The 10 pips a day compounding strategy is a popular Forex trading strategy where you’re only goal is to make 10 pips and then stop.
The idea is that consistently scoring 10 pips will compound over time and significantly grow your account.
In fact, this is the strategy that I personally use. I have a tendency to overtrade, so stopping at around 10 pips and calling it a day helps keep me from taking stupid trades.
There are a lot of variations in this strategy, and some involve using huge drawdowns just to nab 10 pips. This strategy is no good, because it’s not worth drawing down 30-40 pips or more just to catch 10 pips.
The right way to execute this is to enter the market at the right time with a reasonable stop, catch the 10 pips, and close the charts for the day.
What time to trade for 10 pips a day
The idea behind catching 10 pips a day is quite simple: there are certain times of the day where there is a lot of volume in the market and if you can get in at the right time, you can easily grab 10-12 pips within minutes and be done for the day.
This is the same strategy used by Raja Banks of Market Fluidity, and I’ve seen that it just plain works.
The market is usually hot during pre-London(6:00 AM) to London open, pre-New York(6:30 AM EST) to NYSE open(9:30 AM EST), and about 1-2 hours in Asian session(8-9 AM Tokyo Time to 10-11 AM)
If you sit at the charts during these times and wait for a good setup, it’s not difficult to catch 10 pips.
Which timeframes to trade
Since we’re looking to catch smaller moves in high-volume times, we want to look at the Daily and H4 timeframes to see where the overall direction of the market is, and enter on 30 minute or 1 hour timeframes.
The bigger timeframes will show you which critical support and resistance zones are nearby, so you’ll know to wait and see how the market will react to them.
The smaller timeframes will create shorter-term support and resistance zones that you can capitalize on to execute your buys and sells.
Start by marking off zones on higher time frames, then work your way down to the 30M or even the 15M timeframe to refine your zones even further.
Which pairs to trade
Different Forex pairs have varying volatility. To grab 10 pips quickly, you’ll want to trade a fairly volatile pair that can easily move 10 pips within minutes.
These pairs are quite volatile and you can work on any of these for your 10 pips per day:
- GBP/JPY
- XAU/USD
- GBP/AUD
- GBP/NZD
- AUD/JPY
When there is a push of volume in the market, a single 15 minute candle can move 30-40 pips on these pairs, if not more.
Our goal is to just catch 10 of those pips.
I don’t recommend looking at more than 2 pairs, as we’re looking for quick in-and-out movements. Looking at too many pairs at once will dilute your attention span and cause you to miss moves.
Missing a move and feeling bad about missing it leads to a whole cycle of anger and revenge trading, and we want to avoid that as much as possible.
How to enter buys and sells
The rules for entering buys and sells are quite straightforward.
We’re watching how price is moving between zones of supports and resistance, so potential entries are when:
- Price forms support within an uptrend(IE a bullish candle after a series of bearish retracement candles)
- Price forms resistance within a downtrend(IE a bearish candle after a series of bullish retracement candles)
- Price breaks through and closes beyond a zone it had previously respected
A tighter entry would be to wait for the new candle to make a wick in the opposite direction, then break the high/low of the previous candle.
You would get in at the break of the high/low with the stop below/above the wick. Ideally, the stop should be around 10-15 pips. Your target would be 1:1, but these are very high probability setups so you’ll have many more winners than losers.
Additionally, there are ways you can manage risk to reduce your losses.
How to manage risk
These 10-15 pip trades usually play out very quickly, so if you find yourself stuck in a trade for very long, there are some things you can do to manage your risk.
- If you’re in a buy position and the next 15 minute candle closes bearish, you can close 50% or more of your position to reduce your risk. If price goes back in your direction, you can add that 50% back. The opposite is true for sells.
- If you’re in a position and price almost goes all the way up to your profit target, then suddenly reverses and comes back to your entry point, you can either close your entire position or close 50% to reduce your risk.
You may not always be able to reduce your risk on losing positions, but as long as you’re doing it for many of your losing positions, you’ll still be at an advantage because your wins are greater than your losses and your losses are much smaller than your wins.
As a general rule, aim to risk 1-2% of your account per trade.
How your account can compound with 10 pips
10 pips a day may not sound like much, but when you consider that you’re making about 1-2% on every 10-pip trade, your account can compound very quickly.
There are about 20 trading days in a month, so if you aim for one 10-pip trade every single day, you can conservatively make around 10% per month.
Starting with a $1000 account, 10% per month can grow your account to around $3000 in 12 months.
While $3000 may not sound like much, it’s a 200% gain on your initial investment in just the short span of a year!
If you started with $1000 and made 10% per month, and also added $1000 to your account every month, you could have $25,000 at the end of the year.
In two years, that could be $100,000!
More: 20 pip challenge spreadsheet
Conclusion
10 pips a day is a great strategy to teach yourself consistency and self control. As long as your risk:reward per trade is not too heavily skewed, you can use the 10 pips per day strategy to grow your account very quickly.