Fib Retracement Trading...

[kagein]

how many pips do you take on an average trade? if your using the equivalent of the 30 min, 15min chart.

If you trade off a higher time scale eg 1hr, would u still make more pips if u sold at the 23% level as there is less noise?

[daedalus]

Originally Posted by kagein

how many pips do you take on an average trade? if your using the equivalent of the 30 min, 15min chart.

If you trade off a higher time scale eg 1hr, would u still make more pips if u sold at the 23% level as there is less noise?

Eh my 233 (10-15 min) trades probably average around 10-30 pips, 512 tick (30-60 min about) is probably 20-70 pips, and 4 hour setups are probably 50-120 pips.

This all of course falls back to the size of the grid you are playing. I could take massive swings measured out on the 233t, but the way I play it is the smaller swings I play on the small chart, bigger swings are more suited to bigger time frames, and so on.

Yea, i've looked at the results across all time frames, and even the 4 hour setups yeilded better profits, though it must be said that of any time frame the longer term it is, the more profitable the swings are on average, and the more you are rewarded for holding longer.

I just find its easier to stay consistent with my approach... And now for the novel of the day:

Adding Size: The nightmare that is going to unlock your dreams!

But think about this... Do i really care that I miss out on the extra 40 pips or something from a full -38.2% move? No. Because I can make that up just as easily (and almost certainly more quickly) on another setup. And if you're worried about the profitability think about this.

My goal is to just add size where I can pull 20 pips out of the market each day and gross 7 or 8 figures a year. Why kill yourself emotional, mentally, and with time commitments of trying to get every pip possible out of every move. Size is the answer that pro's use.

I'm fairly confident that I could do six figures a year trading 1 standard lot, and certainly with 2. Think about it. You want to make 100 grand this year. Now figure that uncle sam (or whoever your PM is in London ) is gonna take roughly 33% of your profits. That means I need to actually make 133k to net 100k after taxes.

There are roughly 20 trading days a month, which means I need to average a profit of 554.00 a day to make that much money. Ok, so there is the goal. What is the easiest way to achieve it?

Trading 1 mini lot I need to make 554 pips a day. Thats hard. But lets add size.

1 Mini = 554 Pips
2 Mini = 277 Pips
4 Mini = 139 Pips (Maybe on a good day?)
8 Mini = 69 Pips (Doable - but not every day)
1 Std = 55 Pips (Attainable)
2 Std = 27 Pips (Ummm.... HELL YEA!!!)

Why kill myself trying to get every pip out there? I'd rather just add size and call it a day after my 27 pips knowing i was gonna be bringing in after tax profits of 100k. And thats before I write off my commissions, internet usage, apartment/house, trading seminars (i.e. vacations) off as tax write offs.

The truth of the matter is these markets can handle more size that you can throw at them. But most people don't think about it this way, they think they need to accrue massive pips each day to be successful. Why not just get a couple in the bag with big size and make tons more money. I know you're not there yet (i'm not either) but thats where i'm going and it should be on your list of things to do as well. My friend is trading 100 lots with nil slippage and I can tell you he doesn't really have any care for money anymore... Hes got his system down pat and trades enough size that it is like having his own personal ATM in his office. He doesn't even worry about daily quotas. He stops trading for the month once hes up 300 pips. (He says he doesn't want to get greedy - and honestly, how much money can you burn a month?). And then he goes on vacation for the rest of the month.

It seems like a pipe dream to a lot of us now, but there ARE people who live this way. And it IS possible. Will it happen overnight? Nope. Emotionally it would take me a year or two to be able to accept a 60-70k loss on one trade, but when you're used to is, its no different than a 60-70 buck loss on one of our trades right now.

And in case you were wondering 20 pips a day with 100 lots is a cool 4.8 million a year. Yea. Start thinking about this stuff now, because it is the ONLY way you are ever going to make a living at this. Its hard to put bread on the table trading mini lots, but that is where we are at right now. Lets try and push ourselves past it and out into the big world of ridiculous sums of cash.

[kagein]

Very compelling post, but doest adding more lots mean taking on more than an uncomfortable risk per trade.

ok let's say you have a starting account of $1000 on 100:1 leverage

if i bought one standard per trade i would have no room to make any losses before i get a margin call.

Wouldnt buying more lots only be beneficial if you have a high starting balance.

[daedalus]

Originally Posted by kagein

Very compelling post, but doest adding more lots mean taking on more than an uncomfortable risk per trade.

ok let's say you have a starting account of $1000 on 100:1 leverage

if i bought one standard per trade i would have no room to make any losses before i get a margin call.

Wouldnt buying more lots only be beneficial if you have a high starting balance.

Yes yes yes! You can't add size without the account balance appropriate for it or without the emotional aptitude to handle those kinds of losses and gains. I am in no way suggesting you go out and over leverage yourself on your account. My rule of thumb is 500.00 per mini contract. As your account size grows, add on another contract, and so on. But at the same time, you can't trade 1 mini lot for the rest of your life and expect to make a nice income.

Playing big size isn't something you do when you start out... you stay small until you are earning 100% returns on your account. If you can double your account size, then you are good enough to add on another contract, double it again and add another contract. Start small and work you're way up. Its also the easiest way to start training yourself to handle the additional risk and reward of bigger losses and gains in a controlled manner.

I posted this up for two reasons.

