Whether we are modifying a demo account or playing for a few dollars on a real account, our idea is that in the future, bigger and bigger.
Unfortunately, it is difficult for many traders to take the next step and trade larger positions. Some find it risky to wipe out the small profits they've worked so hard over the past few months, while others can't resist taking the risk of a larger position.
There are definitely benefits to taking greater risks. But beware... while it can give you bigger gains, adding risk can also easily magnify your losses and wipe out your entire account.
To avoid the pitfalls of making big trades, I share three simple tips to guide you in increasing your risk:
1. Make sure you are in the green
Don't even think about increasing your risk if you can't even make a consistent profit with small trades. If you can't successfully trade small forex positions, how do you think you'll have more luck?
If you think and are ready, but your account is still in red, focus on getting it back to green first. Anyway, that's what demos and small accounts are for.
Keep trading small positions until your performance justifies trading bigger ones. After all, you don't want to equate your losses with a larger position size.
2. Make it slow and steady
Just like you wouldn't rush to fight an elite world champion after you've learned how to box, you shouldn't rush to increase your trade. You don't want to get bitten more, do you?
Gradually taking steps to increase the size of foreign exchange positions is the key to adapting to greater risk. If you're not entirely comfortable with the risk you're taking, the opportunity will show up in your account balance.
So instead of taking one big leap, look for small, steady increases. It is less likely to adversely affect your trading mindset and allows you to adapt to larger risks more smoothly.
3. Focus on percentages rather than dollar amounts
I'll tell you some trading secrets to help you get used to bigger deal sizes:
Focus on percentages rather than dollar amounts.
Risking 1% on a $10,000 account is the same as risking $100. On the other hand, risking 1% on a $100,000 account is equivalent to risking $1,000. So you will find that by risking the same percentage on a larger account, you are essentially trading a larger product.
It also helps to put profit and loss in perspective when you're focusing on percentages. Losing 1% on a $100,000 account doesn't feel much different than losing 1% on a $10,000 account. But in raw dollars ($1000 vs. $100), it's much harder to live with.
There you are, honey!
If you focus slowly and steadily on percentages rather than dollar amounts, you should be able to easily transition to larger trading positions. But most importantly, if you don't already have consistently profitable small trades, don't make the mistake of increasing your risk.
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