50 Pips a Day Strategy – Successful Trading
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To be a successful trader, you need knowledge, discipline, and experience. Although many new traders are lured under the offer of making easy money. Anyone who has been in this business for some time will know that this is not the case.
Maybe the requirement to be a successful trader is first to have failed as a trader. Mistakes coupled with consistency shape the mindset that allows a trader to be successful.
After the necessary training, each trader should strive to create his strategy adapted to himself. But, of course, some methods require more knowledge than others, and no single strategy is right for all traders.
This reality paints a very bleak picture for inexperienced traders. Practically, they are being told that they are inevitably going to lose money.
However, some strategies are easier to assimilate, and that can reduce the risk of losing money. One such strategy is 50 pips a day.
What is this strategy about?
The name explains very well what this strategy is about. The trader’s goal is to execute trades that generate a 50-pip profit per day.
This method is based on a prior study of market behaviour. The advantage of this method over others is the simplicity of its parameters that allows any trader to make a profit when the recommendations are fully followed.
Of course, this is not a method that guarantees 100% profit. No trading method can give you that. Therefore, anyone claiming that any method works 100% is either wrong or just a scammer.
Still, there are indeed better methods than others, depending on the skill and interests of the traders. Next, we will explain what the 50 pips a day strategy consists of.
As stated above, the goal of the strategy is to make a profit of 50 pips a day. That is done during the second hour of market opening. Thus, the process lets the markets move during the first hour and observes how it behaves.
After the first hour from the start of the session, traders who apply the strategy must point in the same direction as the market. If the price of the pair went up, then traders will enter a long position. If the price goes down, traders will enter a short position.
Why 50 pips?
It doesn’t matter if the market goes up or if it goes down. The goal is always to take profit at 50 pips.
Why does the strategy work?
The Forex market is highly volatile. With this strategy, the aim is to obtain 50% of the market movement throughout the day. Two principles explain how the strategy works:
- The average fluctuations of the market during the day.
- What the first hour of the day tells us about the movement of the pair.
The first principle explains why this strategy is applicable only for some currencies and at what times. For example, if the goal is to capitalize 50% of the currency pair’s movement and the target is 50 pips, the total movement must be equal to or greater than 100 pips.
Let’s clarify that the movement of a pair refers to the size of the range in which the pair’s value fluctuates during the day. Not the difference in price between the quote at the beginning of the session and the end.
However, we don’t recommend applying the strategy with every pair having a daily average of 100 pips.
The base of the second principle is what the first hour of the day tells us about the future price. Most likely, the price movements will be greater during the first hour of the session. So by waiting for the first candle, we’ll have a clue about where the trend will go for the rest of the day.
In the first hour, big investors have already begun to execute their positions. In this way, the movement gives us a clue of what will develop throughout the day, and we have the opportunity to take advantage of that.
In a market with an average fluctuation of 100 pips, trying to take advantage of 50% is a reasonable goal.
How to apply the strategy
As previously mentioned, the main advantage of the strategy is its simplicity. Therefore, we can divide the strategy into four simple steps.
Step 1: Choose the pair in which you are going to trade.
We can do this by following the criteria of the 100-pips movement a day and the recommendations from different sources about the best currencies to trade with the 50-pips a day strategy.
Step 2: Identify the first hourly candlestick.
Identify the high and low of the first hourly candle and trade in the same direction the market moved. For example, if the 7 AM candle indicates an uptrend, our strategy indicates entering a long position.
On the contrary, if the candle signals a downtrend, we must enter a short position. This is because the reference point where we measure the 50 pips up or down is the tip of the candle. So if it is bullish, it will be the upper end. Otherwise, it will be the lower end.
Step 3: Set your stop loss and take profit.
The level to establish the Take profit of 50 pips is above or below the price of the first hourly candle, as the case may be. Thus, the reference point where we will measure the 50 pips up or down is the low/high of the candle. If it is bullish, it will be the upper end. Otherwise, it will be the lower end.t
On the other hand, we can set the Stop Loss in different zones. It depends on each person’s strategy.
However, to establish a simple strategy, we recommend using a simple criterion: The Stop Loss must be between 5 and 10 pips below the low of the 7 AM hourly candle if it is a long position or above the high if it is a short position.
Step 4: Set and forget
Traders say this is a set-and-forget strategy because once we establish the pending orders, we only need to let the market flow until one of the orders is triggered.
However, the market may not touch any of the limits that trigger orders during the day. In that case, we recommended that the trader exit the position, whatever the profit or loss on it, and try it the next day
In the image above, we see an hourly chart of the GBP/USD pair. After the first hour of the start of the session, that is, at 8 AM, we can see the 7 AM candle.
As we can see in the example, the price of the GBP/USD rose to the level of 1.37730, so when setting our goal, we must aim for 1.37780, that is, 50 pips above.
As we can see, the price reached that level at 1 PM, with which the take profit order is activated, and the position is exited with a profit of 50 pips.
A good observer will notice that the price rose above 50 pips. Of course, the temptation to obtain higher profits will always be there, but it is important to remember that this strategy is based on discipline.
A successful trader knows that he is not going to get rich overnight. However, the constant small investments within the framework of a good strategy will lead that trader to success.
Currencies to use
It has already been said that the currencies to be used must have a fluctuation range above 100 pips. However, this is not the only requirement. Traders’ experience has shown that there are pairs where this strategy is more successful than others.
The most recommended pairs to use the 50 pips a day strategy are: EUR/USD and GBP/USD. Other good pairs to use the 50-pip a day strategy are EUR/JPY, GBP/JPY, AUD/JPY, and EUR/CHF.
Is this strategy profitable?
It means to use the 50 pips strategy that after investing, for example, $1, at the end of the operation, the trader will obtain $5.
If you look at this carelessly, it could seem like a negligible profit for which it is not worth the effort, but we must remember that the profit is for each unit invested.
For every dollar invested, the profit will multiply. Again this is not the type of strategy that will give us immediate results, but with discipline and patience, this investment can give us good results (as any good investment works).
To exemplify this, let’s run an example in Excel on how earnings can grow exponentially over time. This will be a simple example, and the conditions will be ideal for explaining how the strategy works.
We can improve the strategy a bit more depending on the trader’s experience. Here are some recommendations that can make your strategy even more effective:
- Avoid operating in the consolidation phase. However, if you continue with your training as a trader, you will learn to identify patterns such as consolidation.
- By observing the behaviour before 7 AM and observing if the 7 AM candle is within the range marked by the observed pattern, you will identify a consolidation stage. In that case, it is best to avoid entering a trade because the profits are in the movement, and the pattern indicates that the movement is limited.
- Follow the trend. The ideal way to fine-tune your choice of trades will be to look for confirmation signals. For example, if the 7 AM hourly candle indicates that we should go up but also before the session’s start, there was an uptrend, then we will have a greater probability of success.
- It is a strategy with clear rules and no need for analysis. Great for beginners
- Following this strategy avoids overtrading
- High margin of success
- This strategy requires a lot of discipline, and although this is a must for every successful trader, low-profit margins make it much more difficult to stick to the strategy.
- Low-profit margin. Profit margins are low, and you are at the bottom of the exponential curve for a long time, so income is not attractive.
The 50-pips per day strategy is easy to apply. Its design is systematic and establishes clear instructions that every trader can use, even a novice trader. Of course, the biggest challenge in applying this strategy is keeping an eye on long-term profit.
Still, the effort required to apply this strategy is low requires only a few minutes a day, and can be beneficial in the future.
The recommendation for using this strategy is the same as with all the others, try first with a demo account, try to apply it in different markets, and apply it with real money when you feel that you master it.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst