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.
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 steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.
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