There is a lot of talk in the world of Forex, and has been for some time, about the 10 pips a day strategy. It’s a strategy that claims to “make you rich quickly” by accumulating just 10 pips each day. Well, I’m here to tell you that not only will it not make you rich, it will likely blow your trading account if you give it enough time.
The lure of the strategy is the perception that making 10 pips a day can accumulate into great fortunes in a relatively short period of time. Because, as those who promote the strategy will tell you, it’s easy make this amount each and every day.
But 10 pips a day should be easy, right?
In theory, yes. But as we all know, becoming consistently profitable in the world of Forex isn’t a theoretical endeavor, it’s a practical one.
In this article we’re going to take a look at the controversial topic of making just 10 pips a day and why it doesn’t work. As a result, you will learn a way to set performance targets that account for gains as well as the risk taken to make those gains.
But first, let’s discuss this 10 pips a day strategy in greater detail.
What is the 10 Pips a Day Forex Strategy?
The idea behind the strategy is to aim for quick wins every day. As the name implies, the goal is to make a profit of 10 pips each day.
This sounds simple enough, and in theory it should be. But again, profiting from the Forex market isn’t theoretical.
Most of the strategies out there that aim for a small number of pips each day also carry with them a large stop loss. At least large in comparison to the nominal profit potential from each setup. This strategy is no exception.
This is vastly different from what we do, where we aim for a proper risk to reward ratio of at least 1:2. Most of the strategies that aim for 10 pips a day use a 90 pip stop loss or greater. I have even seen some as large as 180 pips; to achieve just 10 pips of profit.
In essence they use the complete opposite approach to risk to reward as we do here at Daily Price Action. They take on huge risk for little reward in exchange for a high win rate.
And therein lies the problem.
The Attraction
Many traders like the idea of strategies like this because they produce quick wins and promise high win rates. As we all know, it feels good to win. Think about how you felt after your last winning trade. Or better yet, a series of winning trades.
Feels good, doesn’t it? And why shouldn’t it?
There’s nothing wrong with feeling good after a winning trade. You put in the work to find a favorable setup which resulted in a profit. So there’s nothing wrong with a little pat on the back for a job well done.
However there is something wrong when you choose a strategy simply because it induces a winning feeling more often than not. Or at least that’s the intent of the strategy.
You see, becoming a successful Forex trader isn’t about winning, it’s about becoming consistently profitable. There’s a big difference between the two.
It isn’t about feeling good when you win more often than feeling bad when you lose. It isn’t about feelings, period.
When you choose a trading strategy based on win rate, you’re letting your ego do the decision-making for you. Your ego wants a strategy that’s going to give you that nice “winning” feeling.
The logical side of your brain wants a trading strategy that will grow your trading account. It’s also the logical side of your brain that knows it takes a great deal of time and practice to become consistently profitable.
Your ego wants the profits now and doesn’t care how much you have to risk to get it.
The Disaster
Before we talk about why the 10 pips a day strategy is disastrous, I want to clarify two things:
- I’m not discrediting all scalping strategies. I’m sure some do work. What I am discrediting is the idea that you can aim for a specific number of pips each day, week or month and “get rich quick”, as many who promote these strategies claim.
- There’s nothing special about 10 pips or 1 day that I dislike. I’m against aiming for any number of pips within any specified period of time – more on this later. I’m simply using the 10 pips a day strategy as an example.
Now let’s get into why a strategy like this is dangerous.
Unfavorable Risk to Reward Ratio
The basis of a strategy like the “10 pips a day” strategy is a high win rate. This involves risking a large amount of pips for a relatively small gain.
Let’s use the 10 pip take profit, 90 pip stop loss strategy as an example.
In order to break even with this strategy, you would have to win 90% of the time. That means out of 100 trades, you would need 90 of them to turn a profit.
That’s an unrealistically high win rate for any Forex trading strategy. And that’s just to break even. If you want to actually profit consistently you would need to win more than 90% of the time.
Think about it this way. You have two consecutive winning weeks, making your goal of 10 pips each day. So for ten days of trading, you have made 100 pips. At the end of those ten days you feel unstoppable.
