All about forex pipsing
Hello friends forex traders!
It is no secret to anyone that a considerable number of traders do not have deposits with several zeros and they simply are not interested in the result of 20-40% per annum. Traders who are not able to invest in the market sufficient amounts to be satisfied with two or three-digit annual returns use pipsing to disperse the deposit to what they think are acceptable sizes, after which they switch to medium- and long-term strategies. What is pipsing, what can be work strategies, choosing a broker and an account for such trading, money management - this is similar in today's article.
What is pipsing?
A small profit margin usually corresponds to a short time spent in transactions, which, in turn, leads to a high frequency of opening orders. In another way, this method of trading is called “scalping” - the trader makes accurate “short cuts in the length and shallow profits” of the market.
The strategy is popular for using short stops. Financial losses of loss-making transactions are low, a large number of orders allows you to "beat off" the resulting losses, leaving at the end of the trading session "plus" almost every business day.
Pipsovka, due to the transience of transactions, quickly checks and filters out trading systems, one business day "imitates" a segment for a medium-term strategy of a week length.
Pips - the minimum step (change) in the price of a currency pair, the size of which is indicated in the specification located on the broker's website.
Pipser - a trader working on a strategy that provides for closing orders with a profit of several points (pips).
According to the theory of graphic analysis, it is known that candle formations of Elliott waves, Fibonacci patterns, etc. valid for any time period of the change of quotations (candles, bars). Many scalping strategies are an adaptation of well-known medium-term and long-term trading systems.
Market entry skills worked out by pipsers further lead to accurate entries with minimal losses in all trading systems.
The high frequency of transactions and protective orders close to the entry point give relatively low performance, positive expectation (the prevalence of orders closed in plus), as a rule, no more than 65%.
The advantage in profit is achieved by the number of transactions, which carries a serious psychological burden on trade, the profit curve is similar to a cardiogram, “dives” into the positive and negative area during the session many times.
The "main enemies" scattering the attention of the "pipser": consecutive losing trades and mistakes related to the "human factor" are their own mistakes that have brought loss.
A trader who pips manually has to rely on the general rules for opening orders, relying on knowledge of the peculiarities of changing the quotes of a pair. Events distracting from these aspects (greed, frustration, regret, etc.) lead to growing losses, like a lump, which can no longer be justified by future profitable transactions.
If the bidder is not able to control himself, you can not continue to trade! The measure of such an event will be unprofitable transactions in a row from the "miss" of the trader.
For traders who have visited Tibetan monasteries, who have learned the technique of "withdrawing into themselves" to find balance, it is easier to psychologically tune in for the upcoming trading day. Someone uses neuro-linguistic programming techniques, but you can use a simple approach - remove irritants if possible, thereby limiting losses.
Tactics of "psychological defense" from the drain:
- It is impossible during the bidding to reflect in the field of view the current financial result. In the process of piping, they count unprofitable and positive transactions, but do not look at how the figures of the deposit change;
- Having received a loss, the trader stops trading. It is necessary to move away from the screen or close the terminal for at least 5 or 15 minutes. After three "cons in a row" they take a long break or stop trading;
- In the final of the working day, all transactions are viewed step by step, the conclusions are summarized so that on the next day the mind would be “emphasized” not to repeat “yesterday’s mistakes”;
- Pipser errors are written out, repeated errors are learned as rules, concentrating on getting rid of them.
In a short-term strategy, a deal lasts minutes, seconds. Improvisation will result in a deterioration of the result, without even leading to a one-time loss, time will be lost for which it was necessary to make other transactions, without concentrating on one.
Profit provides 10, maximum 15% overweight positive transactions over negative ones. Pipsing is sensitive to any deviations from the strategy.
Medium-term and long-term trading systems have a margin of time, being in a position, a trader can improvise by rearranging a stop, fixing a profit prematurely or, conversely, not placing a stop, outstripping a loss or not closing a profitable position, putting a deal into a big plus.
Changes to the strategy are possible after testing "offline" on the tester of the trading terminal or manually a new algorithm.
Many trading principles based on VSA cannot be altered at all, in this constancy the “strength” of scalping trading, transforming it from the category of strategies into tactics that do not require test confirmation.
An attempt to refute or modify scalping tactics that have been developed over decades will lead to an inevitable negative result. In almost all cases of dissatisfaction with the existing system, the culprit is the inattention and sluggishness of the trader.
Before making any changes and looking for new strategic tricks, the trader must analyze his own actions.
Than a demo account is not useful for a scalper
Regarding the benefits or harms of using demo accounts, a lot of material has been written on thematic sites and forums.
