Pipsqueaks #8: The Flipside of Risk: Reward!

As a parent it pleases me to no end when my daughter takes interest in things I’m fond of. One of those things the game Monopoly (which my wife hates to play). I might have finished this article sooner, but my daughter insisted that we play this week and, unfortunately, our games tend to span several days in duration. Last time out Lucy (my daughter) bankrupted me after only nine hours; today daddy had his pay back after an intense two- day session. But more pleasing to me was the fact that Lucy took the loss in her stride (being only seven years old losing is usually accompanied by a crying jag, but not this time). As traders we never really like losing, it’s just something we have to take in our stride. And since I wrote about losing last time out, I wanted to talk about the fun part of trading, that is, the winning part.


For a trader what could be more fun than banking several hundred pips a week? Of course that begs the question, just how many pips a week do we need? How far can we go on a modest amount pips a week? Check out the chart below:

trading plan forex risk reward roi


This chart is set up the following assumptions: a starting account of thousand dollars, placing trades at one dollar per Pip per thousand dollars of equity, with the goal of banking six pips per day (average). Remember, it is better to shoot for consistent realistic goals then the huge paydays. Just check out the result – initial investment has more than tripled within the first year, and this was only a six pips per day goal, something that is reasonably achievable for a novice trader (well, at least for those of us at Slick Trade)! And after three years the increase is 50 fold. So the Takeaway here is that much can be done with little, but the more important take away his little bit less tangible, that is, the building of confidence is of greater importance than the building of the account balance, because of confidence will come the profits that we as traders all seek. As a new trader, you will of course be reliant on signals and strategies from others, but with confidence will come learning and a better understanding of the markets, and before you know it, you’ll be confidently placing your own trades and devising your own strategies. You will transform from a follower to a trader! I know this is true in my case and I’m sure that others will think the same discovery and their own experience. Some level of effort on your part and lots and lots of patience will in the long run pay off handsomely.


And for those of you who have been patiently waiting, it’s time for me to share my update to the Ice Cream Sandwich strategy: same currency pair GBP/USD, with a 15 minute chart, and no indicators. Shortly before 3 AM New York time I will mark my chart with the price of the day’s open (midnight NY time for me). Next I’ll mark the chart with the London open price (open of the 3 AM candle for me). Next I place 2 more lines, one 30 pips above the London open and one 30 pips below the London open. Next I’m looking at the price direction for the 3 o’clock 15 minute candle. Here’s what’s going to happen: price will shoot either up or down at 3 o’clock; and somewhere 20 pips to perhaps 40 Pips from the opening price the price direction will reverse and make it’s large move of the day in the opposite direction from the London open price within about 15 minutes to 2 hours. It can happen as soon as the close of that first 15 minute candle (like it did Friday morning). If the delta between the daily open and the London open is small then the reversal may come later (price wise) rather than sooner.


Currently I’m using the first 15 minute candle as confirmation of price direction. If the first 15 minute candle closes bullish were looking at entering a sell position, and if the first 15 minute candle closes bearish, were looking to enter a buy position. In choosing an entry I’m looking to enter as close to my 30 pip line as possible, which usually means doing something counter intuitive, that is, placing a sell order while the price is still rising and vice versa for an initial falling price. That’s the hard part. Getting a good entry is the key to success here. Remember we’re looking for an entry above the daily open for a sell position and below the daily open for a buy position.


What you will find is that price will go up from the London open 20, 30, even 40 pips and then reverse and make its large move of the day – 60, 80 or 100 or more pips. Go back and look through the charts it’s uncanny to see how often this sets up. My goal of getting a good entry is all tied to trying to keep my risk low. As you know, price movement will usually stick close to the average daily range and that initial movement needs to be small to leave room for the big move of the day. So, by getting an entry close to the anticipated reversal point makes this (at least for me) a low-risk trade. I set my stop loss at 30 pips and my take profit at 60 to 100 pips. And that’s it!


From the standpoint of manual trading this has an advantage over the strangle method of version 1 inasmuch as I can enter the trade sooner and don’t have to wait to close a pending order. This method has the advantage over the previous version of the strategy of knowing (at least within the rules of the strategy) the direction the market is going to move and can capture more pips. And that’s what it’s all about! So if you’re ready to start banking some more pips, consider membership in Slick Trade. Strategies, signals, support of other traders, learning materials and more are available to you with Sapphire membership. So what are you waiting for? Get on board; you’ll be glad you did!


That’s all for today, have a great week in the trading room and, as always, thanks for reading.




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