20 Pips a Day Forex Scalping Strategy
Scalping in the forex market can be highly profitable when done correctly. Among the many strategies available, the 20 Pips a Day Forex Scalping Strategy stands out for its simplicity and effectiveness. This method aims to capture small, consistent gains from price fluctuations during the most volatile trading sessions. By targeting 20 pips per trade, traders can steadily grow their account without taking on unnecessary risk.
Key Features of the 20 Pips a Day Forex Scalping Strategy
- Targeted Pips: 20 pips per trade.
- Preferred Currency Pairs: EUR/USD, GBP/USD, USD/JPY.
- Trading Sessions: London and New York sessions.
- Indicators Used: 5 Smoothed Moving Average (SMA) and 144 Weighted Moving Average (WMA).
- Risk Management: Stop loss set 15 pips from entry.
This approach focuses on using a moving average crossover system, combining a fast-moving average (5 SMA) with a slow-moving average (144 WMA). This combination helps traders identify short-term trends and execute trades with a well-defined entry and exit plan.
Why This Strategy Works
To understand why the 20 Pips a Day Forex Scalping Strategy works, it’s crucial to recognize how market volatility and timing influence profits. The London and New York sessions are the most active in forex trading. High volatility during these times increases the chances of capturing the 20 pips targeted by this strategy.
Currency Pairs and Trading Sessions
The strategy targets major currency pairs like EUR/USD, GBP/USD, and USD/JPY. These pairs tend to have tighter spreads, which is essential for a scalping strategy since small price movements are the focus. Scalping involves entering and exiting the market quickly, and using pairs with lower spreads maximizes profit potential by reducing transaction costs.
Best Time to Trade
London and New York sessions provide the ideal trading windows because of their higher liquidity. Volatility during these sessions ensures that price movements can reach the 20-pip target in a relatively short time. By contrast, trading during the Asian session could lead to slower market conditions, where it might take longer to achieve the same results.
The Moving Averages: 5 SMA and 144 WMA
The core of the strategy is the moving average crossover system. The 5 SMA tracks short-term market momentum, while the 144 WMA captures the broader trend. When the fast-moving average (5 SMA) crosses above the slow-moving average (144 WMA), it signals a buying opportunity. Conversely, when the 5 SMA crosses below the 144 WMA, it indicates a sell signal.
How to Execute the 20 Pips a Day Forex Scalping Strategy
Now that we’ve covered the essentials, let’s walk through how to apply this strategy in real trading situations.
Buy Setup
- Entry Signal: When the 5 SMA crosses above the 144 WMA, enter a buy trade.
- Stop Loss: Place the stop loss 15 pips below the entry point.
- Take Profit: Set a target of 20 pips for take profit.
- Move Stop Loss to Breakeven: Once the trade gains five pips, adjust the stop loss to breakeven. This step eliminates the risk and locks in a potential win.
Sell Setup
- Entry Signal: When the 5 SMA crosses below the 144 WMA, initiate a sell trade.
- Stop Loss: Set the stop loss 15 pips above the entry point.
- Take Profit: Target 20 pips for take profit.
- Move Stop Loss to Breakeven: Similar to the buy setup, shift the stop loss to breakeven once the trade earns five pips to protect the position.
Example Trades
To illustrate how the 20 Pips a Day Forex Scalping Strategy works, consider these examples:
Buy Example
The 5 SMA crosses above the 144 WMA, signaling a bullish trend. A trader places a buy order at the crossover point. The stop loss is set 15 pips below the entry, while the take profit target is 20 pips. Once the trade moves five pips in profit, the stop loss is moved to breakeven, ensuring no loss even if the market reverses.
Sell Example
In a sell scenario, the 5 SMA crosses below the 144 WMA, indicating bearish momentum. The trader enters a short position, with a stop loss placed 15 pips above the entry point. The trade targets 20 pips for profit, and once it gains five pips, the stop loss is adjusted to breakeven.
Risk Management: The Key to Success
The 20 Pips a Day strategy comes with built-in risk management. With a 15-pip stop loss and a 20-pip take profit, the strategy maintains a favorable risk-to-reward ratio of 4:3. In scalping, this is essential. Traders must limit their losses while giving their trades room to profit.
Moreover, the practice of moving the stop loss to breakeven after a five-pip gain drastically reduces the chance of losing money. It transforms the trade into a “risk-free” opportunity, as there is no financial loss if the market reverses.
Consistency and Discipline
The strategy relies on consistency. By sticking to the plan and focusing on small, repeatable profits, traders can achieve steady account growth. This approach suits traders who prefer mechanical systems, where personal bias and emotional decision-making are minimized.
Optimizing the 20 Pips a Day Forex Scalping Strategy
Although the strategy is effective, some traders may wish to customize it. Here are some potential adjustments:
- Tweak Stop Loss Levels: Depending on market conditions, traders can adjust the stop loss. For example, volatile markets might require a wider stop to avoid getting prematurely stopped out.
- Different Time Frames: While the strategy works well on a 15-minute chart, traders may test it on other timeframes to suit their trading style.
- Scalping Multiple Trades: Experienced traders can execute multiple trades in a single session, increasing their potential profit while adhering to the 20-pip target.
Conclusion: Achieving Consistent Wins with the 20 Pips a Day Strategy
The 20 Pips a Day Forex Scalping Strategy offers a straightforward and effective approach for traders seeking to capitalize on small market movements. It combines clear entry and exit points with a solid risk management framework, making it suitable for both beginners and seasoned traders.
By targeting only 20 pips per trade, traders can focus on consistent, repeatable profits while avoiding large risks.