I have 6 years of forex trading. Many people do'nt agree with forex trading saying it is too risky. Yes, It is. but if you know how to manage your risk, then it will be a very good form of passive income. I personally making it as another source of passive income now. I am going to share with you how you can manage the risk in trading forex and make it as your stable passive income.
Why build forex as passive income
There are many advantages in forex trading compare to other form of investment.
Forex is similar to stock market. Instead of buying company share, you buying currency of a country. For me, it means you are holding something more reliable. a currency will only go up or down, nothing else. For a company stock, many situation will happened. (Unlist, split, merge). Therefore, using the nature of forex market (up/down) we can plan trading strategy to take advantage of it.
You can still earn money even if the economy is bad.
In forex, you can buy or sell unlike stock exchange, you can only buy. during bad economy, you know the price of the stock is definitely going to drop but you cannot make any profit from it. You will need to wait for the price to reach the bottom then only you can buy stock and stock market usually move very slow. We dont have the time to wait.
Cost is forex trading is very small.
You just need to pay the spread of the currency pair if you place a new trade. Another fee will be the withdrawal fee. Normally it is just around USD20 for the wire transfer processing fee.
Easy to start
You can open a trading account and start trading in 1 day. You can open a trading account with any broker, such as pepperstone, fxcm, etoro. Most of the broker allow USD100 ~ USD200 minimum deposit.
I tried Carry trade strategy, martingale strategy, price action trading strategy. Below is my opinions of each strategy.
1. Martingale strategy
This is same strategy people use when gambling. You just double up your bet each time you lose. example you buy a EURUSD but the market decided to head down. You just continue buying with double the lot size you place earlier.
You might got lucky and recover all your losing trade even if the market just retrace back to 20% . If you the market continue to drop, you will eventually burst your account. Trust me, if you using this strategy, you will encounter this one day and you need to give back all the money that you earned. This strategy make you very worry about your trade. You might not able to sleep well at night. I never really tried this strategy because it is suicidal.
2. Price action trading strategy
Based on the candle stick pattern formed on the daily chart. You place your entry point, Stop loss and take profit accordingly. Idea trade should be 1:3 risk reward ratio.
This strategy required us to keep monitoring the chart even though we are trading daily candle but we need to zoom in to the 4 hours chart for the best entry point. It take alot of time and you need to be very precise in order to enter and exit at the right point. The signal doesn't workout all the time because I think in forex trading, somehow the market is still manipulated by the big player. So this strategy is out for me also.
3. Carry Trade strategy - Different currency has different interest rate, if you are buy high interest rate currency and selling lower interest rate currency, then you will get pay for the keep the currency for overnight. Example : NZDUSD, AUDUSD. Read more
My Favorite trade strategy
My Carry trade strategy - As you know, we can earn overnight interest for keep certain currency pairs
Top interest paying pairs
Top 1 : SELL EURAUD (9.4)
Top 2: BUY NZDUSD (7.2)
Top 3: BUY AUDUSD (4.63)
I only trade these pairs of currency. I will pick the pairs that is at the better price in its monthly chart and start trading with the smallest lot size (standard account is 0.01) which mean USD0.01 per pips for each trade. (you can adjust the size according to your own budget)
Example : buy NZDUSD
buy 0.01 (trade 1)
buy 0.01 (trade 2)
buy 0.01 (trade 3)
buy 0.01 (trade 4)
If price pull back at trade 4 to the price of trade 3, I will take profit for trade 4 and leaving the trade 1,2,3 to run, I dont put stop loss, It is because I only trade small lot size, even if the market drop 1000pips, for me I can still hold it and I earn interest while waiting for the market to climb up.
This strategy is fairly easy to trade as you do not need to constantly monitor the chart. It is even better if you just check out the chart once in a few days time. So that you can allow the market price to move further away from your last trade price for better entry point for your next trade or allow your last trade to gain more profit before you close it.
If you have the knowledge of price action, you can also apply them here. Only place trade if you spotted signal to buy nzdusd. If the signal doesn't work then you just keep the trade.
Using this strategy we now made the forex trade works in your favour.
1. You earn interest everynight while waiting.
2. It work even if you dont know how to analyse chart.
3. You do not need to follow the news
4. You no need to constantly monitor the chart.
I will show you the update of my project in my future post