On the eleventh day, disaster strikes. Your stop loss is hit for a 90 pip loss. So after eleven days of trading, you have 10 pips of profit. Demoralized and frustrated, you set out in search of a new strategy that’s going to make you millions.
Sound familiar?
This is the vicious cycle most Forex traders live in, and it’s why using an unfavorable risk to reward ratio can be hazardous to your career as a Forex trader.
Unrealistic Expectations
The unfavorable risk to reward ratio brings us to the next reason why the 10 pips a day strategy is dangerous – unrealistic expectations.
Any trading strategy that uses a fixed number of pips within a specified period of time as a goal is a disaster waiting to happen. You can quote me on that.
Here’s why…
The market moves on its own schedule. Every week is unique, just as every day, hour and minute is unique. A currency pair won’t give you the exact same type of movement from day to day or week to week.
So why expect the same amount of profit each and every day? It just doesn’t make sense.
The market isn’t on your schedule. To become a consistently profitable Forex trader you have to learn to take what the market gives you. That might mean not trading for a day or even a week.
To say that a market is going to move in a way that will produce 10 pips of profit each and every day is completely unrealistic.
The Solution
Although price action trading is my preferred method of trading and has been for many years, I’m not going to pitch it as the solution. Instead I’m going to show you how to set performance targets that are both achievable and also account for risk. This can be used for any trading strategy out there.
In order to do this, you will need to use two metrics to track your performance. The first metric should be your percentage gain. This will be the amount you aim for each month. I recommend starting off somewhere between five to ten percent profit per month.
This is a realistic expectation and has real value. You know exactly how much five to ten percent profit per month would equal based on your account size. If you simply aim for 400 pips per month, for example, who knows how much each pip is worth. It could be $1 or $10. By using a percentage gain you are establishing a performance target with real value.
The second metric needs to account for risk. After all, five to ten percent profit is great, but if you’re risking twenty percent to get there, that isn’t so great.
For this metric you’re going to use an R-multiple. What is that, you ask? You simple take your profit target in pips and divide it by your stop loss in pips. For example a 300 pip target with a 100 pip stop loss would be 3R.
Therefore the goal for your second metric would be to maintain an average 2R minimum for the month. This forces you to look for favorable trade setups where the potential reward is at least twice the risk.
There you have it. Instead of aiming for an arbitrary number of pips per month, you aim for five to ten percent per month while maintaining an average 2R minimum. You now have a goal that’s going to produce gains while accounting for the risk taken to make those gains.
That’s what it takes to become a consistently profitable Forex trader.
Conclusion
At the end of the day, strategies like the “10 pips a day” Forex strategy aren’t the problem. At least not the root of the problem.
The problem is the idea that profits from the Forex market can be put on a set schedule. Whether it’s 10 pips, 20 pips or 30 pips a day. The market doesn’t care, nor will it move in a way that will produce those kind of gains for you each and every day.
The other problem is risking nine times the potential reward. Becoming consistently profitable is all about putting yourself in favorable positions to make money. A trade setup where a loss is nine times greater than the potential reward is the opposite of favorable.
You may say this is all just my opinion. And you would be correct. But when was the last time you heard a professional Forex trader say they were done for the day because they hit their 10 pip goal?
Do you think George Soros or Bill Lipschutz trade Forex in this manner? Of course not. In fact here is a quote from Bill Lipschutz himself.
For the longer-term trades, especially when multiple leg option structures are involved and some capital may have to be employed, I look for a profit to loss ratio of at least five to one.
This article wasn’t written to insinuate that the only way to profit from the Forex market is by using a 2R minimum on each trade. Or that price action is the only viable trading strategy. As we all know, that simply isn’t true.
This article does, however, bring to light the idea that risking 90 pips to make 10 and expecting the market to give you those 10 pips in profit more than 90% of the time is unrealistic. Dare I say impossible?
Your Turn
Have you tried something similar to the 10 pips a day Forex strategy? Do you think the approach to setting performance targets discussed in this article will be helpful in your trading?
Share your experience or ask a question in the comments section below.
> Therefore the goal for your second metric would be to maintain an average 2R minimum for the month.
