Lesson 4: Fundamental Notions
The market can make three distinct movements:
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Bull Market: If the trend rises, the currency gains value.
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Bear Market: If the trend falls, the currency loses value.
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Horizontal Trend (Kangaroo Market): The price moves continuously within a particular range without a clear upward or downward trend.
Understanding these movements is crucial for traders to make informed decisions.
Understanding PIPS, Take-Profit, and Stop-Loss
One of the key concepts in trading is the PIP, along with Take-Profit (T.P.) and Stop-Loss (S.L.) values. These tools help traders manage risk effectively.
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Take Profit (T.P.): The level at which a trade will close automatically, securing your profit.
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Stop Loss (S.L.): The level at which a trade will close automatically at a loss, preventing further significant losses.
Using Stop-Loss and Take-Profit orders is essential to avoid the need to monitor trades continuously.
What is a PIP?
PIP stands for “Percentage in Point” or “Price Interest Point” and represents the smallest numerical price movement of an asset.
For a Scalper, a profitable trade typically ranges between 5 to 30 PIPS. However, a scalper can still aim for 100+ PIPS in a single trade.
How PIPS Translate to Profit
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0.01 lot size → 12 PIPS ≈ €1
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0.10 lot size → 12 PIPS ≈ €10
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1.00 lot size → 12 PIPS ≈ €100
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10.00 lot size → 12 PIPS ≈ €10,000
A Swing Trader does not rely on multiple small trades of 12-20 PIPS but instead prefers to open fewer, larger positionsaiming for 100+ PIPS in profit.
How to Calculate PIPS?
Let’s take an example trade with GBP/AUD:
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The price starts at 1.82367
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After 15 minutes, the price moves to 1.82767
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The price difference: 8276 – 8236 = 40 PIPS
Quick Calculation Trick:
Ignore the last digit and subtract the two prices directly:
276 – 236 = 40 PIPS
If the movement is below 100 PIPS, you can also simplify:
76 – 36 = 40 PIPS
Very simple! Ignore the last number, subtract, and find your PIP difference quickly.
A well-structured trading plan involves mastering these fundamental concepts. In the next lesson, we will dive deeper into how to maximize profits while minimizing risk through advanced strategies.
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