If you want to invest in Forex and make good returns , it’s important to develop a system that will guide you. To do this, you need to understand what you want from the market. When I developed my 20 pips a day forex trading strategy I had just one goal in mind “Small, consistent daily profit”
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As a beginner, one of the problems you will encounter early is that there are so many advice, strategies and signal group out there, focusing on them can distract you from focusing on your trading journey.
The best thing you can do for yourself is to develop a forex trading system that will guide your journey in the forex market from day one. That is why we have a demo account where you can trade, learn and perfect your trading skill. In this article, I am going to share my 20 pips a day forex trading strategy system.
Table of Contents
What is 20 Pips A Day Forex Trading Strategy?
One of the key ingredient of success in forex is target based trading. Without having a solid trading plan that will guide your daily entry and exit in the market, you will struggle in the market. So, 20 pips a day strategy is a trading plan that guides my trading journey in the forex market.
What is a Trading Plan?
A trading plan defines how you will find and execute your trades, it outlines your motivation, your trading time, your goals, risk to reward ratio, trading capital, etc.,
Before we continue, kindly download a sample of the data part of a trading plan. From the document you downloaded, input your equity and note the daily increment in your capital. You can edit the data part to suit your trading goals/motivation.
Other questions you need to answer are:
- What are my trading Objectives?
- What markets will I trade?
- What are my goals?
- Why am I trading?
- What is my Approach?
- What are my Entry/exit rules?
- What timeframes will I trade?
- What Indicators will I use for my trading?
- How often do I review my trading result?
Trading System
Trading system is the foundation of your trading plan. It covers
- Analysis/ Trading timeframe
- Entry and exit signals
- Risk to reward ratio
- Lot size
Apart from Analysis/Trading timeframe and Entry and exit signals, the other two are included in the document you downloaded. So go through the document again, for instance, your lot size is the function of your risk to reward ratio. Mine is 5% of my equity (which means I am willing to lose 5% of my equity if the trade does not go as plan) yours can be more or less depending on your risk appetite
Analysis/ Trading timeframe
There are so many timeframe you can use to analyze and place your trade, for the 20 pip a day strategy, I use a 3 time-frame approach. Daily time frame and 4 hours for analysis, then 5minutes timeframe to look for entry.
Analysis timeframe
- I use the Daily timeframe and 4 hours timeframe to draw trendline
- To mark key levels on the chart. (Key levels include Support and resistance zone)
- Then based on the trendlines and key levels, I will mark my point of interest (where I will place my trade) and point of exit (for both stop loss and take profit)
Read: The Complete Guide to Price Action Trading Strategies
Trading Timeframe
I monitor the chart with M5 in order to place a trade once the price reaches any of the point of interest I mark during the analysis.
Entry/Exit Signals rule
- Trade only when price reaches your point of interest on the chart
- Place one trade at a time and never risk more than 5 to 10 % of your equity per place
- Add Exponential Moving average 48 to help you in trend direction
- Picking signal from EMA 48 is simple, price above EMA 48 is uptrend, below is downtrend
- Use EMA 48 plus your point of interest on the chart to enter and exit trades
- Your point of entry must be defined based on trendlines and key levels on the chart (support and resistance)
- Take just 20 pips of trades per day.
- If you lose 20 pips in a day, close for the day review your trading history and prepare for the next day.
You can add other rules based on your experience and the practice you are doing on your demo.
Trading the 20 Pips a Day Strategy
- Place a trade when it gets to your point of interest, don’t force the market, Trading that way will minimize loses and maximize your profit, because you are bound to pick only high probability trades.
- One or two trades a day is enough if you are targeting 10 pips per trade.
- Close once you meet your target don’t be greedy.
Final Thoughts
You need to develop consistency in your trading, successful trading is a business not a hobby, so work on your trading (business) plan and win in the market. Risk responsibly.
Disclaimer
Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.