I think with so many different trading styles and approaches that people have pips can be the only common denominator.
Some people feel that $ is the only real measurement, for some it’s the % return on a consistent basis, for some people R:R is very important and for others win ratio is more important and R:R isn’t a factor at all.
I like to measure in screen time/stress which equates to $/hour. Some people spend 8 hours + a day in front of charts sclaping 50-60 pips/week or maybe 100+ pips a day, others stay up at antisocial hours or have alarms to get them up at 4 am. Others spend a couple of hours a week to get 10-20 pips with a large account/lot size and that’s it for the whole week.
Some people check their charts for 1/2 an hour in the morning and evening looking for swing trades and managing their positions/stops for a few hundred maybe 1k+ pips a week.
With so many styles and approaches pips is the only thing that everyone can relate to when talking about trades. It’s the universal language of Forex!
It was off fxmoneymap, in one of their videos it says something like if your trading the EUR/JPY, you watch the USD/JPY and EUR/USD and if both those go up at the same time the EUR/JPY will do the same, something about he big banks wanting a EUR/JPY position and not enough liquidity on that pair, so they buy two position, an USD/JPY position and EUR/USD to obtain the EUR/JPY.
I traded that for a bit, but I didn’t seem to make any headway, I used the free Metatrader version of the said indicator, with a bit of tinkering you can get that to look exactly the same as the indicator, and have all those pairs up just the same without paying the $200 a month.
So if EUR/JPY=USD/JPY+EUR/USD it’ll be EUR/GBP=GBP/USD+EUR/USD and you’ve got the added benefit of having the USD/CHF inversely correlating with the EUR/USD, this is mega profitable trading 5 minute charts, look out for areas of resistance on the GBP/USD and use the others to confirm and like Andy says - trade the gaps, it makes sense, instead of trying to work out what one currency is doing you use others as indicators, giving you a great edge.
The compounding came from an investment thing I saw saying - make $3 million in 3 years not $1 million in 1 year, I think the principle was that you make $100k in the first year but the most of the $3 million in the third year, (I’m nowhere near that though :)) and also I had a pension scheme statement that I contributed to just after I left school which for a couple of years and it was amazingly healthy considering, it was the compound interest.
Put all the ingredients together and you’ve got cake.
Thanks for taking the time to explain Purplepatch, much appreciated.
I have since looked at your site which is interesting as i trade a similar method myself having been lead to a chap who ‘teaches’ something very similar. If you don’t mind i would like to have a chat about the possibilities that you offer in the next few days. Let me kow the best way to facilitate this please.
Just to make sure everyone understands things here, I have to ask the question:
You do realize, right, that EUR/JPY = USD/JPY x EUR/USD and that EUR/GBP = GBP/USD / EUR/USD? These are [I]mathematical[/I] relationships, not correlations (except the whole EUR/USD vs. USD/CHF thing). If USD/JPY goes up and EUR/USD goes up, EUR/JPY automatically rises. You will never see any lag as the broker computers automatically make the rate and cross adjustments when one part of a triangle changes.
The point I would make to that is your pips and my pips may have absolutely nothing in common at all. If you made 100 pips and I made a 100 pips do we know if either of us traded better than the other, or even particularlly well at all?
Actually as I was writing that post, I was thinking do banks actually do this? or was it just babble he was saying? But the thing is I don’t particularly care, I ended up with something that works.
But it’s not the lag I’m trading, it’s the move, that move you see from time to time where it just moves in one direction continuously for anything up to 20 PIPS, maybe, it’s just a way of jumping in and out, I often get trades that barely make any money, you never know what and how the move is going to be like, if it runs it runs and you make money, if it doesn’t you come out.
It’s like if I’m say dancing around on the dance floor, you have no idea where I’m going to jump to next, but if I was running, you know where I’m going to at the next step.
Even if he was talking babble about the banks involvment in that it still makes sense the price would rise on the EUR/JPY for another reason.
Price rises on USD/JPY implies at that time USD is increasing its value against JPY
Price also rises on EUR/USD implies EUR is increasing its value against USD at that time.
So, if USD is increasing value against JPY, and EUR is increasing value against USD
EUR must also have increased value against JPY so price of EUR/JPY should rise
I looked at three other pairs to see how they corrolated on this mornings price action caused by US NFP figures the three pairs are
GBP/USD, EUR/USD, GBP/EUR
EUR/USD fell about 80pips implying USD increased value against EUR
GBP/USD also fell by about 80pips implying USD increased value against GBP
so if GBP lost 80pips value against USD and EUR lost 80pips value againt USD, EUR/GBP should have stayed about the same ?
I looked at my EUR/GBP chart, price hardly changed all day
Bingo. That’s one quick way to know whether what’s going on the market at any given point is mostly dollar-driven or not. If EUR/USD and GBP/USD are moving and EUR/GBP isn’t then you know it’s the dollar driving things.