‘Tough times never last but tough people do.’
Determining the best currency pair to trade with depends on a lot of factors. Apart from the net fluctuations which cover the currencies, the value of spreads is also of utmost importance, traders may also be interested in the time horizon in which the trade is initiated. Forex daily average pips determine the daily variation on pip value depending on which traders select their trading strategies. Since currency prices are always volatile, it takes more than just one strategy to determine the strength of the fluctuation.
Steps to determine the absolute trading points using forex daily average pips:
Targeting but no targets:
Often traders set their own target amount of pips before they start their day trading. This means that a part of their plan lies on their ex ante profit expectations. For example, a new trader may want to fix a target of 20 pips a day. He/she sets his/her trading decisions accordingly.
He/she may also want to take into account the average daily range or average directional range for determining the strength or direction of the trend values. This however talks into an assumption that the currency he is concerned with is more beneficial than others. So, forex daily average pips determine how one currency pair reacts.
Market changes more frequently than you can imagine. This is why you should refrain from setting unrealistic expectations from profiting. There are days when price trend may be unfavorable. Suppose there is a certain natural calamity that raises the basic price level of a country. The value of pips varies inversely, although indirectly with it, because it becomes less favorable.
There are times when you do not need to trade at all no matter what the value of average pip range forex is. Hence setting an ‘ex ante’ pip value may not be acceptable.
Often traders face the problem of insufficient funds to start trading with. This means that they need to take the help of margin accounts depending on the leverage ratio. A particular leverage ratio enable traders to start trading with a part of their ex ante deposit amount.
However, experts are of the opinion that leverage is a double-edged sword. This means that higher leverage, despite any forex daily average pips, can man higher amount of profits. But this also means that if your trading strategies do not work in your favor, you experience losses exponentially.
What is to be done?
The values of pip and spread vary from broker to broker (and also on other factors). So you should not concentrate solely on average daily pip range forex. Changes in spreads affect daily movement as much as any other variable will do.
Say that you are trading with USD/JPY with a spread of 4. The value of daily average range is 80 (for 12 days). Now the value of pip is therefore easily calculable from this. As is obvious, the maximum pip potential is roughly 4/ (80-4) = 5.26%
This means that if you plan to trade with this pair, each pip has potential of 5.26%. Depending on this you can choose whether to square or take long/short position. Thus your choice of currency pair depends on the strength of each pip which is also dependent on the spreads that your Forex broker offers. Thus forex daily average pips and the spreads play a very important role in determining whether you should carry on.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.