Quote for the day: “ Finance is the art of passing money from hand to hand until it finally disappears” – Robert W. Sarnoff.
Being realistic about what you will get from an invested amount and the timescale of that return, is key to assisting traders with their entry and exit strategies. We already discussed timescales in my previous post
Potential in the markets to make relatively huge profits is amazing however; anybody that trades with relatively small sums should expect proportional returns.
Nobody will become a millionaire overnight with a $1000 investment.
Try to evaluate your profits in terms of PIPs (percentage in point) and your % returns will be more realistic than if you look at a $ monetary value.
Strategists and hedge fund managers that look at good returns are not necessarily looking for the top and bottom of the peaks & troughs; rather, they will take a smaller percentage from the middle of the longer term trend.
Let’s look at a typical short day trade. Take a look at the chart below, we have an indication of a market direction change at point “A” with “Three Black Crows”, wait for conformation with a further candlestick pattern “Tweezer Tops” at point “B”. So instead of taking a risk at point “A” that the market may continue against you (0.8283) you have gone short at point “B” (0.8272).
To finish the trade you can close at any point along line “C” or, if you wish to risk a little further to the “Tweezer bottoms (indicating another direction change) ” at point ”D”. Total gain is between 29-43 PIPs.
In the perfect world scenario there are 54 PIPs between point “A” and “D” however, the reality of hitting both entry and exit points is extremely difficult and will usually end in actually closing at point “E” with only a 27 PIP gain or less, assuming you actually managed to get in at point “A”.