Trading Strategy With $100 Capital – Spot72.com

Trading Strategy With $100 Capital – Spot72.com
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Trading Strategy With $100 Capital – In the world of forex trading, there are three main pillars that traders must understand, namely: Mindset (trading psychology), Money Management (MM), and Method (trading method), which is usually abbreviated as 3M. One of them that will be discussed this time is Money Management. In a word, Money Management can be said to be a trading risk control measure.

The reason is, market movements are not available to any trader who is able to determine where prices will move. Thus, the use of Money Management is the best step to minimize potential losses. Most traders will usually use MM terms with a maximum risk of 1-3% per transaction. However, this provision is too inadequate for traders using small capital, at least $ 100.

So, on this occasion the author will review tips on setting up Money Management for a trading capital of $ 100. How to?

Use Micro or Cent Account Type

If you are trading with a capital of $ 100, of course the choice of account types to choose from is very limited. In this case, you can use a Micro account or a Cent account. Standard accounts usually have a much larger minimum deposit.

So, choose a Micro or Cent account? To choose which account to choose, please carry out the calculation using a maximum risk of 3% per transaction, as follows:

If the trading stop loss (SL) range is less than 30 pips, then you can use the Micro account type. So, you can place a stop loss within 15 pips by using a lot of 0.01. So the total risk per trade is $1.5 or 1.5%, still under 3%.

However, if you often place a wide stop loss if it is up to 40 pips more with an analysis using a lot of 0.01, then the total risk per transaction is $ 4 or 4%. Even though the maximum limit that has been determined is 3% risk.

So, the best solution for wide stop loss users is to use a Cent account. On a Cent account, a $100 deposit is multiplied by 100 to $10,000 Cent. That is, you can use a stop loss greater than 30 pips. As an example:

The larger the SL distance used, the smaller the lot will be. When price hit its stop loss, losses never touched above 3%.

Limit Loss Maximum 3% Per Transaction

Maybe you are wondering, why should you limit the risk per transaction by 3%? Why not just 10%? In this case, there are two main keywords that must be understood, namely consecutive loss and drawdown recovery (return percentage).

For example, there is a trader who has a win rate of 50% with a risk/reward ratio of 1:2. So that it can be said that traders after that are still profitable. The calculation formula is as follows:

  • Expected value = (winrate x average profit) – (lossrate x average loss)
  • Expected value = (50% x 2) – (50% x 1) = 1.0- 0.5 = 0.5 (positive expectation)

A positive expectation value is a sign of profitable trading performance in the long term.

Now, if a trader uses a risk per transaction of 10% and there is a losing streak, is the account okay? To answer this, please see the table of the relationship between the chance of success (winrate) and the potential for consecutive losses in the 100 transactions below.

Pay attention to the 50% winrate line, there is a 95% chance and there is a loss of up to 5 times in a row; and a 9% chance of losing 10 times in a row. That is, the trader must then consider that there may be losses 10 times in a row.

If the trader then uses a 10% transaction risk, what happens if he loses 10 times in a row? The answer is bankruptcy, the trading capital runs out. Even if a trader has a win rate of 70%, there is still a 2% chance of losing 7 times in a row. With a risk of 10% per transaction, one day trading capital can be left with only 30%.

Now imagine that the trader limits the risk per transaction is 3%. Even with 10 consecutive losses, the total loss is only 30% and 70% capital is still available. With 70% remaining capital, you will still be able to try again and have the opportunity to return the previous loss.

To see the relationship between the drawdown rate and the drawdown recovery rate, please see the table below.

It can be seen, to return a loss of 30%, it turns out that the trader must have a winning measure of 42.9%. Meanwhile, for a 50% drawdown, the trader requires a 100% return, and so on. As an example:

Suppose you bring $ 100 capital, then experience a loss of $ 50 or 50% of your capital. So, what percentage do you have to get to reach $100 back? The answer is 100%. In other words, the trader must achieve a profit of $50 from the remaining capital of $50.

This is the reason why you are recommended to use a small risk per transaction. In fact, many professional traders who bring large capital actually use the maximum risk per transaction, which is only 1%. This is done not because they are not good at trading, but as an effort to control risk.

With the existence of risk/reward, you can arrange it so that in one loss, all profits don’t run out immediately and in the long term the difference between profits and losses on the balance becomes more surplus. So, what is the ideal risk/reward for a $100 trading capital? The answer is about the size of the trading process winrate used.

Use the Ideal Risk/Reward

Tips for Money Management for a capital of $ 100 is to use the ideal risk / reward. Simply put, risk/reward is a comparison between the effect on the outcome. Or in the trading world it is often called the comparison between loss and profit.

If the trading process has a 50% win rate, at least you have to use a risk/reward above 1:1 so you can stay profitable. But for the trading process with a win rate of 60%, of course you can still be profitable even if you only use a risk/reward of 1:1.

The final word

In the world of forex trading, Money Management is managing funds in a trading account. It is also how big the lot is in each trading position, what is the distance between the entry price (open position) and the Stop Loss (SL) and the profit object.

With a capital of $ 100, of course you have to apply more stringent Money Management rules so that you can remain profitable in the long term. Some steps that can be taken are to use a Micro or Cent account, apply a tight stop loss, and also choose the right risk/reward.

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