Lot of new traders think that one has to make thousand pips every month to do well in FX. In this article, I would like to show you that it is a myth and you don’t even need 100s of pips per month to do well in FX.
Let us consider that I have an account of $1000 to start with and I have a goal to make 5% every month which is a great return (think professional fund managers do around 10% per year on average). I only risk 1% per trade to make 1% of my account value. This will result in 1:1 risk/reward ratio. Since I day trade, my trade will only risk 10 pips to make 10 pips. As I only risk 1% of my account value, that would come to $10 risk per trade. Since, I am risking 10 pips to make 10 pips, I would need to open 0.1 lot (mini lot) per trade. If a trade is successful, I make $10. Otherwise, I lose $10. Now, to make 5% of my account per month, I only need to make 50 pips net profit per month as 50 pips x 0.1 lot = $50. As I day trade for around 4 hours every day, I can easily do around 2-3 trades every day totaling about 50 trades per month. The following table shows the math of compounding the results over a course of 12 months. As you can see, with compounded 5% returns per month, one can earn around 80% per year. Another thing to note is that you only need a win percentage of 55 to make 5% return per month. Of course this is just an example as you would never consistently make exactly 5% per month as some months will be more than 5% and some will be less. The only point I am trying to make here is that you don’t need a whole lot of pips every month to do well in FX. I hope it helps some of the new traders. If you have any questions, please let me know.
I agree that focus on pips is naive. There are many traders who think a move of 100 pips must be twice as good as a move of 50, while a move of 10 just isn’t very good at all.
What counts is money, not pips.
(I could have said what counts is profit, but that would have ignored risk, which would be just as misleading.)
How do you think it’s consistent to make that money every month basically ? I think it’s way impossible anyway. Professional fund managers needs to do much more anyway with that case for real. I mean more than ten percents here anyway.
What actually counts is the pip value. The pip value determines how many pips you should target and the risk you are willing to take.
Good luck with that theory.
the pip value counts, that s true, as u do not need to gain a lot of pips to make nice money, but that does mean that the higher the pip value the higher the risk as well. that being said, it is possible to compound…like @hsg1974 said, 1 or 5% risk per trade, every trade. now if u have a winning percentage of more then 50% u ll make money in the long run. it s actually quite a good trade manegement plan imo. now the numbers are relative, it s all the same, if u trade a 1million dollar act or 1000 dollar acct, it s all psychological, it s how u deal with fear and greed. again, imo risking a fixed % per trade, not number but % is the way to go about it in the long run
IMHO, it is not impossible. If you practice good discipline and use good risk management principles, it is very much possible. I know this because I am doing it. I have not had a losing month in the recent past (at least a year now) ever since I became consistent.