Lesson 4: Fundamental Notions
The market can make three movements:
- Bull Market: if the trend rises, the currency gains value.
- Bear Market: if the trend falls, the currency loses value.
- Horizontal Trend (Kangaroo Market): the price moves continuously, horizontally, in a particular range.
It is essential to understand what the PIPS are and, consequently, the Take-Profit and Stop-Loss values; remember always to use the stop-loss.
- Take Profit (T.P.): Take profit is the level at which the stock will be closed automatically, bringing you profits.
- Stop Loss (S.L.): Stop Loss is the level at which the stock will be closed automatically, in negative, avoiding significant losses.
Take Profit and Stop Loss are beneficial to avoid being in front of the computer all day.
PIP: PIP is the abbreviation for “Percentage in Point” or “Price Interest Point”, which is an asset’s smallest numerical price movement. A good trade for a Scalper ranges from 5 to 30 PIPS in profit; of course, nobody forbids reaching 100 or more PIPS with a single trade, even for a scalper! Generally, with a minimum bet of 0.01, 12 PIPS are equivalent to € 1, and a “bet” of 0.10 is equal to € 10, up to 100.00, equal to € 10,000 for every 12 PIPS of movement.
In this case, the Swing Trader does not opt for many small entries of 12- 20 PIPS but prefers to open only one smaller position to seek a profit of 100 PIPS and up. Now, we need to figure out how to calculate our PIPS.
Let’s take the GBP/AUD trade and assume it is now worth 1.82367; after 15 minutes, its value has moved to 1.82767; how many PIPS has it moved? The answer is 40 PIPS. The calculation is very simple; the last number must be ignored, and then the calculation will be 8276-8236 = 40 PIPS of difference. A trick? Just do 276-236 = 40 PIPS as well. Since the movement is below 100 PIPS, we can even do 76-36, and here we find our 40 PIPS. Very simple! Ignore the last number and make the difference between the two values easy! I am attaching a graph that may be helpful to you.
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