ASFX Insights

The Power Of 20 Pips

By May 9, 2020June 5th, 2020No Comments

Do you have the thought in your mind that you need to win 100, 200, even 300+ pip trades to make money as a trader?

It’s as simple as this; if you have a bigger account, then you can trade bigger lots, and you don’t need to catch as many pips.

Now let’s break this down to show you the power of 20 pips.

First take a look at this EURUSD trade from Dec. 10, 2019.

You can see we broke out off the 21 EMA. Some traders in the VIP chat were long around 1.1077. The stop-loss was about 6 pips away at 1.1071. From the entry signal, the trade moved about 20 pips at 1.10965. Using this trade I will show you the power of 20 pips.

Now before we break down the math, I want you to understand catching 20 pips on every trade is NOT the point of this article. Instead, my goal is to emphasize the fact that you don’t need 100 pip trades to make money as a trader. Instead you need consistent 15, 20, and 30 pip winners with large size behind the most probable setups.

In this example, the stop loss is about 5 pips below the entry price and this trade moves into profit over 20 pips. A standard lot on this trade is equal to 100,000 units of currency, or about $10 per pip per standard lot. If the risk here is only $50, the reward would be $200 at that take profit level of 20 pips. That’s a 4:1 risk reward which is fantastic!

I’m sure some of you would risk $5 to make $20 every day of the week, right?

If you want to trade standard lots (1.0) then you’re going to need a few thousand dollars in your regulated account in order to take a position of that size. You can still trade with a smaller account, but your positions are going to be smaller.

Since your positions are smaller, your earnings per trade might not be as high as you wished for but you need to stay long term focused. Dissatisfying short term financial results can lead traders to be greedy and take trades that are less probable.

When you flip the money switch off and the percent switch on you will grasp this idea completely. Check out this video for more info on the Money vs Percent switch concept  – https://youtu.be/clDBlmg6VMw

The beautiful thing about Forex is how the same move, as shown here on EurUsd, could pay one trader $20,000 and another trader $200.

Wondering how that works?

Trader A

Acct. Size: $2,500
1.0 Lot
Risk: 2% = $50 = 5 Pips
Reward: $200 = 20 Pips
R/R Ratio: 4:1

Trader B

Acct. Size: $250,000
100.0 Lot
Risk: 2% = $5,000 = 5 Pips
Reward: $20,000 = 20 Pips
R/R Ratio: 4:1

Trader A made more money because his account was larger, it’s that simple. Trader B will lose a lot of money if he tries to get the same financial returns as Trader A.

Instead his focus should always be on percentage gained or lost for his own account. Don’t compare your results to any other trader, it provides zero value to your P/L.

Trader B risked the same percentage of his overall account, used the same stop-loss, the same entry signal, and the same take profit level, but he made way more money because he had more money in his account.

This is why you don’t need to try to go chase those hundred pip moves.  Money isn’t made in distance, it’s made with size in highly probable trades.

If you happen to catch a move with some distance every now and then, great! I talked about this last week – https://youtu.be/ONjXVlYHd7o. It’s the advice nobody wants to hear.

I started so broke, and then I lost money for the first 18 months. So I know the pain that you’re going through, but here’s my advice…

You need to build a precise trading plan that you have back-tested and proven profitable. Regardless of your account size you need to be taking trades with a live account, with appropriate risk, proper entry signal, proper stop-loss, proper take profit, and don’t chase trades just because you didn’t make a personal satisfying amount of money.  You need to be following the proper process regardless of your account size.

If you aren’t patient enough to grow your account simply by trading, then take your extra income from your other job(s) and drive that money into your trading account (The Easiest Way To Grow Your First Trading Account – https://youtu.be/oCBs-e671fk).

The more money you have in your account… the more size you can put on a trade… which equals a greater return.

I really hope that after reading this article you have it set in your head that you don’t need hundred pip trades. You need a bigger account. It’s that simple – you need a bigger account and more money to trade with. You can make 20 pips worth an infinite amount of money depending on your account size. Focus on growing your account.

Keep in mind three things; do less – trade less, do it better – trade better, and do it bigger – get your account bigger.

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