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 clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
USD/JPY goes on a roller-coaster ride prompted by geopolitical risk
USD/JPY whipsaws lower and then higher on alternating risk-on risk-off caused by Middle East tensions. Governor Ueda talks about defending the Yen from further weakness and currency-induced imported inflation. USD/JPY price chart shows bearish Hanging Man forming, boding ill for future price action.
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.
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