Undercapitalization in forex trading simply refers to having not enough capital to pass a series of poor performance in order to make your strategies work. While undercapitalization is indeed a bad thing, can you possibly survive with it?
Statistics say that 90% of forex traders fail due to various reasons. Of those, undercapitalization contributes much to the failure. It is, in addition, closely related to leverage.
While being undercapitalized, many brokers and experts will advise you to bulk up your capital so that you can survive high volatility. Indeed, the suggestions are not wrong as bigger capital enables higher survivability.
However, this is actually not the only option available. Believe it or not, it is possible to trade with small accounts although you will encounter many bumpy roads.
Without further ado, here are the tips you can perform using a small forex trading account under an undercapitalization-alike scenario.
Abide by the 1% Rule
Risk management always plays an essential role in forex trading no matter what your account size is. However, in an undercapitalized account, it becomes even more crucial.
The 1% rule is greatly contributory to a good risk management in a small account. Accordingly, what you have to do is to not trade with risk of more than 1% of your account on a single trade.
The goal is not to gain as much cash possible in a blink of an eye. Instead, it is beneficial to keep your possible losses to a minimum so you can continue your trade.
Pay Attention to Your Equity Curve
An equity curve refers to the graphical figure of your trading performance over a period. In other words, the figure tells you what works and what does not during your trading career.
Paying attention to your equity curve means you routinely analyze your historical performance and consciously trade by sticking to your strategies. Right after each trade, you can examine which of which works and why so.
By knowing your trades like the back of your hand, you can optimize your trade when a condition is highly suitable with your strategy. Also, you can mitigate the risk of overtrading that might cause you profits.
Trade to Trade, Not to Make Money
You might disagree with this last tip, but let’s be realistic instead of idealistic here. With a small account, winning and making money might be very challenging and risky although not impossible. That’s why it is better to prioritize trading over making money.
Psychologically speaking, many traders, apart from their account sizes, view forex trading as a quick get-rich scheme. In reality, traders in general can’t get rich overnight through forex even in big accounts, let alone small accounts.
If we go back to the essence of forex trading, it is not about mere cash-grabbing, but it is about playing your strategy at the right time to get returns. For that reason, upon using small accounts, better for you to focus on your trade first; playing your strategy appropriately and make it works.
Writer: Doddy D. Wahyuwono
Read Now: What is a Forex Mini Account in Trading?