On a regular basis I get questions regarding Forex Trading in general or AlgoStrats:FX like:
How many Pips do you make per month?
How many Pips does a good trader make per month?
Does your Strategy make 100 Pips a week?
Additionally to that, there’s advertisements all around that promise traders 1000 pips a month or
performance reports that look like this:
This month trades:
27 Sep: GBP/NZD +140 Pips
29 Sep: EUR/USD -80 Pips
Total Profit: + 60 Pips
But the problem is that „number of pips“ is probably the worst measurement of performance you can
come up with. Actually it tells you almost nothing about the real performance.
Why? Well first of all what a Pip is worth depends on how many units you’re risking per trade and
what your base account currency is. But even if we assume that this has been taken care of and
we’re targeting the same Pip value for all crosses/markets while ignoring trading costs altogether,
there’s another issue and that is volatility.
This graph shows us how many Pips each of the majors and their crosses currently moved per day
during the last two weeks:
So for example, the EUR/USD moved on average about 60 Pips per day, while GBP/NZD moved almost 180
Pips per day. That is 3 times as much as EUR/USD.
Now coming back to our example above that stated a total profit of 60 Pips, having won 140 Pips in
GBP/NZD and lost only 80 Pips in EUR/USD, having the knowledge regarding the daily volatility of
the two pairs, we can see these numbers from a much more realistic perspective.
With GBP/NZD moving about 180 Pips a day, a profit of 140 Pips looks much less impressive, and the
loss in EUR/USD of 80 Pips looks much worse with the EUR/USD moving about 60 Pips a day.
Actually if our trader in some way considered volatility in his risk management, he probably lost
money with these two trades having a much higher Pip value for EUR/USD than for GBP/NZD. And if he
doesn’t, he probably is simply not aware that every trade he puts on in GBP/NZD is about 3 times
the size of each trade in EUR/USD considering the actual risk/volatility.
This is why you should run as fast as you can when someone starts talking about Forex trading
results in Pips. It’s a red flag of either someone who doesn’t know what he’s talking about or
worse, simply is trying to deceive you.
All content on AlgoStrats.com is only for educational purposes to show you the type of systematic trades that you may consider once you have learned to trade and analyze the market yourself. It does not constitute investment advice. Marco Mayer & Trading Educators, Inc. will not accept liability for any loss or damage, including but not limited to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
Trading Futures, Trading foreign exchange on margin and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures, foreign exchange and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, foreign exchange, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Any opinions, news, research, analyses, prices, or other information contained on this website, blog, twitter, youtube, facebook and elsewhere is provided as general market commentary for educational purposes only, and does not constitute investment advice. Marco Mayer and Trading Educators, Inc. will not accept liability for any loss or damage, including but not limited to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Derivative transactions, including Foreign Exchange Products and Futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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