Forex: What Are The Best Pairs To Trade With A SMALL Account?

Summary

In this video, Stephen explains the importance of selecting the right currency pairs for beginner traders with small accounts. He highlights the dangers of trading volatile pairs, like GBP/JPY, which can risk a significant portion of your account balance. Using simple math, Stephen shows how trading with high volatility pairs can lead to disastrous losses. He then introduces safer pairs, like CAD/CHF, which have smaller stop losses and lower risks. The key takeaway is using the Average True Range (ATR) indicator to identify low-volatility pairs and protect your small trading account from significant losses.

Takeaways

• 😀 Trading with a small account can be risky, especially when dealing with volatile currency pairs that have wide price movements.
• 😀 A common mistake for beginners with a small account is trading highly volatile pairs like the GBP/JPY, which can result in significant losses.
• 😀 Trading a volatile currency pair, such as the pound yen, with a small account can lead to risking a high percentage (e.g., 10%) of your account on a single trade.
• 😀 It's important to manage risk and keep it low, ideally under 2%, to avoid blowing your account, especially as a beginner.
• 😀 Currency pairs like the GBP/JPY, with large price swings, should be avoided by beginners with small accounts to reduce risk exposure.
• 😀 A safer approach is to trade currency pairs with smaller ranges and volatility, such as the CAD/CHF, which offers lower risk per trade.
• 😀 The Average True Range (ATR) indicator helps measure the volatility of a currency pair and can be used to determine which pairs are safer to trade for beginners.
• 😀 Currency pairs with a smaller ATR (e.g., under 20) are generally better for beginners with small accounts, as they tend to have smaller candle ranges and less volatility.
• 😀 Avoid trading highly volatile pairs (with ATR above 20) if you have a small account, as these pairs can cause larger losses, especially when you're still learning.
• 😀 Beginners should focus on trading lower-risk pairs (e.g., EUR/USD, CAD/CHF) and use the ATR indicator to monitor volatility, helping them avoid unnecessary risks.
• 😀 The ultimate goal for beginners is to stay in the market long enough to learn and gain experience without risking the account balance on high-volatile trades.

Q & A

Why should beginners avoid volatile currency pairs when starting with a small account?

Beginners with small accounts should avoid volatile currency pairs because they can lead to high risks. For example, trading on pairs like the pound yen can lead to significant losses if the price moves drastically, which can blow a small account. A 100-pip movement with a micro lot (0.01) results in a 10% risk, which is unsustainable for beginners.

What is the risk of trading the pound yen on a 100-dollar account with a 100-pip stop loss?

The risk would be 10% of the account balance. Trading with a micro lot (0.01) means risking 10 cents per pip. A 100-pip stop loss on the pound yen would result in a loss of $10, which is 10% of a $100 account, a high risk for beginners.

How can using smaller risk percentages help beginners in trading?

By risking smaller percentages of the account (e.g., 1% to 2%), beginners can protect their capital while learning. Lower risk per trade reduces the chance of a complete account loss, allowing more time to develop trading skills and strategies.

What strategy is suggested for beginners trading with a small account?

The suggested strategy is to trade with a conservative risk management approach. One example provided is trading when a candle closes above or below the 50-day moving average with a stop loss placed below or above the candle's low or high, respectively. This approach should be used with currency pairs that have lower volatility.

Why is the Average True Range (ATR) indicator important for beginners?

The ATR indicator helps measure market volatility, providing insights into how much a currency pair is likely to move. Beginners can use this information to select pairs with smaller ranges, reducing the risk of large losses from unexpected price fluctuations.

What is a good ATR value to look for when trading with a small account?

For beginners with a small account, it's recommended to avoid pairs with an ATR above 20, especially on the hourly chart. Pairs with smaller ATRs, such as the Euro Dollar or Canada Swiss, are safer to trade due to their lower volatility.

What does an ATR value indicate about a currency pair?

The ATR value indicates the average price movement (in pips) of a currency pair over a specified period (usually 14 candles). A higher ATR means higher volatility, while a lower ATR indicates less price movement, making it more suitable for beginners with small accounts.

What are some currency pairs with smaller ATRs that are safer for beginners?

Some currency pairs with smaller ATRs include the Euro Dollar, Canada Swiss, and Euro Pound. These pairs typically experience smaller price movements, making them safer options for beginners trading with small accounts.

How does using a smaller stop loss help manage risk in trading?

Using a smaller stop loss reduces the amount of capital at risk per trade. By cutting losses early, traders can avoid substantial drawdowns that might wipe out their small accounts, enabling them to stay in the market longer and learn from their mistakes.

Why should beginners focus on staying in the market longer rather than trying to make quick profits?

For beginners, the goal should be to stay in the market long enough to learn and improve trading skills. By focusing on minimizing risk and learning from mistakes, rather than chasing quick profits, traders can increase their chances of eventually becoming profitable and successful.