Do More Pips = Equal More Profit?

I have been thinking and boy do I think a lot. So check this out people…I came across this article and thought it was pretty cool to share it… here it is:

You can never go broke taking pips from the market This rings true more than ever in todays volatile market conditions. The rules of Forex trading have changed, and those who have not adapted have fallen by and never seen. Todays successful traders understand that to earn Consistent Profits for an extended period of time, a small amount of pips earned every day in the long run add up quicker and are more easily attained, than if one was to hold for a long period of time. ( Experience plays a huge role )

While many traders want the glory of the one hundred pip trade or the 1000 pip trade, the truth is these opportunities are a few and far a long, especially for those that don’t want to wait that long and it is just not their trading style. I wanted to write about five reasons why short term trading is the embodiment of the phrase You can never go broke taking pips from the market. I hope you find these cases we are going to dive into helpful.

  1. Consistency

The more precise on your entry ( depending on your rules) the higher the probability of the trade / better money management can be, can build and increase your confidence much quicker. Once any trader learns the art and science of precise entry and exit points , one can easily begin to scale in and out depending on your position size… This gives the trader more opportunities to take on larger position sizes, such as those of day traders, but with minimal risk associated with smaller pip traders.

  1. Fixed Risk

Risk should be the first thing on any traders mind. Every trade that is taken, should be the culmination of a risk and reward trade off, with the trader knowing that the possible gains from the position out weights the risk. When a short term trader enters a position, they are looking for only a few points on the trade, though more pips are always welcome, and set their stops extremely tight. These extremely tight stops are able to defend the trader from unexpected and severe market movements. Obviously who could have predicted an earthquake in Japan or the flash crash of US. Many traders lost a lot of money if not all of it. However most short term traders were safe because they traded with tighter stops, which by doing so you are able to reduce the systematic risk that involves when trading forex.

  1. More Opportunities

Short term traders in contrast look for price action and try to make a smaller amount of pips. Given the extreme volatility in the forex market, short term traders are able to find more opportunities to make a small amount of pips. These positions begin to add up very quickly for the trader. ( Only if you know what you are doing, the vice versa would happened if you did not know how to trade )

  1. Exponential Returns

One of the most common misconceptions about short term trading is that it takes longer to grow their trading account in large proportions compared to looking for longer term trades. What many new traders fail to realize is that these pips not only add up, but it allows you to increase your positions size according to your leverage as your account grows. Take for example a trader who averages around 7-10 pips a day. These 7-10 pips a day can become any amount of money depending on your leverage, and as the account grows, the position size will grow as well. This is how you can harness the true potential of exponential growth in your trading account.

  1. Better Lifestyle

One of the primary reasons I wanted to become a full time forex trader was because I was sold on the idea of having the freedom to work when and where I wanted. By reducing the time spent in the trade, the trader is able to walk away from the computer in the time frame of 2-3 hours per day once the number of pips that are in the business plan achieved. And be able to sleep at night knowing that your position is closed that very same day. By looking for a smaller amount of pips per trade, traders will find more opportunities and remove the stress and emotion often found in styles that require large open positions for an extended amount of time. ( I am not saying that you can’t do it, its just for me it was not my type of trading style, so kudos to those that do )

Interesting, but dangerous article for new traders. In my opinion at least 2 MAJOR aspects of short term trading are hidden:

  1. Your trading costs are high on short term trading: you pay the spread on overy trade. If you only make 5 pips per trade and the spread is 0.5-1.0 pip you pay 5-10% transaction costs per trade which realy adds up! This is not much of a factor trading longer timeframes where the spread most times takes up less than 1% of trade.
  2. Short term trading is very demanding for the mind. You are a lot more vulnerable to stress, because you will have to make trading descissions more often. For a new trader it is important to understand that psychology plays a huge part in trading (some say >90%). So to learn how to trade it is easier to start off with swing/long term trading.

And remember it is better to use percentages in stead of pips for your risk calculations!

Cheers :23:

Dont think about pips

100% agree eith Dutchtrader,
Short term trading is very stressful and the costs of trading can be disproportionately high if you are taking small pip profits.
Still, some like the thrill of short term trading, so each to their own