Fans of demo trading claim the following - "Demo accounts are testing the strategy." Such "testing" is a waste of time.
The Metatrader tester many times faster tests a large area of historical quotes, as well as individual, interesting points, for example, trading areas during the economic crisis.
The effectiveness of the strategy depends on the symmetric distribution of historical data on market conditions - flat, trend, high and low volatility. Demo bidding does not provide such a selection.
Before testing, the trader is obliged to formalize the rules of inputs and outputs, creating a full-fledged automatic algorithm, otherwise the test is impossible. At the demo auction, indicator signals are processed manually; there is no incentive to streamline the strategy algorithm.
Testing gives results according to drawdown size, expectation (the number of profitable trades). These parameters are constantly checked in real trading to see the moment when the strategy begins to bring one loss. A trader, seeing deviations, makes a decision in advance on optimization or change of strategy. After the demo bid there is no such data.
Manual indicatorless trading is categorically contraindicated in the demo account. Decision-making on a transaction is based on relative concepts of volume, size of movement, behavior of quotes near important levels, etc. A person’s consciousness is associative and self-deceiving, the “excitement factor” in real trading makes one perceive the same data differently, depending on the location in the transaction, current losses, desire to “win back”, rush and greed. At a demonstration auction, such feelings are either absent or mistakes made through the fault of excitement are forgotten.
Do not completely refuse the demo account. Pipsing involves quick one-touch transactions that must be worked out before the automatism of “muscle memory”. You need to train to open deals on a demo account without a race for performance.
If you use additional equipment, according to the signals of which transactions are opened through the bundle in MT4, use a demo account to verify operability without fail.
The same applies to all Advisors - opening and closing of transactions is checked on demo accounts with the control of a "log of logs", imitation of communication breaks and power outages.
Choose a broker and type of account
Forex brokers work on the basis of a license issued by the country's regulatory authorities at the place of legal registration. Regulation guarantees the safety and return of client funds, legal supervision of the company.
Companies have several licenses for working in different countries of the world. Priority in choosing a broker is given to a “local license” issued by state authorities in national jurisdictions, then jurisdiction and regulation in developed countries, “civilized” offshore (Cyprus or British tax-free zones) are welcomed for reliability.
The type of account determines the possibility of pipsing. When choosing a broker, scalpers pay attention to the list of "liquidity providers". The international interbank Forex market is distributed between central banks, investment funds, financial institutions, and customers, allowing you to pay a minimum amount for a lot of several million dollars, given the lack of leverage in this market.
The international Forex market dictates the course. Special agencies are responsible for the accurate distribution of these values, banks and funds are ready to buy / sell at these prices all offers from clients of Forex dealers. Such financial institutions, buying and selling foreign currency, creating a "personal" interbank Forex, are called liquidity providers.
The larger the brands and the number of suppliers, the more liquid the broker’s interbank currency exchange market.
The type of account must be a floating spread. This is savings on the spread and a guarantee of the withdrawal of trade orders to the interbank market of liquidity providers.
The trading platform should not have delays in the execution of orders - trading orders should be processed automatically (this is an ECN account type) or should be sent directly to liquidity providers with the choice of a “competitive” (best) execution price. The latter technology provides a spread equal to zero (the purchase and sale prices coincide) when one supplier of liquidity has the best selling price of a currency pair equal to the purchase price of another supplier.
Processing orders directly reduces the processing time of a trade order, the technology of choosing the best price removes the problem of “slippage” - the price deterioration after sending a trade order to the broker's server.
NDD, ECN, STP accounts save on spread costs. Pipser gross earnings per session reaches 100 pips. On typical accounts with a fixed spread, each transaction on the EURUSD pair would take an average of 1 pip, which amounted to 20% of the costs. Adding losses to them (about 35 pips), the scalping strategy becomes unprofitable.
Scalpers using Expert Advisors in trading depend on the speed of the Internet provider, the stability of the Forex dealer’s servers, and power outages. In case of loss of communication between the trading terminal and the broker's server, the robot "loses" control over the positions. Avoiding these problems helps placing an expert on the servers of data centers. If the company provides VPS services, you should definitely use it. Thus, managing the account remotely, the trader is guaranteed to be protected from the above problems.
Certain piping methods require "close setting" of pending orders from current prices. Brokers on certain types of accounts in the MetaTrader4 trading platform have a limit on the minimum number of points - this should be taken into account and watch the specifications on the account.
If a trader is going to “pips”, then setting stops, take and entry levels with such a restriction will take a lot of time if the scalping strategy is not impossible.
