This trading approach is used for gaining profit from intraday currency fluctuations. Some traders open more than 200 deals a day while holding a position open for just several minutes. Of course, the profit from each position is rather small, but in total it can constitute a significant amount.
The idea of pipsing 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 closing price. However, currency rates do not always go up or down within the day, but rather make minor fluctuations what makes the total amount of pips 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 losing on Forex using this approach is twice as high.
The system is doomed to failure. There are several reasons for that.
1. Trying not to miss even the smallest rate movements, pipsers set the stop loss very close to the current market price.
A stop loss approaching a price rate increases the possibility of suffering losses from the market noise if the strength of bulls and bears has been misestimated, even though the trend direction has been determined correctly. It is easier to make a mistake when defining a price direction for the next hour than determining the direction for the whole day.
The easiest way to escape the execution of a stop loss order with a risk of a loss is not to place such an order at all. But in this case you risk losing even more money if a strong price movement is against you. This happens when the price moves so far that it is unlikely to return to the previous levels in the next few minutes or hours. When keeping a large part of the deposit as a margin without placing any stop loss levels, the risk is high to get a margin call, i.e. losing the whole deposit.
2. Trading real money provokes stress. As a rule, this strategy is first tested on demo accounts, since there is no real money involved. So, there is no fear to lose it, and orders are executed automatically, i.e. instantly.
Therefore, there are several factors, including the speed of orders execution and stress that worsens with each pip when the price moves in the wrong direction. The pipsing strategy implies constant presence in the market, which certainly brings stress. This can lead to ill-considered decisions.
We should also mention the fact that brokers do not like clients who request a huge number of transactions. There are some restrictions on the quantity of requests per certain period of time. So, aggressive traders who request orders every second can be asked to close an account.
A positive result is more probable in case of scalping. It is similar to pipsing, but its goal is more than several pips per trade.
Here are several approaches of the scalping strategy:
- simultaneous trading on several currency pairs and an attempt to investigate their movement as a group. 90% of these systems are based on the group movement of currencies against the US dollar. However, there are systems based on the euro and the pound;
- traders choose a driving currency pair and a lingering one. Let’s say, EUR/USD is chosen as a signal pair and AUD/USD as a currency pair for trading (it is supposed to move with delay compared to the euro);
- either M1 chart or a tick chart is chosen for trading;
- most manipulations are performed through orders;
The ideas described above are widely discussed on different forums. These approaches require a lot of nerve and a good reaction.
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