To become a millionaire you would think that you need 1000 pips on each trade. Even though the pip is important part of the trading, the Forex truth is the number of pips is not so crucial.
You do not need unrealistic number of pips to earn a lot of money. You need to think in percentage gain on each trade. With the certain gain percentage you can double the account each year.
Compound Money With 1000 Pips
If you use compounding system then you can expect that your account grows steadily by each month.
Look for few percentage gain each month, like 6-7%, and you have a goal to double your account each year. 6-7% per month on a $1000 account is not so hard.
You need to find the trade with several pips per week to fulfill the monthly goal. With small amount of pips you can earn a lot. Imagine if you invest $1,000 and you are doubling your account each year.
The math shows that you can become a millionaire after 10 years with few percent each week. Not so bad at all.
It looks very easy and it is easy but the problem is that that it takes time. The time is a problem because traders do not have patience.
The idea, get rich quick, does not fits into the simple example above and that is why many trader fail as a Forex trader. The traders hunts for the fast profit and to get rich quickly where the trader makes errors on the road and he loses the money.
Do I Need 1000 Pips or Less
If you see one the example above you need only few percent. I will use 10% monthly profit as an example just for easier calculation.
To reach 10% on a $1,000 you need to earn $100 dollars. If you have 1% risk that is $10 on your initial balance.
You need to earn $100 with maximum loss of $10 per month. To divide that goal into 4 weeks you need to earn 2.5% per week with 1% of risk. That is 1:2.5 risk to reward ratio which is quite good.
To get 2.5% which is $25 you need to earn few pips. How much pips you need will be defined by the lot size you will use.
If you use mini lot size where 1 pip is equal to $1.00 then you need 25 pips. If you use micro lot size where 1 pip is equal to $0.10 then you need 250 pips.
To fit into 1000 pips none of the lot sizes is correct. If you make calculation with mini lot size where you need 25 pips per week you will need 100 pips per month to reach the monthly goal.
If you have 1000 pips as a goal to get rich you will have 10 months until you reach the 1000 pips because 10 month multiplied with 100 pips per month gives you 1000 pips.
10 months x 100 pips/week = 1000 pips
Now you can see that 1000 pips is not enough to get you rich by the risk management plan I have laid above.
Use Standard Lot Size
Now you need to change something to reach the goal with 1000 pips. You have only one option and that is to use larger lot size and that is standard lot. In standard lot 1 pip is equal to $10.00.
If you use standard lot with 1% of risk and 2.5% of profit per week than you can see what you will get. Each week you need to get 2.5 pips to reach the goal. But the biggest problem here is 1% of risk.
If you open a trade the spread which is from 1-2 pips will eat 1% and you will not be able to open that trade. To overcome this problem you can increase risk form 1% up to 10-20% which is not advisable.
Before doing any trade on the real account try first demo trading. Take you time on demo trading before going on live account.
Now lets see what does the math tells us if you use aggressive approach with 20% of risk with standard lot size and with 2.5% of gain per week. Each trade you open can have $200 loss and you hunt for 2.5% of gain which is $25.
You need only 2.5 pips per week to reach desired goal of 10% per month.
4 weeks x 2.5 pips/week = 10 pips per month
The whole month needs 10 pips and the whole year needs 120 pips.
12 months x 10 pips/month = 120 pips/year
To reach 1000 pips with 120 pips per year you need around 8 years.
8 years x 120 pips/year = 960 pips
By the table after 8 years you would have $256,000 which is quite good. I think you could say that you would be rich with only $1,000 invested.
To reach this goal with the above calculation you should not have losing trade. If you open 4 trades per month all 4 trades should be positive.
Is this reachable?
Yes, it is. You are hunting only 2.5 pips per each trade. But have in mind that if you have one losing trade you would end up with $200 loss. Which means all the math above is not correct because you would not have anymore $1,000 on your account.
This approach is very risky and I would not advise to do it like that. The best is to risk 1-2% per each trade so if you lose one trade you would have $998.00 on your account.
Even the example shows that 1000 pips are not reachable with good risk management many traders would go with risky approach even they could lose 20% with one trade.
The humans are greedy in all aspects of their lives. They want money right now if possible and if it is not possible they will try to make that possible.
In Forex when the greed comes into play trader usually lose the money, eventually. It can happen in a day or in a week or in a month.
The professionals advise not to risk to much on each trade because they know what will happen in the long run. They also say not to hunt for to large profits.
Professional trader knows that the greed will force him to make wrong decisions. Greed will make you over trading where you will open to much of traders and you will eventually lose your money.
With to many trades open you are not following the risk management plan where the risk should be 1-2% of the account balance. As I said the risk management plan is very crucial if you want to succeed in trading.
Not having risk management plan is beginner trading mistake which you should try to avoid.
What to do With 1000 Pips
If you want to succeed and become rich in trading use the approach with 6-7% of profit per month as I have explained in the table. That way is reachable and you are very well protected from losing you account balance in short time.
You will have steady income each month and if you have losing trade you will not lose to much. You will not lose your nerve with the losing trades and you will see steady rise on your account.
The above example is without withdrawing any money from your account. Withdrawing the money from your trading account the timeline does not fit anymore and you need to do calculation again to see when you will reach the goal.
If you deposit more money each month you will reach your goal sooner. If you deposit more money make a calculation to see when you will reach your desired goal.
You need to set the realistic goal which is under control with proper risk management. Set your expectations with real time table so you do not fall into the trap looking for quick money.
I know that is not easy to watch how your account grows slowly. It looks like impossible mission. Maybe you will not be able to watch or wait so long how the account is growing each month.
What you can do to avoid touching that account and letting it growing? What can you do to satisfy you needs to earn more on each trade?
Aggressive Trading Account
You can open another account on which you can try more aggressive trading approach. On this account you can increase the lot size where the pip will worth more.
You can increase the risk percentage and the reward percentage. Do follow some risk management plan so you know where the stop loss is if the trade is losing one.
Also, have the risk to reward ratio so you do not end having large losing trades and small wining trades. If you have large losing trades you will wipe the entire account very quickly.
Trading is not easy and it is not for anyone. Those who are persistent and patient are one step closer to reach their goal by Forex trading.
Do not focus on the number of pips gained on each trade. Focus on percentage that is defined by you trading strategy and risk management plan. The strategy and plan will define how much of pips you need to reach on each trade.
The main rule of a trader is to protect your money you have invested and earned. If you do not protect your money you will not be able to make more money. Forex trading requires money to earn money so give your best to protect you account balance.
Do not get into Forex trading with only one idea on your mind and that is to get rich quickly. The only way to get rich quickly is to win lottery and only thing to get quickly in Forex is to wipe your account balance.
Many traders fail in Forex trading because of greed and thinking only to earn money fast. Do not be among those traders and do your best to become professional and profitable.
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