Manual or automatic trading?
Novice traders believe that buying a robot will save you from psychological problems and manual trading errors. The “Miracle of Counselors” is treated as an apparatus for continuous money making.
Automation will not save you from the stage of compulsory training; buying an Advisor by an unprepared trader will bring him more problems than long training in manual trading skills.
Scalping can be programmed using the language built into the trading platform. The strategy should be based on indicators that give trading signals according to a certain algorithm.
After testing, the written Advisor is launched on a real trading account, the trader can only observe and analyze the results of the trades, comparing them with the test ones to control the strategy’s performance, or sell the finished pipser to the afflicted.
Automation will not help the newcomer; he will not be able to check the Advisor in the tester to understand and evaluate the purchase, to understand the reasons for the drain (software failure or strategy error), to monitor the current work.
Manual trading is recommended as the first step, which will help to learn how to trade and discipline, to know the market and choose a tool.
A pipser does not trade many currency pairs, usually studying one or two. Over the years, some features of the movement of currencies can further increase the effectiveness by "playing back" the features of the same type of movements and reactions of currencies to news or the time of day (opening of various world exchanges).
Having developed the rules and algorithms in the trading process, the trader can write the algorithm on his own or draw up a technical task for the programmer.
Unfortunately, algorithmic trading is limited to Boolean logic, which does not fit indicatorless scalping strategies. Therefore, part of the pipsers always trades manually, without using advisers and indicators.
The measure of the correct choice of style and type of strategy is the amount of profit on deposit. The numbers do not lie, objectively evaluating the efforts of the trader.
Pipsing performance is increased by intraday microtrends, which depend on the time factor of bidders' activity. One of the main tactics used by scalpers is trading at certain time intervals.
The duration of the trading session for currency pairs is 24 per day. Directional intraday movements are provided by a large number of bidders whose activity is tracked by an increased number of transactions using the Volume indicator.
This is not the only way to measure activity, any volume indicator or volatility (price dispersion) meter is suitable, but experienced traders approach this issue differently.
The activity of bidders coincides with the time and first hours of operation of the country's stock exchanges, which include the currencies that make up the pair.
EURUSD is active at the opening of the London and North American exchanges. Given the daily turnover of US stock exchanges, their opening affects all world markets - this is a clear time for trends.
Tactics can be varied - beginner scalpers use the USDJPY pair in night trading, taking positions from 21-00 to 3-00 Moscow time.The volatility of the pair is offset by the lack of activity of traders during these hours, but enough to "catch pips", the movements of quotes remain in a certain corridor (flat), having determined which, the trader avoids the error.
Session indicators are available for traders, allowing you to configure reminders and the boundaries of the beginning and end of sessions at the request of the user.
If the microtrend is a friend for the scalper, then volatility (strong price fluctuations in both directions) is the enemy. Strong price fluctuations in both directions lead to premature “triggering” of protective stop orders orders. It is impossible to predict the price spread, an increase in protective stops leads to an increase in losses, the rules of the strategy are violated. This makes it difficult to make a correct forecast of price direction, so traders avoid trading at the time of news release, if this is not provided for in the strategy (trading on the news).
Each trading session begins with a study of the calendar of current economic events. Important news such as GDP data, unemployment, decisions of national central banks on interest rate changes, etc. - All this can affect the previous part of the session. In anticipation of changes that establish long-term trends, traders can make few transactions, holding speculation until the news comes out. In this case, the opening of world exchanges will not lead to the formation of microtrends and scalpers do not trade.
A special case is national holidays. Any events that “take” the US and Eurozone traders out of the market serve as a signal for pipsers to ban trading activity these days.
The opening of national exchanges after a long weekend at the moment causes a "tide" of significant financial resources to the markets, therefore it is equated with the "news", the first hours and at the time of the start of trading, scalpers do not participate in current trading.
From cent account to dollar
The initial level of pipsing involves the use of "cent accounts". The small amount of the initial deposit will protect the novice trader from losses, the high profitability of the developed strategy will disperse the depot independently, assuming a low level of subsequent investments from the trader.
This tactic applies to intraday trading. If the trading session begins with losses, they will be minimal, while trading in a full lot will bring discomfort from the first minutes of the session. Small losses will not encourage the scalper to “recapture at all costs” and affect subsequent transactions.
The amount allocated to the "work lot" is divided into several parts - at least three. Trading begins with a small lot, increasing with each profitable trade.
The tactical approach of trading with a gradually increasing deposit reduces losses. There are sessions at the beginning of which the trader did not take into account all the fundamental factors. In the trading process, the lack of activity will entail minimal losses, inevitable in the absence of trends.
