In the first article of this series, I showed you how to maximize your chance of profiting from trading major news reports while limiting your downside and removing the emotions from your trades. The second article outlined the two main dangers of this strategy. If you missed these two articles, click here to read them now. The advantage of this strategy is that you already know your max loss and max profit potential before you enter the trade, which allows you to choose your risk reward level. The first step is to figure out the maximum number of lots you can trade on your account (the max deal). To find the max deal, simply multiply the total dollar amount of your account by 100. (EX: a $1,000 account has a max deal of $100,000 or 1 standard lot). This would not even be enough to trade this strategy since you need at least 1 lot per side or 2 lots total. Let’s say you start with a $10,000 standard lot (100K) account. You will be able to deal $1,000,000 worth of currency (1 standard lot = $100,000) so you can trade 10 lots at a maximum. (1,000,000/100,000) Since you are placing 2 trades at the same time in this strategy, the maximum number of lots you could trade is 5 on each side of the market, for a total of 10 lots. The max loss is 50 pips (25 stop loss on both sides) which equals a $1,250 loss per side of the trade (5 lots x $10 per pip x 25 pip stop) or a total of $2,500. If you decided to take the max risk on this trade you could lose $2,500 or 25% of your total account value ($10,000 - $2,500 = $7,500). Profit would be $1000 or 10%. This offers you the highest risk/reward ratio. However, be careful with trading the maximum leverage because if you do lose the 25%, you will only be able to trade on $7,500 next time (max deal of $750,000 or 7 lots total). So, if you hit three trades for the month at the max leverage, you would make $3,000 ($1,000 max profit x 3 trades) for a monthly gain of $3,000 or 30% ($3,000/$10,000). This strategy will also work on a mini account. A mini account trades the same way a standard (100K) account does but it uses 1/10 th the contract size. So, basically, the dollar amounts would be divided by 10. This is what I mean by “choose your own risk/reward”. Since you know your max loss and max gain before you place the trade, you can figure out how much you want to risk and how much you can potentially make. For some people, the high probability of making 10% on each trade is worth risking 25% per trade. Some people would be more comfortable with risking only 5% in order to make 2% on each trade. You can modify the risk/reward level to suit your own personal tolerances. See the examples below. Risk/Reward Scenarios 10/25 PLAN $10,000 standard (100K) account (10% profit, 25% risk) Max Deal: 1,000,000 (10 lots) Max Gain: $1,000 (5 lots per side x 20 pip profit x $10 per pip) Max Loss: $2,500 (5 lots per side x 50 pip loss x $10 per pip)
8/20 PLAN $10,000 standard (100K) account (8% profit, 20% risk) Max Deal: 800,000 (8 lots) Max Gain: $800 (4 lots per side x 20 pips profit x $10 per pip) Max Loss: $2,000 (4 lots per side x 50 pip loss x $10 per pip)
6/15 PLAN $10,000 standard (100K) account (6% profit, 15% risk) Max Deal: 600,000 (6 lots) Max Gain: $600 (3 lots per side x 20 pips profit x $10 per pip) Max Loss: $1,500 (3 lots per side x 50 pip loss x $10 per pip)
4/10 PLAN $10,000 standard (100K) account (4% profit, 10% risk) Max Deal: 400,000 (4 lots) Max Gain: $400 (2 lots per side x 20 pips profit x $10 per pip) Max Loss: $1000 (2 lots per side x 50 pip loss x $10 per pip)
2/5 PLAN $10,000 standard (100K) account (2% profit, 5% risk) Max Deal: 200,000 (2 lots) Max Gain: $200 (1 lots per side x 20 pips profit x $10 per pip) Max Loss: $500 (1 lots per side x 50 pip loss x $10 per pip)
To figure out which risk/reward scenario you want to apply to the total capital you have in your account, calculate: Total Account Value X 100 / $100,000 = Total Number of Lots or Max Deal Max Deal x 100% /2 = 10/25 Plan
Max Deal x 80%/2 = 8/20 Plan
Max Deal x 60%/2 = 6/15 Plan
Max Deal x 40%/2 = 4/10 Plan
Max Deal x 20%/2 = 2/5 Plan Example: You deposit $18,000: $18,000 x 100/$100,000 = 18 Total Lots 18 Lots x 100% / 2 = 9 lots per side (10/25 Plan) 18 Lots x 80% / 2 = 7 lots per side (8/20 Plan) 18 Lots x 60% / 2 = 5 lots per side (6/15 Plan) 18 Lots x 40% / 2 = 3/4 lots per side (4/10 Plan) 18 Lots x 20% / 2 = 2 lots per side (2/5 Plan) Of course, depending on the capital you will not always have exact amounts, but you can round up or down accordingly. For Mini accounts, divide everything by 10. (To be continued) In the next section, we will discuss trading strategies for after the news. DC Bonta has been amongst the most elite traders on the New York and American Stock Exchanges and has traded equities, options and Forex with firms such as Morgan Stanley and TD Waterhouse. His Forex trading strategies are available daily for Free on http://getresponse.com/t/9307333/577168/160336538/ Here’s To Your FX Trading Success, 
DC Bonta, The world’s #1 FX money manager | 
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