For day traders, calculating pips across those multiple markets such as Forex, Cryptocurrencies, and Indices is an arduous and complex work. Thus a bad understanding of how pips work leads to possible miscalculations, poor risk management, and ultimately real financial losses.
Thankfully, several tools and resources can help ease traders’ complexity over pip calculation. For instance, features on trading platforms by TradingView facilitate easy pip calculations, while other online calculators and charting tools give them insights into what is happening within the market movements.
We shall discuss four must-use tools in mastering pip calculation by any day trader. The tools will enhance your understanding of pip movements in various currency pairs and indices while making informed trading decisions to increase your profitability.
Understanding Pips: A Basic Concept
Before discussing the tools, it’s important to understand what a pip is. A pip (percentage in point) is the smallest price move that a given exchange rate can make based on market convention. In most currency pairs, a pip is the fourth decimal place (0.0001). However, for pairs involving the Japanese yen, a pip is the second decimal place (0.01).
Example: Calculating Pips in EUR/USD
Let’s use EUR/USD currency pair. Here, the price is 1.19269. So, if there were a shift from 1.19269 to 1.19279, that is the one-pip change. That is how pips should be counted in order not to make any error in calculations on possible profits or losses.
Tool 1: Measuring tool on TradingView
This tool on TradingView is pretty handy and useful, measuring the change in pips directly from the chart. So, this is how it’s done:
Access the Tool. On the left-hand side of the platform, click on the ruler icon or use Shift + click to activate your measuring tool.
Measure Pips. Drag the tool across the chart and click to measure the pips over a given time period.
It shows little movements in currencies like EUR/USD or GBP/JPY very well. In the case of EUR/USD, a movement of 10 pips will be a slight movement, and the measuring tool can easily point it out. If the price for GBP/JPY is at 151.306, the movement to 151.316 means a 10-pip up movement. Thus, the measuring tool helps in quickly identifying movements without manual calculation.
Tool 2: Pip and Lot Size Calculators
Online pip calculators greatly help to get the profit/loss of an individual trade for specific trade size by calculating pip movements and pips amount. Now, see its working process, below:
Input Parameters: Feed in the given currency pair amount of pips, trade size, and Base deposit currency – USD in my case.
Calculating Profit / Loss: With the help of input provided it calculates the calculated profit/loss.
For example, a 20-pip move on a trade of 0.1 lots in EUR/USD base currency USD, may yield an amount of 20 dollars as profit. Calculators give results to the penny, so decisions regarding trades become easy for the trader.
Tool 3: Real-Time Currency Strength Charts
It shows the relative strength of currencies, thus making traders gain more. Live currency strength charts also show the strength of major currency pairs in real-time, and a trader can pick up the trade opportunity.
Monitoring Strength: By using these charts, one is able to determine which currencies are strong or weak at any moment.
Predicting Movements: A strong JPY against a weak GBP calls for a downward movement in the GBP/JPY, thereby giving a trade opportunity.
Tool 4: Market Sentiment Indicators on Investing.com
The following indicators will guide a day trader to either purchase or sell a given currency pair in the marketplace. They inform him or her if the market is either going up or going down.
Check Sentiment: On sites such as investing.com, scroll down to the average sentiment for 5 minutes, 15 minutes, an hour, and so on.
Make Trades: Use the intelligence to guide your trades along with the prevalent market sentiment, therefore upping your winning potential.
Implementation of Pip Calculation in Different Markets
Forex
Forex trading is characterised by tiny pip movements; as such, precision in measuring and the use of pip calculation is vital. Other measuring tools that may prove to be necessary include the measuring tool on the platform TradingView and pip calculators.
Cryptocurrencies
Cryptocurrency markets are very volatile and have wider pip movements compared to forex. A candle in a Bitcoin/USD chart may represent thousands of pips, which shows the importance of accurate calculation and risk management.
Indices
The US 30 indices also witness huge pip movements. With a candle representing thousands of pips, traders are supposed to be well-equipped with the risks involved in their trading accounts with such movements.
Lot Sizes in Risk Management
Lot sizes determine how much money is moved per pip, and thus trading profits or losses will follow. There are three basic lot sizes.
Micro Lot (0.01) – Good for beginners as losses are limited.
Mini Lot (0.10) – It provides a balance of risk and reward.
Standard Lot (1.00) – Generally used by experts for large orders.
New traders should begin with micro lots to minimize risk while learning the ropes of day trading.
Conclusion
Mastery of pip calculation leads to successful day trading in forex, cryptocurrencies, and indices. Tools involved include the measuring tool by TradingView, online pip calculators, live currency strength charts, and market sentiment indicators. A demo trading account would do the trick as a means of practicing these skills before entering the actual or live trading. This calls for habitual practice and the right tools to be able to get through the complexity of day trading and keep producing consistent results.