Money Management. Money management tactics
The scalper transaction provides for the mandatory setting of take profit and stop loss. Otherwise, without the latter, taking into account the “overclocking” lot size, there is a great risk of losing the entire deposit by the evening - if the price did not want to go to take profit and went in the direction opposite to the forecast. The risk per trade as a percentage of the depot can be from 1 to 20% - depending on the ratio of profitable / loss-making transactions, market entries with exactly one order, like a sniper, or a grid of orders to average the position.
The size of the pipser's deposit usually does not exceed a few hundred dollars. A deposit for a trader is a tool that allows you to “squeeze” the maximum from the market, therefore, the leverage used should be the maximum that the broker provides. There is a 500 shoulder - we take it, there are 1000 - we set it. The greater the leverage, the less money will be pledged when a trader opens a position. But you should always remember that there should be 15-20 transactions in the stock at least, having made mistakes on which (having received stop losses) we will lose the entire deposit. No one is safe from mistakes, especially in trading.
The transaction is necessarily limited by the "retention time" - from the implementation of the predicted movement is given from several minutes to several hours. Positions are not held for days and weeks, as when trading on D1. As a rule, by the evening of the working day, all transactions are already closed and there is a certain result, reflected in points and percent of the deposit.
Scalping strategies and indicators based on MetaTrader4
Larry Williams in his book “Long-term secrets of short-term trading” described a ready-made scalping strategy, the transactions of which are made on timeframes from five to 15 minutes using currency pairs and CFD contracts.
There are two indicators in the trading system - simple three-period moving averages built on the highs and lows of the candles. Having established the extremes of quotation fluctuations according to the method of Larry Williams and the direction of the trend, inputs are made when the moving average crosses the rollback from the directional movement, if the trend remains valid.
Determining the highs, Larry Williams took three candles in the middle with the maximum value of the “tail” and the closing prices of the candles on the left and right below the closing price of the middle candle.
Exceeding this maximum was considered a guarantee of the continuation of the trend, while the quotes did not exceed the minimum determined in a similar mirror image. Of the three candles, a timeframe was selected with a minimum tail in the middle and closing prices of candles on the sides exceeding the minimum candle.
The second strategy involves the use of five RSI indicators: 5, 7, 9, 14, 21 - periods on a five-minute interval for all currency pairs. The entry is based on the return intersection of level 60 - for buying and 40 - for selling all five indicators.
The main signal for readiness for purchase comes from RSI 21, after the indicator curve drops below 40. The transaction is carried out at the turn and rise of the curve above level 40, if the readings of all the other four RSI are below 60.
Selling occurs at the return intersection of level 60 RSI 21, while all four remaining RSI indicators should be above 40.
Trading on pulsed volumes includes setting the Volume indicator and analyzing the size of the candles. The body of the candle is estimated to be two three times the previous ones, which coincides with the abnormal, unexpectedly increased volume. The strategy is conducted on candles for at least fifteen minutes, a counter-trend, buying on the fall and selling on growing candles.
Laguerre indicator suitable for pips beginners, giving signals of type 0 and 1. Setting level 1 - when the indicator crosses this line up, the trader buys a currency pair, if the previous value of the indicator was 0, it sells, when the indicator crosses the line 0 down, if Laguerre reaches units.
It is allowed to re-enter the sale, if the indicator returned to one, not stopping 0.5, the second purchase occurs when it falls to zero, not exceeding 0.5.
The timeframe size is from five minutes; currency pair - any; trading time and the level of stops and take profit is selected based on general recommendations for money management.
Of course, trading using a large number of short deals is more difficult than more measured medium-term and long-term tactics. Here a completely different approach is needed, which not everyone understands on time. In order not to make a number of typical mistakes of beginners, it is enough to follow some simple, but very important rules:
- Pay attention to the broker's trading conditions, in particular: the size of the spread, the size of the stop level and the speed of processing orders. The best conditions for pipsing you will receive on modern ECN / STP accounts;
- Choose a system and stick to it. When choosing a trading strategy, thoroughly study the conditions for entering the market and try not to “improvise” on the go. Pipsing a transaction lasts minutes and seconds, so any inaccuracy will lead to losses. Also, do not forget to follow money management and always set a stop loss and take profit;
- Consider temporal patterns in trading: each pair has its own hours of greatest activity, when the period of night flat (calm market) is more suitable for trading in the channel;
- Avoid trading during the news. For pipsing, large and sharp price movements are extremely harmful, as they can lead to slipping stop levels, and the strategy itself lives off with more micro profits.