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How Many Pips is Enough?

Beginner

How Many Pips is Enough?

This is something that may get your attention, as you may be surprised on what little profit is actually required to make a success of Forex trading.

How many PIPS is enough?

Previously I have spoken about the average daily move of the major pairs like the EUR/ USD and the GBP/USD, which is normally around the 80 120 pips mark. Remember this is not necessarily from the low to the high or vice versa, as the market may start and finish on the same price in that period. So as you can see, there is normally a fair amount of movement in the day, and therefore plenty of opportunity to grab some of that action.

I don’t know what your lifestyle is like or what you would consider to be a decent income from trading to maintain your present lifestyle, so let’s just talk in general terms.

You are an average Monday to Friday worker, and maybe work the odd Saturday. That’s typical here in Malaysia. Your wage may be in the vicinity of RM800 -RM1000 per week. So we are looking at roughly a 40hr week plus travel time and expenses etc.

In your spare time after work, you dabble in the world of Forex and you aren’t too bad at it. You trade for a few hours on your RM10,000 account, keeping your risk per trade at the 2% mark, keeping your stops nice and tight and lock in profits quickly. After a few hours each night, you can consistently take 20 pips out of the market and then call it quits.

It doesn’t sound like much and it also doesn’t seem to be too hard. Yeah right!

20 pips a day.

How much until I earn USD1000 a week?

Now on the $10,000 account with 2% risk and tight stops, trading one (1) standard lot would be quite possible. Remember I generally say that one (1) pip on a standard lot is equal to US$10. If you were trading the EUR, GBP, AUD or NZD, then that would be exact.

Now 20 pips x US$10 = US$200. For us Aussies, that is about RM800 (depending on the exchange rate at the time). I know, it doesn’t sound that impressive yet. Do this for 5 days however, and you end up with 100 pips or US$1,000 or RM4,400. Already, I can see a good improvement on my average 40hr working week here in Australia.

I don’t know about you guys, but US$1,000 per week is a handy sum in any man’s language (or woman’s). Some will be used to more and may consider US$1,000 not worth getting out of bed for. If this is the case, then I’m sure you can start trading with a much larger account size or I can show you a way to increase the amount without any further risk using the power of compounding! If you can make 20 pips on a daily basis, you would be crazy not to try and improve your profit without increasing your risk. How do we do this?

Using our above $10,000 account and trading one (1) standard lot for the week. We make the 100 pips for the week; therefore end up with a profit of $1,000. Now assuming we have a normal job and we don’t need the $1,000 for living expenses, so we leave it in our trading account. The following week our account balance is now $11,000, and with the same 2% risk per trade, we can now trade 1.1 standard lots (or 11 mini lots). If we make the same 20 pips per day, we are then making $220 profit for the day or $1,100 for the week. Where the following week, our account balance would stand at $12,100 and our position size would be around 1.2 standard lots, and so on.

As you can see, our profit is 10% per week, and that is a very good return. Now some of you may think that this is pie in the sky stuff and a little unbelievable. This is probably understandable as that is the way we have been trained to think, where we believe anything over 20% profit for the year is a good result.

So how easy it this target?

I can assure you that 10% per week is not that spectacular in the world of Forex trading. Mind you, most traders would kill for those results, but I know of one chap who is well known amongst traders that targets 5% per day, and he does this all by chasing 20 25 pips per day on 2% risk, just trading the EUR/USD.

The above may be possible to achieve in a perfect world, but who lives in one of those?

We all know that it isn’t that easy as there is something about traders that seem to just stuff it all up. I think trading psychology has a lot to do with it, and that is another chapter in itself and coming up next.

Most of the above revolves around a day trading type method. Obviously if you were trading off the 60 min, 4hr or daily charts, you would have different daily targets etc. But there is nothing to stop you from aiming for the $1,000 weekly target and adjusting your position size accordingly.

The above examples are simply to give you an idea of what is possible and realise that you really only need to make a small consistent profit on a regular basis. You don’t have to go for the big kill every trade. Control the losses, hit your targets and then call it quits for the day. 20 pips profit a day will do it!

I told you Forex trading is easy!!

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