20 Pips a Day

To survive on our favorite Forex market you should limit your damages to the barely perceptible level. And then you should take more profits, than you lost on damages. It's easy, isn’t it?

But why most of traders turn out to be incapable to understand this basic truth of trading? Because of the psychology? Perhaps, but the trading psychology of Forex we will examine in another article.

And for now let’s turn back to the title of this article – set a goal for yourself to take pure twenty tips every day, when you trade. I know it sounds dull. It’s not as attractive as deals for 100 pips. But you trade for money, not for fun, right?

In other case you must be ruined very soon. So, let’s fix in our mind that it is the business with a capital B, which should bring profit in the end.

The beginners should trade on mini-account, where one lot has an amount of 10 thousand dollars.

Let’s turn to mathematics. Firstly, let’s discuss the margin, and the way how to define your factual trade shoulder fairly. Often brokers advertise the margin on account of 400:1. This doesn’t mean anything else, but, if you think that to trade with the shoulder 4001:1 is a good idea, you’re fool.

What it really means is that the required margin deposit for the opened position will be extremely low. It isn’t really bad, is it? OK, I also think so. But not always. Remember, that leverage increases both profits and damages. If you open positions with factual shoulder, which is more than 5:1, it is the way to the bankruptcy.

The factual shoulder can be calculated, if you correlate your pure opened amount of the trade position with the balance of your account. Thus, if your total amount of the opened position equals 250 thousand dollars, and you have 10 000 $ on your account, your factual leverage is 25:1.

Shoulder 25:1 is a dangerous level, if, of course, you don’t want to finish your trade career in couple of months. As soon, as you find your way and be able to win more often, than to lose, you can return back to the problem of margin. But until that you should play in a more conservative way.

We recommend to trade with the shoulder maximum 4:1 per a deal. But let’s sum up deals. Thus, we can with the half a dozen of opened positions with margin, 4:1 each, bring the united leverage to 24:1. We know, how to do it, and will try to tell you.

So, let’s limit the maximum amount of leverage for one deal by ratio 4:1. Let’s also accept that Friday is not the best day for beginner in trading. Believe me, it’s the truth. And let’s set a goal for ourselves to fix 20 pips of profit every day at  the margin 4:1. It may be 20 pips at once, or two times 10 pips, or four times 5 pips – anyway, you get 20 in the end.

Then follow the mathematics. Trading 4 days a week and fixing 20 pips of profit a day with the shoulder 4:1, your factual profit for a week will be 3.2 %. You poke fun at miserable 3.2 %? What a waste of time and power, you say…You couldn’t be mistaken more, then now!

Even, if you don’t increase the amount of a lot in a deal keeping only initial parameters, and stand by the goal of 20 pips a day, this miserable week profit of 3.2 % in a year will bring you back 166.4 %.  Is it still funny? I don’t think so.

Now many of you will start your own calculations in attempt to check this system on mistakes. This is understandable. Let’s say, you have a trade account at forex at the rate 10 000 $. According to the above-stated script, the initial amount of deal will amount 40 thousand (10 000 $ x 4 – four minilots). At the goal 20 pips a day, in a week you get the profit of 80 pips for four lots, 10 000 each. Consequently, your 80 pips, multiplied on four lots in a deal, turn into 320 pips for a week for one lot.

Pip on mini-account on the most of pairs costs 1 $ for a lot. Thus, during the week you get the profit of 320 $. Big deal, you say. I pay more accounts in a week…

That’s right! You won’t be able to live for profits from trading with account of 10 000 $, hoping to stay on the market longer than several months. You will always try to catch big moves, what means that your feet will become very wide. You will lose the last shirt and home in the twinkling of an eye.

If you want to earn for a living with trading, you should clarify how much money you need to make in a week to bridge you over, and don’t forget to add some for incidental expenses.  Now turn back and calculate the amount of account, you need to start with, in order to trade and pay accounts without problems. And now imagine that you won’t be able to make your goal, 20 pips, every day, no matter how hard you try.

Meanwhile, without giving up your basic work, trade in your spare time, make target pips and save these miserable 3.2 % of profit a week, increasing your account till the moment, when you’ll be able to allow yourself to trade full workday. By that time you will, obviously, master the art of trading for aim’s sake, and the segue to the trading, as to the main occupation, will be less painful for you.

If you’re not satisfied by the annual return of 166.4 % on the laid-down capital, you’re ultimate imbecile, and you should stay away from the foreign exchange business.