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:
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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.
Happy Trading!
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.
Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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