One of the secrets to successful trading is proper risk management; as a forex trader, proper risk management is crucial to your success in the market. In this article, we are going to look at recommended lot sizes for Boom and Crash (which is one of ways to manage risk in the market), and how you can leverage on it to inspire your trading journey.
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I have been trading forex for the past few years and I have been on both side of the coin; first, as a newbie/struggling trader, then as a successful trader. Trust me, having a series of blues in your trading history is a great confidence booster, on the flip side, a series of red can put you into depression if you don’t know how to manage loses.
One of the things that kept me going this few years is my ability to manage risk and loses. Please read on to understand how you can leverage on my experience to inspire your trading journey.
Table of Contents
How does Boom and Crash work?
Boom and Crash are synthetic indices that are offered only by Deriv. They include: Boom 300, Boom 500, Boom 1000, Crash 300, Crash 500, and Crash 1000. While Boom is programmed to be on a sell mode by default, Crash is programmed to be on a buy mode by default. While monitoring both Boom and Crash, there is always a spike up in Boom, and a spike down in Crash. This spike or series of spikes occur irrespective of the trend of the market.
For instance, if Crash 500 is on an uptrend, there will always be series of spike down or crash as Crash 500 buys up. These spikes happens at hot zones in the market (Resistance and Support) and is also depended on market forces like volume and limit orders. Same thing happen for Boom.
Recommended lot sizes for crash and boom
There are some lot sizes for Boom and Crash that look outrageous, although, they can give you huge profit, if your analysis are right, but these same lot sizes on the flip side can blow your account and dent your trading history.
Trading is highly risky, and therefore string of losses may hit us once in a while, which is normal. According to Bruce Kovner, founder and chairman of Claxton Associates, LLC, risk management is the backbone of trading. For me, no trader can succeed without proper risk management.
Trading Lot sizes for Boom and Crash depends on the following:
- Your Trading Capital
- Your Trading Asset
- Your Knowledge and Risk Appetite
Your Trading Capital
In trading Boom and Crash 1 standard lot equals to $1 which means if your forex account is just $1, you can’t open any position because just one move in the wrong direction can blow your account.
Your Trading Asset
The minimum lot size for Boom 500, Boom 1000, Crash 500 and Crash 1000 is 0.20 (which is 20 cents) while the minimum lot sizes for Boom 300 and Crash 300 is 0.05 (which is 5 cent). However you can reduce your lot size to compliment your trading capital. (Learn how to reduce your lot sizes by clicking here)
Your Knowledge and Risk Appetite
Your knowledge of the market and risk appetite is very important in determining your lot size. Let me illustrate a little (look at the screenshot below):
In the screenshot above, I use 0.02 (2 cents) to buy Crash 300, which means I am risking 2 cents per price movement in the market and I use 0.10 (10 cents) to buy Crash 1000, which mean I am risking 10 cents per price movement in the market.
What informed the choice of the my size at that moment was my risk appetite and the price movement in the market. As a rule of thumb, don’t think of making huge profit at once, build a system that will give you sustainable profit, then push up your profit margin as you grow.
Things to know before trading boom and crash
1. Price action trading
It’s important to understand the basics of price actions if you want to succeed in the market
2. Establish a risk management strategy
Trading is about establishing discipline and consistency; therefore, you need to establish how much you are willing to risk and how much you want to win, and risk mitigation measures if you lose. You should note down the conditions that made you enter a trade and never enter trade if these conditions have not been met. By noting down your trades, you will be able to discover what trading strategies work for you and which ones fail.
Generally, most traders start their trading journey with scalping, and they trade using the minute 1 to minute 15 timeframe. This is because the spikes are very obvious from these lower timeframes. However, it is easier to identify established trends in bigger time frames. With the right knowledge of market trends, you stand to make a lot of money with swing trading.
4. Stop Loss and Take Profit are very Important
Never place a trade without deciding your profit and stop loss point, even if you are sitting down to monitor the chart. Always calculate what you want to get out of every trade or lose per trade. Treat trading as a business and you will enjoy the benefit.
Final Thoughts on Recommended Lot Sizes for Boom and Crash
The recommended lot size depends on Capital, asset and your risk appetite. You have to consider them before deciding on what lot size to use. If your account is below $10, risk just 1 cent per price movement ( 0.01 lot size) for C300 and B300 (or avoid C300 and B300); risk 10 cents (0.10) for Crash 500 , Crash 1000, Boom 500 and Boom 1000. For account below $50, risk just 2 cents (0.02) for C300 and B300; risk 20 cents (0.20) for Crash 500 , Crash 1000, Boom 500 and Boom 1000. etc.,
Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.