Making Millions with Forex Trading: Myth or Reality ?

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Forex trading is an investment vehicle where the more money is used, the more money can be made. The problem here is that traders try to make too much money with too little capital, and they usually do this by using very aggressive targets and deploying very risky strategies. That is why many end up losing their entire capital as opposed to actually building capital to a level where it can produce more money with the same level of effort.

Is it possible to make millions with forex trading, or is it all a myth? There is no myth here as it is very possible to make such returns. Traders around the world have done, but the numbers are indeed few. The real way to make millions from forex is to go about things using these two strategies:

  1. Using the principle of compounding
  2. Using very low risk as part of the risk management strategy
  3. Using risk-reward ratios of at least 1:3 for all trades

What follows is an explanation of how you can genuinely make millions in forex trading.

  • The Compounding Principle

The compounding principle uses a very low risk percentage as its baseline target. Essentially, the trader aims to make an achievable percentage return per month, and uses any profits plus the initial capital into forex trades for the next month, using the same level of risk and without making any withdrawals. The compounding forex strategy illustrates this using an Excel sheet to which the parameters can be adjusted.

This is continued every month for at least 3-5 years, depending on how much the trader started with and how much risk is used. The essential components of this strategy are using a low percentage return per month to minimize risk, and also to ensure that capital is built up to do greater work in terms of yielding returns.

Look at it this way.

  • 5% of $5000 is $250.
  • $5 of $100,000 is $5000.

It’s the same percentage, same effort, but greater amount in profit for the person who earns 5% on the bigger capital. So why not grow your $5000 into $100,000 and use it to compound your way to millions? From the Excel sheet, you can actually achieve this in 2 years using a 12.5% monthly target.

  • Using Low Risk

Here, we will discuss risk as a function of the percentage being targeted in the journey to making a million dollars from forex trading. The journey to making a million dollars is not one that requires targeting a lot. You should cut your risk by targeting a little percentage every month. For instance, if you target 10% returns a month, you will very well achieve your target in 5 years. A % return of 9% in a month will mean that you only need to target 0.75% returns per trade, over 12 trading days in a month (Tuesday to Thursday every week).

compounding forex strategy excel sheet

Let us look at the snapshot from an Excel sheet calculation, based on 9% monthly returns over a 5-year period, starting with $6,000. For the 1st month, the targeted return from 10 -12 days of trading is $540.

  • Using Risk-Reward Ratios to Achieve This Monthly Target

This is the trickiest part of the strategy, and yet the best part. The use of a decent risk-reward ratio which sees the trader targeting at least three times whatever is risked as the stop loss, will ensure that even when more losses are sustained in a trading day, the trader will still achieve the desired profit targets.

For this strategy, it is recommended to trade with a leverage of at least 1:100 on a capital of at least $600. The maximum lot size to be used will be 0.25 lots, and three trades will be taken in a day. None of these trades will be taken simultaneously, meaning that only 1 position will be held at a time.

The win-loss ratio to be adopted will be at least 1:2, meaning that out of three trades, there must be a winner. If the trader’s first trade ends in profit, no more trades are taken for that day. If the first trade ends in a loss, then the trader can target to win the 2nd trade, and leave it at that. It is only if 2 trades are lost that the trader can target a 3rd trade. If three successive losses are sustained, trading for the day is suspended and carried on to the next trading day, where the target will be to recover the capital to the original size first, before resuming the compounding strategy.

Calculation:

How many trades do you need to win or lose in a month to achieve a target of $540? To determine this, we will use a risk-reward ratio of 1:3. This means that we need at least three trades in a day, for which you will set the following targets.

Scenario 1:

  • Trade size: 2.5 mini lots (0.25 lots; equivalent to $2.50 per pip)
  • SL/PT per trade: 20 pips SL/60 pips TP
  • Total wins (pips): 60 pips; $150
  • Net profit: $150

If the 1st trade is a winner, then 60 pips are won, and $150 is retained. This may go to offset losses that may occur on some days within the month.

Scenario 2:

This is used if the 1s trade ends in a loss and the 2nd ends in a profit.

  • Trade size: 2.5 mini lots (0.25 lots; equivalent to $2.50 per pip)
  • SL/PT per trade: 20 pips SL/60 pips PT
  • Number of trades to win: 1 out of 2
  • Total wins (pips): 60 pips; $150
  • Total losses (pips): 20 pips: $50
  • Net profit: $100

No further trades are taken. Again, the extra profit is retained to offset any future daily losses.

Scenario 3:

This is used if the first two trades end in a loss. If a third trade ends in a profit, this is how it works out:

  • Trade size: 2.5 mini lots (0.25 lots; equivalent to $2.50 per pip)
  • SL/PT per trade: 20 pips SL/60 pips PT
  • Number of trades to win: 1 out of 3
  • Total wins (pips): 60 pips; $150
  • Total losses (pips): 40 pips: $100
  • Net profit: $50

No further trades are taken as daily target has been met.

The compounding forex strategy shown here, with raw calculations, can be practiced over a 3-month period before going live with it, to ensure that a thorough understanding of the parameters has been achieved.

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