Balls of Steel Forex Trading Strategy

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Balls of Steel Forex Trading Strategy

There are many different approaches in trading. Different approaches that cause rifts and differences among different types of traders. It usually stems from the mindset of proud traders who thinks there are no other ways to trade except their way. If other traders or newbies go and try to learn something different than what they are doing, then, in their minds, that other way should be the wrong way. Well, trading is just not like that. Trading is both science and art. The science part says we can quantify everything through testing data and we make decisions based on algorithms. But the art part says there are no fixed rules and anything as long as it is proven to work goes.

There are many dichotomies and divisions among traders. One would be the asset class, those who trade stocks, bonds, commodities, indices, forex, cryptos, etc. Another would be holding time, those who scalp, day trade, swing trade, and position trade. And traders among these classes often think that there are no other ways to trade except theirs. One may be a penny stock scalper and made millions doing that, and he may be thinking this is the only best way to trade. Another could be a bond trader who does position trading as an institutional trader, and he too may be thinking all the other traders suck. But that is just not true. There could be other ways to trade, and those other ways could also work.

Perhaps one not so glaring divisions among traders are between those who use stop losses and those who don’t. Some stop loss using traders think trading without stop losses is just crazy, while some who don’t use stop losses think it is the only way to make money out of the market. And to be honest, I understand the arguments of both sides. Using stop loss let’s traders know their risk prior to losing money, and as traders one of our jobs is to manage risk. But on the side of stop loss non-believers, mathematically, if you get your position sizing right, the probability of burning your account to the ground is quite low.

To prove a point, looking at the EUR/USD, one of the most commonly traded currency pair, the pip range from 1989 to present is only 7,812 pips from the highest high to the lowest low. That means if you sold at the lowest low, even if you held on to that position up to the present, at the highest high, if trading on a micro account with a volume of 1,000, you would only be on the red by $781.20, without the swap. If your micro account only had a thousand dollars in it, you still wouldn’t have wiped out your account. If on a mini account, multiply the figures by 10 and on a standard account, multiply it by 100. Still, if you traded with a relatively small position size compared to your account size, you should still be ok.

The Setup

So, with this strategy, we will be exploring a trading strategy that focuses on position sizing as a means of doing money management, in contrast to using percentage risked on the stop loss. We won’t be discussing entries and exits. You can use any strategy you want on this matter. There would be no stop loss used. The key here is to hold on to the position until profitable, then exit you using the rules of your chosen strategy. As crypto traders would say, HODL. Probably, it’s “hold on for dear life”.

Since the position sizes on this type of strategy will be very low, the way to do this is through swing trading or position trading. Also, trade multiple currency pairs and try to build a portfolio of currency pairs using your strategy. This will make your time worthwhile as you build your portfolio and hopefully a greater bulk of your positions will be on the green using your entry strategy.

Onto the magic number. Given that on the sample on the EUR/USD, the pip range didn’t breach 8,000, the conservative ratio would be 1,000:1,000. That means an account balance of US$ 1,000 to trade a volume of 1,000 or 0.01 lots. You would only increase your position sizing to 2,000 once your account balance hits US$ 2,000. These figures should apply to micro accounts that allow such balances and trade sizing so that everyone could relate to the figures. For mini accounts, the figures should be multiplied by 10. For standard accounts where the minimum volume traded should be at least 1 lot or 100,000 volume, multiply the figures by 100.

Timeframe: 4-hour timeframe and above, preferably using the Daily charts

Position Sizing Ratios

Conservative – 1,000 volume or 0.01 lots : US$ 1,000

Medium Risk – 1,000 volume or 0.01 lots : US$ 500

Aggressive – 1,000 volume or 0.01 lots : US$ 200

For arguments sake, I will show a sample chart using the Daily chart. We will be picking a random entry that went horribly wrong. Let’s see how much on the red you would be if you picked one of the worst entries possible.

balls of steel strategy 01

Let’s say for example, you sold the AUD/USD on the level shown on the chart thinking the downtrend will continue given the two solid bearish candles prior to the entry. Then, on the next few days, the market reversed strongly. The market continued reversing for more than a month, 33 trading days to be exact, reaching the worst price on the chart. Still, on a micro account with approximately around US$ 1,000 on it, trading 0.01 lots, you should be down by only $62. That is an amount the $1,000 account could easily handle. Then, as you hold on to it, price goes back near your level. If held on until today, you would be nearing breakeven.

Conclusion

This is not a complete strategy so to say, but this is a very important concept. Thinking of money management as ratios of position sizing in relation to the account balance. If done right, you should be minimizing the risk, even if you had no stop loss in place.

Although it was mentioned above that building a portfolio of positions based on a solid entry and exit strategy would be good, you should still be careful with building a portfolio with positions that are correlated. For example, trading currency pairs with the USD going on one direction, then a trade war or a Fed news causes USD pairs to reverse on your positions. If you had 10 positions with a USD currency involved, that would be like trading a volume of 10,000 instead of 1,000 for every US$ 1,000 on the account.

The caveat though is that anything could happen. That one trade out of 10,000 could still wipe out your account. I wouldn’t recommend doing this right away on a live account. I wouldn’t also be recommending this if you don’t have a high accuracy ratio strategy on your entries and exits. In fact, this strategy is not for everybody. The usual disclaimer on trading applies, especially on this risky strategy. Any loss you incur would be your responsibility as a trader. That is why this strategy is only for those who have Balls of Steel.

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