50 Pips a day
The 50 pips a day strategy is an overall forex trading strategy that works in single-hour intervals and takes advantage of nearly 50% of a currency pair’s daily movement. The 50 pips a day strategy also works with a selected few currency pairs such as EUR/USD and GBP/USD. However, other currency pairs can be used provided the pair has a daily range of 100 pips or more. This trading strategy is quite simple in design and is regarded as a day trading strategy. It is defined by its simplicity like many other day trading strategies, and that allows the strategy to become rather robust and simple to execute by beginner Forex traders and investors. This trading technique is not only designed for day traders, it is also applicable to swing traders depending on their execution-style. As a swing trader, to be confident that you can make suitable financial gains, you might want to be additionally careful in analyzing your candlesticks This strategy is less time-consuming with very low risk. Traders enter two opposite positions with pending orders during Asian session time. When orders are triggered by a price movement, the other one will be canceled. The target for this strategy is 50 pips only and the stop-loss can be set between 5-10 pips. After setup, everything just sits and relaxes and lets the price change for the final result.
The purple box in the chart above represents the Asian session candlestick point that is crucial for this strategy. The profits are limited to 50 pips a day and limited to only one trade per day for each currency pair. Please consider the need to watch both pending orders so you can cancel one in time when the order is triggered.
What is Pip?
A pip in foreign exchange trading means “percentage in point” or “price interest point”. It is the unit of measure of the movement of an exchange rate and it’s assigned in decimal points to the value of a currency. For most currencies, a pip is 0.001, but for the Japanese Yen, a pip is measured at 0.01.
How to calculate a pip
The rising and falling movement of a currency pair will determine whether a trader will make a profit or loss from the positions they enter.
When you open a trade at a price, you either speculate that the price of the instrument will fall or rise. If you enter a buy or long position and the market moves some pips upward or rises in your favor before exiting the trade, you will eventually make a profit. However, if you enter a buy or long position and the market moves some pips downward or falls before exiting the trade, you will eventually make a loss. On the other hand, if you enter a sell or short position and the market moves some pips downward or falls in your favor before exiting the trade, you will eventually make a profit. However, if you enter a sell or short position and the market moves some pips upward or rise before exiting the trade, you will eventually make a loss.
A trader who buys the EUR/USD will make a profit if the euro increases in value relative to the US dollar. At 50 pip upward price movement, the trader makes 50 pips worth of money depending on the lot size traded. On the other hand, if a trader buys EUR/USD and the market goes against their prediction or falls, at 50 pips price movement, the trader loses 50 pips worth of their investment. If then trader buys the EUR/USD at 1.1046 and exited the trade at 1.1096, they would make Pip for long position / buy trade = (exit price- entry price) × 10,000 0.005 (1.1096 – 1.1046) × 10,000 =0.005 × 10,000 = 50 pips profit on the trade (profit).
If the trader sells the GBP/USD at 1.3036 and unfortunately for the trader, the price of the currency pairs rises to 1.3096 before the trader exited the trade; at 1.3796 the price movement will be calculated as follows
Pip for short position/ sell trade = (entry price – exit price) × 10,000
(1.3036-1.3096) × 10,000
-0.006 × 10,000 = (-)60 pips loss on the trade
This calculation is commonly employed to calculate pip movement in many currency pairs aside from JPY pairs
For the Japanese Yen, a pip is measured at 0.01, hence the difference in the pip is multiplied by 100 rather than 10,000. For example, if a trader buy USD/JPY at 122.65 and exited the trade at an increased pip movement of 123.21, the number of pips attained is calculated as follows
Pip for long position / buy trade = (exit price- entry price) × 100
123.21-122.65 × 100
0.56 × 100 = 56 pips profit on the trade (profit).
Now, let’s consider a trader who trades metals such as gold and silver: in this case, the pip difference is multiplied by 1. For instance, if a trader buys XAUUSD (gold) at 1940.80 and the price goes down against his prediction to 1898.60, the pip movement is calculated as follows
Pip for long position / buy trade = (exit price- entry price) × 1 =(1940.80 – 1898.60) × 1= (-) 42.2 pips in loss
How to calculate actual profit or loss in dollars or other currencies?