Why… 1R is better than 2R because you’re far more likely to hit it, twice as likely in fact, and the resulting equity curve will look much better as will the results of any monte-carlo analysis as will your Sharpe Ratio due to the lack of outsized returns in either direction.
I’d really like to know why retail traders keep passing around this 2R or better superstition. There is no math that says 2R is better, nor is there any valid logic that makes 2R better. By going 2R you automatically reduce your chances of winning to 33% (no edge), with 1R your chances of winning are 50% (no edge). Neither will make you money without an edge. With an edge, the one with the better win rate is always better because that’s what a monte-carlo simulation teaches you about random runs of losers being very very bad. 1R drastically reduces volatility in returns compared to 2R.
2R+ simply doesn’t make sense; it’s trader superstition.
Hi Ramon,
Thanks for your comment. I never mentioned anything about not needing an edge. Of course a trading edge is required to make money consistently. But a trader with an edge using an average 2R minimum will outperform a trader using the same edge using an average 1R minimum. That’s assuming the strategy was designed to work best with a 2R minimum, of course.
I’ve used both and I can tell you that 2R+ is the way to go, at least for the way I trade and what I teach. Which is to trade with momentum from key levels using price action as confirmation. The key word there is “momentum”. That’s what you need to carry out a 2R+ trade.
At the end of the day, it’s whatever works best with your trading strategy (edge). There are some strategies which are designed to work better shooting for a consistent 1R. The way I trade on the other hand is to use a 2R minimum. In fact these days I usually don’t take anything less than 3R. It just works best for the way I trade.
Cheers,
Justin
> But a trader with an edge using an average 2R minimum will outperform a trader using the same edge using an average 1R minimum.
I’m trying to challenge this myth, you don’t seem to want to actually discuss it.
> I’ve used both and I can tell you that 2R+ is the way to go, at least for the way I trade and what I teach.
That’s just a way to say you don’t want to address any of the points I made.
> It just works best for the way I trade.
Got it, this is a marketing site and you don’t actually want to discuss trading here so no matter what I say you’re just going to say something like this.
Hi Ramon,
There’s nothing much to discuss. We agree to disagree. And that’s okay because we clearly use two very different styles of trading. 🙂
Cheers,
Justin
Hi Reeben,
Thanks for your comment. I’m sorry to hear that. What type of strategy are you using now, if you don’t mind me asking?
Cheers,
Justin
Try 40 pips/day with 1% risk/trade on more than 3 pairs(max 5) with 1:1 R/Rw or better(max 1:2), on 5 min tf at NISE open or 30 min before close time, and you’ll see it’s possible. If you like you can trade Options and results are the same.
Hi Shogun,
Thanks for your comment.
Hello Justin,
I would like to ask about 5-10% profit per month (as start), you’ve mentioned in the article. Is it really real profit of “average” trader? 5-10% seems too much for me. It is 60-120%/year. And when accumulating gains… it would be 80-214%/year. I think, those numbers are nice, but not reachable for most of retail traders. I think, lot of smart money traders would be happy with 5-10% profit per month. Maybe, it is an some kind of example for the article.
So I woul like to know your point of view on this. Are there any stats or whitepapers or experience from your work with students or something… what yearly gain is quite often reachable at majority of retail traders? Thank you and keep doing good work.
Hi Bill,
Thanks for your comment. The 5-10% is a goal for a trader to shoot for. It doesn’t necessarily mean they are going to achieve it each and every month. Also remember that 90% of Forex retail traders lose money consistently. Therefore that percentage is reserved for those who have an edge and have mastered the ability to control their emotions, among other things.
That said, 5-10% profit per month is easily achievable once you have mastered price action trading. In fact I often make that in a single trade. It isn’t hard when you figure that a 3R trade, which has been my minimum for quite some time, is worth 6% profit when risking 2%.
The figures I gave in the article are just examples. Every trader will be different so it’s important to choose what suits you best.
I hope that helps.
Justin
hi… question 1: when trading using risk:reward ratios i find it hard to understand it because with my system sometimes ~~~its may hit my target , it may hit my target and advance 6times than my target , it may fail to reach my target and reverse and indicate an opposite signal. with those 3 scenarios .. is it simple to say its ONLY GOOD TO TRADE MARKET STRUCTURES THAN USING TARGETS(using an edge than give you an entry/exits points precisely)… and trust NATURE that when i execute my system flawlessly i will win in over series of trade ie 25trades….
