One of the most crucial components of FX is determining an effective trading strategy. In general, different sorts of traders have devised a variety of methods to assist you in making money in the market. Individual traders, on the other hand, must identify the ideal strategy that fits their style and risk tolerance. Some are straightforward, whether you’re a novice or a seasoned trader. If you’re searching for something simple, this is it.
The 50 pips forex technique is a forex day trading method. This implies you’ll be starting and closing positions quickly rather than picking and choosing currency pairings to invest in over a protracted period of time. Essentially, the goal is to get around half of the range that a currency pair moves in a day.
The method was created with the intention of trading some of the most popular currency pairings. Traders utilize this strategy to anticipate a currency’s early market movement. The approach is typically applied mostly to EURUSD or GBPUSD. You can use it for other pairs too, or combine it with other strategies for better results.
The fact that this strategy does not involve in-depth research or market analysis is the main benefit for newbies. Although you must grasp how various indicators function as well as how to read different trade charts or patterns, it is extremely simple to learn.
How can one put this strategy into action?
Step 1: Open the daily chart.
Step 2: Find a currency pair with a large daily range.
Step 3: Capture 1/3-1/2 of said currency pair’s daily range.
Step 4: Change the time frame on your chart to one hour and look for the 7:00 AM GMT candlestick. The trend for the rest of the day is set by the trend established during the London session.
Step 5: Wait for the first London session candlestick to close before observing the direction of the succeeding candlestick.
Step 5: Place two pending orders above and below the 7:00 AM candlestick’s closure to achieve this. A buy order should be put two pips above the peak of the first candlestick, and a sell order should be placed two pips below the candle’s bottom. One of the two orders will be activated depending on which way prices move. Close the other order if this happens.
Step 5: Set a stop-loss order at 5-10 pips above or below the high or low. If the candlestick is short, it may lead you too near to your entry price; in this instance, you might set it 15-20 pips above or below your entry price. The stop loss will be below your entry position if you activate the buy order. The opposite will be true for the sell order.
Step 6: Set a profit target of 50 pips.
Why is it important to place a stop-loss in this strategy?
Stop-losses prevent huge and unmanageable losses. If you don’t use stop-losses, a losing position will quickly spiral out of control, wiping out the majority of your trading gains, if not your entire account. Stop-loss orders must be used in each trade that you make.
Stop-losses are also crucial in risk management. Traders decide what position size to take in this technique based on the stop-loss, how much money to risk on a single trade, how much they risk on every single dollar they make, and much more.
Is the strategy worth it?
This method has a lot of potential for profit. Essentially, every successful trade will give a profit of 50 pips, and $0.0050 is equal to 50 pips.
Let’s look at an example.
Let’s say you buy EURUSD at 1.1800. According to the strategy, your trade will close after it reaches a profit of 50 pips, i.e., 1.1850. You make a profit of $0.0050 if you only invest in EURUSD only.
However, it’s more likely that you’ve put a larger sum of money into this position. For example, you use $4000. You would make 0.0050 percent per dollar invested. Then divide that number by 50 (pips) to get a profit of $20. In a week that is $100, and in a month $400.
You can also put two trades at the same time, say EURUSD and GBPUSD. This will double your profits. Some traders use leverage, and if it is a win, you get a large profit but ensure you do an in-depth analysis because it can also cause losses.
Pros of this strategy
- It is less engaging. This strategy does not need the trader to actively monitor the trade other than canceling the order that was not activated and establishing profit targets, and stop losses. They can just set it up and wait for the profits or losses to come in at the end of the day.
- It avoids overtrading because each currency pair is limited to one trade per day.
Cons of this strategy
- For traders that prefer more frequent trades, this strategy is not fit. While few trades may appeal to some traders, if you want to trade a wide range of pairs with various moves, this method is not for you.
- With this method, there is a profit ceiling. Your profit will never exceed 50 pips every day, which is better than nothing, but alternative tactics can provide more pips in movement and hence a higher overall profit for your Forex portfolio.
- If the trader forgets to cancel the other order, it can result in losses.
Most FX strategies are not suitable for newbies because they need fundamental and technical in-depth analysis, which is not the case for 50 pips a day strategy. This strategy is simple to set up, and the steps are seamless. As in every trade, you have to place a stop loss to minimize the risks.