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The 20 Pip Challenge

The 20 Pip Challenge

Mark Fodor
Written by
Mark Fodor
Jul 2023

In the ever-evolving realm of Forex trading, beginners often find themselves with a small amount of capital, uncertain how to swiftly and efficiently grow their accounts. Not everyone has the luxury of kickstarting their trading journey with a sizeable $10,000. Today, we delve into an unorthodox yet intriguing strategy that might serve as a stepping stone to growing your small Forex account: The 20 Pip Challenge.

Navigating the Forex Market: A Newbie's Trade Conundrum

Forex novices often face a dilemma: they lack the requisite funds to open a brokerage account, and even if they somehow manage to start trading, they are likely to incur significant losses. The emotional stress of such a loss can be overwhelming, and a typical reaction is 'revenge trading', an impulsive attempt to win back lost money. This approach, however, is detrimental to the trader's psychological health and financial stability. 

Instead, traders should adopt a stoic approach, accept their losses, learn from them, and move forward.

Forex Trading Strategy: The 20 Pip Per Day Challenge - A Bold and Risky Scalping System Proposal

Before diving into the details, it is crucial to note that the strategy I am about to outline is not for the faint-hearted. It flouts traditional day trading rules and demands a strong understanding of risk management. This strategy should not replace your primary trading strategy but could serve as an additional approach to try out on a demo account. Remember, this is not financial advice and should be undertaken at your discretion.

The premise of the 20 Pip Challenge revolves around aiming for a consistent 20 pip gain from the market, regardless of the currency pair in focus. This target is based on the observation that the Forex market often presents enough volatility to extract these profits. To illustrate, a 20 pip movement on the GBP/JPY pair, trading on a five-minute time frame, is not uncommon. 

GBP/JPY chart

Harnessing the Power of Compounding in Forex Trading

Let's break down the steps. You begin with a modest Forex account of $20, aiming for a 30% growth with each trade. Your profit goal per trade, therefore, is $6. The lot size required to achieve a $6 profit from a 20 pip movement is 0.03. Upon successful completion of a trade, you add the profit to your account balance and aim for 30% growth on the new total. For instance, if your new balance is $26, your next profit goal would be $7.8, and so forth. 

While the initial gains might seem insignificant, the power of compounding comes into play as your account grows. By the 15th trade, you could be raking in $200-$300 per trade. By the 28th trade, you could be earning up to $7,000 per trade. If all goes well, after 30 successful trades, you could be looking at an account balance of $52,404.

Trade-Off in Forex Trading: Balancing Risk Management within the Trading System

A key facet of this strategy is its inherent risk. Unlike conventional trading where you risk 1-2% of your capital per trade, this strategy demands a risk of 30% per trade. Despite this apparent recklessness, the risk is somewhat mitigated by two factors:

1. Your initial investment is only $20. Regardless of how high your account balance rises, your actual at-risk capital remains this $20. 

2. In case of a losing trade, you merely drop one level down in the strategy ladder, losing only a fraction of your account balance. 

This perspective allows you to manage potential losses while focusing on the bigger picture. It keeps the emotional strain of trading at bay, since you can remind yourself that the loss is only reflective of your initial $20 investment, akin to the dynamics of a demo account.

Implementing the Strategy: Aiming for 20 Pips a day

The 'heart' of this strategy is the quest for 20 pips per trade. 20 pips might not seem like a large amount, but the small but consistent gains compound quickly. Your objective is to obtain these 20 pips from the market as efficiently as possible. However, this does require an adept strategy, preferably one that has a proven record of success.

Three-Line Strike Strategy

A recommended approach is the 'Three Line Strike' strategy. This strategy entails waiting for three consecutive candles in one direction, followed by a large engulfing candle in the opposite direction. This final candle marks your entry point into the trade. You place a stop-loss above or below the engulfing candle, depending on the direction of the market. 

Here, you target 20 pips, and with such a narrow stop-loss, the risk of losing substantial amounts is minimized. By following this strategy, you can maximize your chances of securing the desired 20 pips and limit your losses on unsuccessful trades.

However, it's important to remember that with higher levels comes an increase in the potential loss per trade. Despite the potential gut punch of seeing thousands of dollars lost in one trade, it's crucial to remember that in the grand scheme of things, you're still only risking your initial $20 investment.