Actually, this trading approach is rather complicated, however almost all the newbies practice it. This method is employed for making profit from fluctuations during the day. Some traders make more than 200 deals a day, holding a position open for just several minutes. Of course, the profit from each position is rather small, but, all in all, it can constitute a significant amount.
Learn how to open a forex account first.
The idea of pips trading is to earn on intraday movements. On average, currencies move for about 50-60 points during the day if we take the daily opening price and daily closing price. But given the fact that the exchange rates do not always go up or down within the day, but make minor fluctuations, the total amount of these pips is quite big. Pipsers are trying to catch these particular fluctuations.
This approach is comparable to the roulette – the same playing methods, approximately the same odds, though the probability of victory on Forex using this approach is twice higher.
Trying not to miss even the smallest rate movement, pips traders use stop losses very close to the current market price.
Setting this level, the probability of a loss during the noise is very high, even if you determined the trend direction correctly, but misjudged the opposite strength of bulls and bears. It is very easy to make a mistake ascertaining the direction for the next hour. It is more difficult than to determine the daily movement targets.
The easiest way to prevent a stop loss order from triggering is its absence, but in this case you risk losing even more money after a strong movement against your direction with the price going so far that it is impossible to roll back to the original levels in the next few minutes or hours. When you trade the large part of your deposit without a stop loss, you are at risk of the margin call, i.e. losing the whole deposit.
Trading real money provokes stress
As a rule, this strategy is first tested on demo accounts, where the money is virtual, so there is no fear to lose them, and orders are executed automatically, i.e. instantly.
Therefore, there are several factors, including the speed of orders execution and stress that worsens with every pip of price changing against you. Pips trading implies constant stress, and affected by stress, you cannot make rational decisions.
Also we should mention the fact that brokers do not like clients who request huge number of operations. There are some restrictions on the quantity of requests per certain period of time, and too aggressive customers requesting orders every second can be asked to close an account.
A positive result is more probable in case of scalping. It is similar to pips trading, but its goal is more than several pips per trade.
Rules of the scalping strategy:
- A simultaneous work with several currency pairs and effort to investigate their movement as a group. 90% of these systems are based on the group movement of currencies against the U.S. dollar. However, there are systems based on the euro and the pound.
- The driving currency and lingering currency are chosen. Let’s say, EUR/USD is chosen as an alarm, AUD/USD, as the currency pair for trade (it is supposed to move with delay compared to the euro).
- Either M1 chart or tick chart is chosen. Most of manipulations are executed by orders.
The ideas described above are widely discussed on different forums. The use of these approaches requires a lot of nerves and a good reaction. Next, find the answer to: Is regular forex trading profitable?