Setting targets have frustrated me… the only thing that work is STOP-LOSS because its fixed but reward is UNKNOWN.
THANKS ALOT
Stephen, it’s all about support and resistance. You can also use a measured objective for something like a bull/bear flag, but it all starts and ends with key levels.
Some truly excellent articles on this website, thanks for contribution. “Always aim for achievement, and forget about success.” by Helen Hayes.
10 pips per day strategy is wrong because you need 1 lot size to make 100 $ per day. That 1 lot trading is very risk. Market can go against you about 50 to 100 pips or – 500 to 1000$ before return to your way. Your 1000$ invest account will really blow out. You need 5000$ invest at least for that strategy. Most of currency pair going to your way about 5 pips because as every body know market never never straightly going to one direction from the start to end. So you can trade .1 pips lot many times per day with 5 pips TP. You dont need SL. Just trade the major pairs with very low spread or ecn account. Dont hope longterm stretagy because you have to wait many days to see you loss. 80 percent of traders are loss by that long weeks method. You have to wait many days to put one of your trade and another many waiting days to know win or loss. Most people who teaching on line are believe in longterm strategy but only people who show hundred of their won trades in youtube are more trustable. Nearly every experience traders can teach without their live and real trading show.
Sorry, I do not understand this explanation. You state 10 pips but use a 90 pip stop loss? No. Look at 10 pips like this….aasume account has 1000 usd as balance. Risk is 1pct, which would be 10 dollars per trade…divide 10 dollars by 10 ….you are trading at 1 dollar per pip, amount of units you trade is determined by meeting that requirement. My margin is 50:1. Now every time you trade you adj amount you are trading accordingly so that u always are trading with the same risk. Go in to each trade with 10 pip stop and 10 pip take profit., adj stop inward as appropriate, but never go larger then ten pip. You may find yourself feeling ok at five pips down, or may pull out at only 2 pips, if unhappy with price action….cut losses fast, let profits run when u can…if u hit daily goal of 10 pips (1pct) shut down for the day…..a good day looks like this 5 pips, 2 pips, -3pips, 1pip, 2pips, 5 pips….or something like that…1 trade at a time….u should trading on 5 minute, but watching all times…like a hawk. Never, never, never, trade once u hit daily 1 pct goal, out for day if u lose 1pct….either way…done for day…you are not fighting anyone..or counting potentials…from bigger trades…in fact u could care less except signal and chart say in….profit…out…was it 10? Yer done…5 five more to go….this will give u 1 pct a day….as a 7 pct growth per month doubles account in 10 month…do the math….1 pct is over 20 pct in a month.
My point is that if you aim for a particular amount in a given day or week, you’re more likely to force trades. You have to take what the market gives you. Cheers.
One thing I learn is you cannot bash another person’s strategy people trade most comfortable with how they understand the market wicksdontlie has been trading that strategy for years. I don’t care what anyone has to say I trade how I want to I risk the amount I want to it’s my money. You can bash 10 pips and another person comfortably living with his or her 10 pips now who’s going to be risking 90 for 10 pips.
Tp..10 pips but i don’t use 90pips for SL ,like you said.
I use this starergy and make profit everyday. Because i have a very sure system to win in TFM30 .. So i don’t fear to trade 10 pips/day.. and system can really make more money for me, Thank you
Well, to share my experience on the pips trading schedule, I personally use the pips rule. I’m able to get 150 pips a week by just taking 2 to 3 trades a week. As the saying goes, different strokes for different folks.
I know it’s an old post…. But I love the write up… Just kept laughing.
hello i am student just want to say that i make profit using scalping its not the way you described. You are right about one thing that stop loss pips are greater than take profit but not that much higher as you described. There is no trader who will risk 90% for 10% gain even the beginners won’t do it.
There are set ups that are going to give you 5-7 pip surges right out of the gate almost every single time. 10-20 pips a day strategy is entirely doable. Don’t bother with stop losses. The second a position moves against you, pull the plug. 4-6 trades a day will easily get 10-20 pips.