Building a buffer simply means adding profits to your account to protect your original balance/original account value (principle). For example, suppose you opened your account with $20K. Well, if you added a net gain of $2000 (10% ROI) that would mean you’ve added a buffer of $2000 against your original account value of $20K.
Forex Buffer Building - Phase I
Principal Investment (PI) = $50,000
Risk ONLY 0.5% to 1% of Principal Amount per account per trade during buffer building phase.
So, $50,000 x 1% = $500
Consider a Standard or Regular Trading Account (=100K per lot) that pays $10 per PIP.
If I can risk $500 per account per trade means I can not risk more than 50 PIPs per trade on my regular account (= 50 PIPs x $10 = $500).
At any event, I will not risk more than 50 PIPs or 1% of my initial investment, whichever is lesser during this phase.
In the most extreme adverse scenario, I will have to make 100 consecutive losing trades to completely lose all my initial principal investment of $50,000 at the rate of $500 or 50 PIPs per trade.
Forex Buffer Building - Phase II
My daily goal is to gain 20 PIPs per DAY.
With $500 to risk, I can break it down to number of mini lots (=10K per lot) or just simply trade 1 standard or regular lot (=100K per lot).
For simplicity, I will stick with 1 standard or regular lot per trade that pays $10 per PIP.
So, 20 PIPs x $10
= $200
At the rate of 20 PIPs per day, my weekly PIPs goal
= 20 x 5
= 100 PIPs per week.
My weekly goal
= (20 x 5) PIPs x $10
= $1000 per week.
At this rate my monthly PIPs goal
= 20 x 5 x 4
= 100 x 4
= 400 PIPs per month.
This converts to monthly gain of
= 400 x $10
= $4000 gain per month.
So my monthly RoI
= ($4,000/$50,000) x 100%
= 8%
My buffer goal is minimum of 10% of my Principal investment.
So, buffer amount goal
= $50,000 x 10%
= $5,000
At the above rate, I'll reach my minimum buffer amount goal in 5 weeks period.
After 5 weeks period, I strictly play ONLY the profit, i.e. risk only the buffer amount beyond this point.
I do not expose my principal investment unless I am absolutely certain, 1000%!!! to be exact.
