How do I calculate how many pips I can bank if a CFD currency trade goes in my favour? And…How do I know if CFD trading is for me or not?
“Let’s use a short trade on AUD/USD to calculate how many pips you can bank if the trade goes in your favour?”
A. When it comes to the AUD/USD (Australian dollar versus the US dollar) the magic number for calculating pips is…
10,000
I’ll get back to this in a second.
First let’s start with the trade specifics:
Market: AUD/USD
Type: Short (Sell)
Entry: 0.7740
Take profit: 0.7630
Here’s how to calculate the number of pips between the entry and take profit price
= (Entry price – Take profit price) X 10,000
= (0.7740 – 0.7630) X 10,000
= 110 pips.
We need to remember that each pip movement for the AUD/USD is the fourth decimal point. 0.0001.
If we multiply that by 10,000 you get 1 pip (0.0001 X 10,000).
And if we multiply the difference between the take profit and entry price of the above trade, we will get 110 pips movements.
That’s how many pips you can expect to bank, should the trade hit your take profit level.
Q “I really want to grow my wealth with CFD trading, but I’m not sure if I fit the part. How would I know if trading is for me or not?”
A. This is a very valid question.
First, I have to say, trading is not for everyone. You need to feel the passion have the patience and it needs to suit your personality.
It goes with any hobby or career really. Let’s take Roulette at a casino for example.
I may be very good at playing it as it works on probabilities and risk to reward – similar to trading.
However, I unfortunately don’t enjoy it as much and do not like the idea of basing bets on randomly distributed numbers. Also it’s just boring in my opinion, as money isn’t a big driver for my life.
So you’ll need to dig deep into your own personality and find out what your true passion is.
I have a quick checklist, that can determine whether CFD trading is for you or not
Write down yes or no to see how many you get.
Do you enjoy looking and analysing charts?
Are you ok with taking a batch of losing trades each month?
Do you have the discipline to trade each week?
Do you have the patience to wait for the market to line up before you take a trade?
Are you a fan of journaling, statistics and probabilities?
Do you acknowledge that trading is a get rich slowly but surely game?
Are you able to deposit a portion of your savings each month into your portfolio?
Can you follow strict criteria without deviating from your trading plan?
Do you enjoy learning about the financial markets?
Do you have it in you to NOT listen to your friends, family or even strangers when making any trading decisions?
Count the number of YES’s first.
If you got at least 7 out of 10 YES’s, then you most definitely have what it takes to be a good trader.
If you counted less than 7 then ask yourself if you can learn to work and fix those items through trading psychology…
