# 20 pips, a possible money management system..

Discussion in 'Mess Hall' started by automatedtrading, Aug 1, 2010.

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One of the most valuable things that an online forex trading course can show you is how valuable 20 pips a day is..

1 standard lot at 20 pips/day = \$200/day = \$50k/year
2 standard lots 20 pips/day = \$400/day =\$100k/year
3 standard lots 20 pips/day = \$600/day = \$150k/year
5 standard lots 20 pips/day = \$1000/day =\$250k/year
10 standard lots 20 pips/day = \$2000/day = \$500k/year

If you were obeying 2% risk management, then you can multiply your account about 5 times a year.. at 4% risk management, you can multiply your account roughly 10 times /year. To demonstrate..

If you have a \$10k trading account and you are trading at a 2% risk, then you can risk \$200 per trade (2% of 10k = 200). that means you can trade 1 lot with a 20 pip stop and 20 pip target (1:1 risk reward, least acceptable).
If you can make 20 pips/day on avg with that 1 lot you will make 200/day=1000/wk=50k/year..

So, you just made a \$50k/year income with just a \$10k account!! only risking 2%. Most traders dont appreciate the leverage we get, and risk way too much, only blowing their accounts before they know what went wrong!

At a less conservative 4% risk management level, you could risk \$400 per \$10k. Using the same 20 pip model, we would trade 2 lots with 20 pip stop and target. 20 pips/day would now equal \$400/day=\$2000/week=\$100k/year. So, a \$100k income was achieved with a \$10k account, using the same 20 pips/day strategy.

What's important is that we never need to try for more pips/day, thats too difficult and novice forex traders have a hard time realizing this. It is more beneficial to be consistent at a small number of daily pips and then gradually increase your lot size as your account grows.

btw, this is NOT compounding, this is taking your profits out every week. If you were to leave the money in your account and increase your lot size according to your account balance you would see astronomical gains.

thoughts?

2. ### Pharaoh Colonel

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Systems that go for small numbers of pips can be good, but they will be subject to losses. If your first trade of the day goes bad, you need 1 winner to repair the damage, and another one to provide you planned daily income.

Make VERY sure your broker doesn't hunt your stoplosses. A 20 pip stoploss is very reasonable for risk management, but is also an easy target for an unscrupulous broker.

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