Forex Swing Trading with $1,000 or Less
Not only is it possible to start forex swing trading with $1,000 or less, but with the right plan it is possible to start making a small income or to grow the account. The forex market gives such precise control over positions size and risk that even a small account can be traded in the same way a professional trades a large account.
While you can start with less than this, I recommend starting with at least $500. If you start with less than $500 you’ll be restricted on the trades you can take. $1,000 gives you a bit more room and you should be able to take most of the swing trades you see.
For the purpose of this article, “$” means US dollar. Please make the appropriate adjustment for your own currency if required.
Forex Swing Trading with $1000Copy link to section
In general, swing trading is taking trades which last for a day to a couple weeks.
When I swing trade I spend about 20 minutes each night finding trade set-ups (or a couple times a week, depending on your time restraints). This occurs after the US close but before the London open. I set my entries, stop losses and targets then go to bed. Some orders will fill overnight, and some of the trades may even be closed out by the morning.
Our risk is managed and our targets and stop losses are set, so there’s no need to constantly monitor our trades. We let mathematics increase our account value by setting targets which are larger than our stop losses. Even if we win only 40% of our trades we’ll be profitable using this approach.
Forex Brokers and AccountCopy link to section
Before getting into the mechanics of swing trading, you need to have the right type of forex account. If you’re 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, where each pip is worth $10. A pip is how currency movements are measured. If the price of a currency moves from 1.3000 to 1.3001, that’s a 1 pip move. Volatility varies from day to day, but a forex pair such as the EUR/USD will typically move 70 to 120 pips per day (see the Daily Forex Stats page for current volatility statistics).
I don’t recommend risking more than 1% of your account on a trade. Say you find a trade where you need to place a stop loss 70 pip below your entry price. With a $1000 account, your maximum risk on a trade can be $10 (1% of $1000). If you buy a micro lot, with a 70 pip stop loss your risk is only $7 (70 pips x $0.10). GOOD! If you buy a mini lot and place a 70 pip stop loss your risk is $70 (70 pips x $1). BAD! That’s 7% of your account. Several losing trades and your account is severely depleted. If mini lots are bad for a small account, standard lots are out of the question.
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’re risking almost exactly 1% of your account. On a $10,000 account, risking 1%, you can lose up to$100 per trade. With a 70 pip stop loss, 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 and FXOpen ECN account (not available to US residents). This account has small commissions ($2.5 per 100,000 traded), no broker intervention, and spreads are typically less than a pip in most pairs (constantly fluctuate). This is ideal for swing trading.
They also have a great level II plugin which allows you to quickly place stop losses and targets for entry orders (see link above), then you can drag and drop stops/targets as needed right on your screen. This is what it looks like:
We’re also going to utilize leverage of 20:1 to 30: 1. We aren’t usually going to use more than about 20:1, but having 30 or 50:1 is fine. Just because the additional leverage is there doesn’t mean we need to use it. We have stop losses on all positions, and the stock loss helps limit losses to a very small percentage of the account. During volatile times our stop loss will be bigger, and if the stop loss has 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 MathCopy link to section
Let’s get down to mechanics. I have a few specific strategies I follow, that I won’t fully outline here (see the Forex Swing Trading video series for strategies) but I will give you the math and how I set my orders.
If I am taking a long trade I place a stop loss 5 pips below a major swing low in price. The stop loss on a short position is placed 5 pips above a major high, plus the typical spread (examples below).
If trading a $1000 account, that means your stop loss can’t be more than 100 pips away from your entry price (100 pips x $0.10 = $10, your maximum risk when trading a $1000 account). Therefore, you’re 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’re only risking 1% of our account on a trade.
(Note: pips values 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, then place your stop and target. Hover your mouse over the stop loss 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. You can also learn how to calculate yourself: Calculating Pip Value).
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!). Place the 30 pip stop loss. Our profit target is always at least two times our risk. If risking 30 pips, we place our targets at 60 pips or more.
If the market structure allows it (meaning there is no major obstacle that will prevent the target from being hit), you can exit part of the position at 2x the risk, and another portion of the position at 3 x the risk…or greater. You can always exit at 2x your risk, but sometimes the market offers much greater potential than that.
Note: Setting targets at 2x or 3x risk is a bit arbitrary. There is nothing magical about these numbers. Yet I tell new traders to use them, and to take profits at these levels, because it gets them used to making more money on winners than they lose on losers. That said, once you progress you can set your target at any level greater than 2x risk. You’ll set your entry, stop loss and target based on the market structure (discussed later) and as long as the reward:risk works out to be greater than 2:1 you are good to go. My trades could end up being 2.67:1 or 7.3:1 reward:risk ratios for example…but starting with 2:1 and 3:1 is a good simple starting point for most people.
By risking about 1% per trade, and getting filled on 3 to 8 trades a week, even if you lose 60% of the trades you’ll be profitable. Your gains are at least twice as big as your losses. It’s just math. There’s no reason to risk more than 1% per trade. Even with losing days (which will happen) over the course of weeks and months you’re making money.
There’s no emotion here. Set your orders and that is it. You do need a decent system (see the aforementioned resources) to win 50%+ of your trades (ideally), but beyond that it’s just math. You’ll have losing days, but the winning days are bigger and more frequent.
Forex Swing Trader with $1000 – Pairs and Chart Time FramesCopy link to section
I recommend going through about 20 charts a night if you are starting out. Look for trades in pairs that are a mix of the USD, EUR, GBP, JPY, CHF, CAD, AUD, and NZD. Once you know what to look for, total trading time should be less than 20 minutes a night. I flip through 47 pairs a few times a week (plus several commodities), and it still only takes me about 20 minutes to find trades and put out orders. By placing orders in a few pairs you’ll get some fills each night and you’ll be booking profits or losses most days.
Some days there are worthwhile trades to take, and other days there are not. Don’t force it.
When swing trading forex, I use the 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.
This example above is from when this article was originally published.
The 1-hour chart above 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 (this is similar to the “crotch strategy” entry discussed in the Forex Strategy Guide). With $1000 account you can take 2 micro lots with targets at 80 pips (2x risk) and 120 pips (3 x risk).
In this case, both targets are inside the channel, which is what we want, but the second target (at 3x risk) is near the bottom of the channel, maximizing the gain for this particular market structure. If the market structures allows for a target that is 4x risk or greater, use it. Many trade setups will only produce trades that are good for 2x or 3x risk, but sometimes setups provide much more favorable risk/reward ratios than that. When those opportunities occur, take advantage.
Here’s another example, using a trend strategy on a 4-hour chart.
Final Word on Trading a Small Forex AccountCopy link to section
This style of trading is not about being right or wrong. Get rid of that mindset. We’re 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 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. That said, only take high-quality setups with favorable risk/reward ratios. Every trade should offer the potential to make at least 2x risk, based on the market structure.
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