000 -It’s Just Math

Let’s get down to mechanics. I have a specific strategy I follow, which I won’t fully outline here (will make a video) but I will give you the math and how I set my orders so my account grows.

If I am taking a long trade I place a stop 5 pips below a major swing low in price. The stop on a short position is placed 5 pips above a major high, plus the typical spread.

If trading a $1000 account that means your stop can’t be more than 100 pips away from your entry price. Therefore, you are looking for entry points with less than 100 pips of risk. If trading a $600 account, you need to find trades with less than 60 pips of risk. This is because we are only risking 1% of our account on a trade.

(Note: pips values will vary when the USD isn’t the second currency listed in the pair. If you are unsure of pip values, you can always check the amount you have at risk on a trade in MetaTrader4. Go to Tools>Options>and select “Show trade levels.” Put out an order away from the current price where you want to enter, place your stop and target. Hover your mouse over the stop level on the screen to show the dollar amount at risk. If it is more than 1% of your account, cancel the trade or reduce the position size.)

So with a $1000 account let’s say you find a trade where the risk is 30 pips. This means you can trade 3 micro lots (your risk will be $9, and you are allowed to risk $10, GOOD!). Take three separate positions at the same price, each for 1 micro lot (the level II plugin makes this easy). Place the same 30 pip stop for all of them, but each position will have different target.

Take profit on the first position at 1.6x the risk. You are risking 30 pips, so put a target of 48 pips for one of the micro lots. For another micro lot put the target at 2.0 x risk, or 60 pips. For the third lot put a target at 2.6 or 3.6 x risk, so 78 or 108 pips.

If the stop is a bit bigger, say 70 pips, then you can only take 1 lot. When this happens I recommend taking profit at the 1.6 x risk, which is 112 pips in this case. The reason is that you get your profit and you can always look for another entry. There are loads of forex pairs and other opportunities. If you have a trade were you took 2 lots, get one out at 1.6 x risk and the second lot at 2.6 x risk.

By risking about 1% per trade, and getting filled on 3 to 5 trades a night (which is about how many I am filled on each night) even if you lose 60% of the trades you will be profitable. Your gains are bigger than your losses, by a margin of 60% of more, and when you can take multiple micro lots with different targets your wins will be more than double of your losses. It’s is just math. Making 1% to 5% per day isn’t uncommon with this approach, and those sorts of returns add up quickly. There is no reason to risk more than 1% per trade. On losing days you may lose 1% to 3%, but average it out and you are making money.

There is no emotion here (or shouldn’t be). You set your orders and that is it. You do need a decent system to win 50%+ of your trades (ideally), but beyond that it is just math. You will have losing days, but the winning days will be bigger and more frequent.

Forex Swing Trader with $1000 -Pairs and Chart Time Frames

I recommend going through about 15 charts a night, for pairs that include (and are limited to) the USD, EUR, GBP, JPY, CHF, CAD, AUD, NZD. There are a lot of potential combinations there. Even if the entry point is far away current market price, I put out my orders. By placing orders in about 10-15 pairs you will get some fills each night and will be booking profits or losses each day. Each night I flip through the charts, put out new orders if needed, or adjust pending orders as required.

I use a 4-hour chart as my overall guide for the trend. When possible I like to draw crude trend channels around the price (on the 4-hour chart) to let me know where support and resistance areas are. I only take trades in the overall direction on the 4-hour chart. I also frequently use the 1-hour chart if it is relevant (see attached chart at top of article, or view a large version of the chart here).

The 1-Hour chart shows a downward sloping trend channel. My ideal trade is taking short positions near the top of the channel in a resistance area. If you placed a short entry order at the bottom of the resistance area box you could have placed a stop above the May 7 high, risking about 40 pips on a high probability trade. With $1000 account you can take 2 micro lots with targets at 64 pips (1.6 x risk) and 80 or 104 pips (2 or 2.6 x risk). Both targets were hit because by entering in that area there is so much space for the price to run back to the bottom of the channel.

To find exact entry points you can drop down to a 30-minute or 15-minute time, but for simplicity stick to the hourly chart at first.

Forex Swing Trader with $1000 – Final Word

This style of trading is not about being right or wrong. Get rid of that mindset. We are trading based on math… consider blackjack in a casino. The House has a statistical edge in blackjack which is realized over many hands. In trading this way, we do too, but we need to be relentless in putting out our orders and letting the market play out. Keep your hands and mind out of your trades once in them. Let the math work. The only exception is this: if you have three (or maybe more) lots with different targets, once the first two targets are hit you can reduce your stop on the remaining position(s). When you are that far into the money you don’t want it to turn into a loss. Other than that, no adjusting orders once in a trade, and don’t expand your targets out either. Take your profit as set and look for other opportunities…there is no shortage of them.

And of course trading with a broker that gives you best chance of success also helps; I recommend these guys: FXOpen

For more on day trading swing trading, check out my Forex Trading Strategies Guide for Day and Swing Traders eBook.

Cory Mitchell, CMT

VantagePointTrading.com

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