The actual profit or loss depends on the lot size and position size of the trade. Lots are subdivided into four sizes – standard, mini, micro, and nano while position size is the size of a trading position that an investor is willing to trade. Position size ranges from 0.01 to 50 depending on the trading platform. In CFD, a position size must be chosen before a trade can commence.
A trader might decide to choose either a standard or mini or micro lot size account depending on their trading strategy and financial capacity.
1. Standard lot account: equals 100,000 currency units. E.g. if EUR/USD exchange rate is $1.3000, one standard lot of the base currency (EUR) would be 130,000 units which equate to $10 per pip. For example; if you attain 50 pips in a trade; at 1.0 standard lots size,
Profit or loss = Number of pips × position size × $10
Profit = 50 pips × 1.0 position × 10 =$500
Loss = 50 pips × 1.0 position × 10 = -$500
Hence, with a 0.1 position size a trader will gain or lose $50 while with a 0.01 position size, a trader will gain or lose $5
2. Mini lots account: this is equal to 10,000 units of base currency and equates to $1 per pip movement.
Profit or loss = Number of pips × position size × $1
Profit = 50 pips × 1.0 position × 1 =$50
Loss = 50 pips × 1.0 position × 1 = -$50
Hence, with a 0.1 position size a trader will gain or lose $5 while with a 0.01 position size, a trader will gain or lose $0.5
3. Micro lots account: equal to 1,000 units of base currency and equates to $0.1 per pip movement.
Profit or loss = Number of pips × position size × $0.1
Profit = 50 pips × 1.0 position × 0.1 =$5
Loss= = 50 pips × 1.0 position × 1 = -$5
Hence, with a 0.1 position size, the trader will gain or lose $0.5
Setting up the 50 pips strategy
T use this method efficiently and faster, we will list out certain things you will need to configure your trading technique. Note that this particular strategy can be used, with the 7 a.m. GMT candlestick which is plotted on the 1-hour Forex trading chart. Also, ensure that you specify the right time zone depending on your location.
The additional information you may and may not need:
· The 50 pips a day strategy does not require Forex indicators since it’s a price
· the general timeframe to use is the 1-hour chart
· The strategy works best for major currency pairs such as GBP/USD or EUR/USD.,
you can later experiment with other pairs as well.
Getting started with the 50 pips a day forex strategy
The steps to get started are as follows:
1. Open the daily chart.
2. Look for the currency pair, GBP/USD or EUR/USD with a good daily range.
3. Capture 1/3-1/2 of the daily range for the chosen currency pair.
Now, let’s see how to set up the 50 pips a day Forex trading strategy.
Rules to follow
There are four major rules to follow
1. Once the 7 am 1Hour GMT candlestick closes you can place two opposite pending orders. These are bought stop positions 2 pips above the high and sell positions 2 pips below the low.
2. Once one of the positions or orders is activated, you will need to cancel the other order.
3. It is recommended to place the stop loss, about 5-10 pips below the low at 7 am GMT for a buy position, and 5-10 pips above the high at 7 am GMT for a sell position.
4. Your 50 pips take profit can then be played out.
After your trade works out, you can repeat the above four steps again the following day.
Is this strategy profitable?
Yes, if done correctly with a smart approach, you can make profits with this strategy. In the long run, if you decide not to adopt this strategy manually daily, you can make use of an algorithm that works on a different strategy
Pros to this strategy
● After the initial daily setup, you do not have to do anything again until the next day.
● This strategy prevents you from over-trading because only two currency pairs are used, hence, there would only be a maximum of two trades a day if you choose to use both.
Cons to this strategy
● This strategy is not applicable for those that like opening many positions hence not a good fit for the trader that likes to trade varieties of pairs or other instruments
● There is a limit on profit that can be made with this strategy. You cannot make beyond 50 pips a day. But other forex trading strategies can get you additional amounts of pips.