1: That traders don't fall into the "I need massive pips to make a living" trap because it just isn't true and 90% of traders think that making more and more pips will make them better returns. The truth of the matter is it is probably putting them in more trades that they don't need to be in, ie more risk that they don't need to take.

2: That we need to understand where we are going if we intend to make a living at it. We need to have this in our objectives if we are ever going to attempt to get there. By understanding the overall goal of adding size to the equation we can better prepare ourself now for that evolution to our trading.

Cheers!

[Sweet Pip]

I quite agree that one needs goals, money management, and a time frame to reach those goals just like operating any business.

I'm just trying to wrap my mind around the leverage, lot size and pip value and, if I understand correctly, this is how I just calculated my way to over a millions in 6 years starting with $5000. Feel free to correct me if I misunderstand how it works.

Assuming I can attain 55 pips/day to start and 1 pip = $1

Year 1 - 1 mini lot
55 x 240 days / year = $13200 + $5,000 initial margin = 18200

Year 2 - 1 mini lot
another $13200 + 18200 from last year = $31,400

Year 3 - 2 mini lots (could do 3 but being conservative)
55 x 2 lots = 110 pips
110 x 240 = $26,400 + 31,400 from last year = $57,800

Year 4 - 2 mini lots again (could do 5, but still conservative)
another $26,400 + $57800 last year = $84,200

Year 5 - still 2 lots
another $26,400 + $84,200 = $110,600

Year 6 - now using 1 standard lot (100K) so now if I only do 20 pips /day I should make $4,800,000?

If this is correct... WOW

[daedalus]

You're math is correct, but the logic is a bit unrealistic. And not in a bad way, I just think if you spent an entire year making 55 pips a day and only traded 1 mini lot you would be certifiably insane. Lets assume you open up a 500.00 account with EFX and use their standard 100:1 leverage. That means that on most markets you can buy 3-5 lots with your 500.00. I'm NOT saying that is wise - it isn't, but you can use that much. With your 5000.00 account that means you COULD purchase 3-5 STANDARD lots. Thats A LOT.

If you KNOW what you're doing, there is no reason to realistically trade 1 mini lot an entire year. You're just wasting your time and not getting compensated for it. I mean, I do consider myself to generally know what i'm doing and i'm trading two mini lots on an account that is currently just above 1 grand. I doubled it from 500.00 last month trading 1 lot. I made a 100% return, another 500.00 so i've added another contract. My risk is exactly proportionate to my account size as it was last month so whats the harm? So if i do another 100% this month that means that next months i'll add on another 2 mini lots for a total of 4 mini lots (2k / 500.00 per lot = 4 lots)... and so on and so forth. I should be well over 2-3 std lots by the end of the year conservatively.

What i'm trying to say is yea, you're math, logic, that is all correct, but if you can do 55 pips a day - well you don't need to be playing your sizing that conservative. I mean look at year 4, you're now generating 110.00 a day on a 57,000 account! Thats a .002% return daily! I mean look at your first year you were making 55.00 a day on a 5,000 account which is a 1% return - not huge, but proportionately a 5X's bigger return on your capital than year 4.

I'm all for playing it conservatively, but your scenario is TOO safe, and the risk isn't proportionate throughout. Realistically, the results should be MUCH higher.

But talk is cheap folks! Its one thing for me to say this, its another thing to do it. I intend to do it. And you all have a front row seat to my success or failure in this very thread. So sit down, kick back, and lets make some money!

[Sweet Pip]

I suppose that is the difference between demo and live accounts? or between brokers?

My $5000 demo acct is with North Finance using MT4 and when I make a trade, it only allows me .10 as a volume (aka ratio?) which is the lowest option they offer. If I try .20, I always get a "Not enough money" message. I will have to contact them about how that works.

Glad to hear my math is correct, and even more encouraged that the results could be much higher if I learn the leverage part better and what my platform/broker is capable of.

Thanks for the inspiration! and I look forward to your "mini" novels as well as your journey and insights.

[Sweet Pip]

Ok, I understand better now. When I originally setup my demo account, it did ask for the leverage I wanted to use which I obviously didn't put very high, if at all.

I'm either going to start over with a new demo account or try and reset the leverage higher so I can see the difference it makes and psych myself out some more. I'm glad I asked and thankful for your most helpful response

[tonymand]

Daedalus - Yes, I agree. However I would add that the key here is based on what you are prepared to lose. Take the largest losing streak in your system and double it (the market can always do far worse in the future than in the past and we need a margin of safety). Lets say the historical worst is 10 losses in a row. If you were to face 20 what % loss of your account would you be comfortable with. For those who trade a 5% risk model they have just been wiped out! This gives you a maximum past which you would not go. Taking your approach Sweet Pip (love that handle) would be ultra conservative but very safe. If you can attain your goals whilst keeping the risks to an absolute minimum then fantastic. Most professionals seem to risk around 0.5% or less which is worth thinking about.

Daedalus - I find your posts some of the best and most constructive on the site

[daedalus]

Very very true tony. You bring up excellent points. And thanks for the compliment by the way. My risk tolerance is different from anyone else. I think the answer probably falls somewhere in the middle between sweet pip and myself.

But if I may, just look at this account statement. IT IS NOT MINE... but i am absolutely staggered by the results. The guy literally turned 1k into 125k in one week. Talk about margin leverage usage. I found this over at forex factory and just had to pop this in. Not exactly topical, but i've never seen anything like this before.

The amount of trades he took is ridiculous in its own right, but you can't fault the outcomes. Freaking crazy!