Why chasing Pips can harm your trading
In This Video:
00:27 The Wrong Thing to Focus on in Forex Trading
01:22 An Example of a Sound Trading Strategy
02:36 Pips Really Don’t Make a Difference
In today’s video I’m going to explain why chasing pips in your trading can actually make you poor. So let’s talk about that and much more, right now!
Hi Forex Traders, it’s Andrew Mitchem here, the Forex Trading Coach, on holiday here in the South of France and having a fantastic time. Now, today I’m going to talk about why chasing pips as a Forex Trader can actually be to your detriment. It’s not always a good thing!
The Wrong Thing to Focus on in Forex Trading
You see a lot of people think that to make money in trading you have to make so many pips and I have people all the time coming to me and saying, “Hey Andrew, can you tell me how many pips you’re making per trade or per week or per time frame,“ whatever it might be.
And honestly, I have no idea! What I can tell you is how much I’m making in terms of monetary value and also, more importantly, a percentage. Because, if you’re making a percentage gain, it doesn’t matter what size your account is, you’re always making that same percentage gain. So for example, if you’re making, let’s say, 10% per month on a $10,000 account, there’s no reason really apart from maybe a few psychological issues why you can’t make a 10% gain on a $100,000 account or a million dollar account.
It’s purely, like I said, psychological issues of being a little bit more nervous with bigger dollar amounts but really, the actual percentage and the way that you trade, in theory, should be exactly the same.
An Example of a Sound Trading Strategy
But the problem is, most people don’t think like that! Most people think that to make profit in trading, they have to make ‘x’ number of pips. And, as I’ve explained a number of times, that to me that’s just a really bad way of trading. It’s likely not to be profitable overall.
I’ll give you a few examples – let’s say you’re taking trades on five-minute, fifteen-minute timeframe charts and you’re making lots of, say, five and ten, maybe twenty pips, so there’s trades all the time and then you happen to have a few losing trades and you happen to lose say thirty or forty or fifty pips on a trade then the problem is when you’re trading for ‘x’ number of pips as a gain is that one or two losing trades can quickly wipe out all the gains that you had from a number of profitable trades.
Whereas if you’re looking at making ‘x’ percent per trade, let’s say you’re risking half of one percent per trade, which is what I suggest that you risk – that’s of your overall account size the half of one percent (0.5%) – If you happen to make a profitable trade, let’s say you make two-to-one return, I can then say that I’ve made a one-percent account gain by risking half a percent on my account.
Pips Really Don’t Make a Difference
And that to me is far better – it doesn’t matter whether it’s let’s say, making 25-pips with a 12-pip stop or making 100-pips with a 50-pips stop – it really doesn’t matter. It’s a two-to-one return! And that, in my opinion, is a far better way of trading because then it doesn’t matter what time frame chart you’re trading, what pair you’re trading, what time of the day, doesn’t really matter how many pips you’re making because as long as the trade’s making two or three times on average, you know, of what you’re risking, then you’re going to make some really serious money from your trading.
So, you notice that all the way through that, pips really don’t count for a great deal. So hope that helps you with your trading. If you have any more questions like that, anything you’d like me to help you with, just drop me an email – [email protected] – and I’ll make a video about it and help you guys out with your trading.
So that’s it for now and I look forward to talking to you this time, next week.