Posts Tagged ‘ risk percentage ’

A nice start…

So far this week has been very pleasing, Monday got the week off to a flying start and a 90 pip gain on the day. Quoting pip totals is actually one of my pet hates, I’ll explain why in a minute. Tuesday was also a strong day closing with +90 pips again. This time most of my gains were through a news trade and my new strategy I’ve been working on for a while which I’ve just gone live with for a small % risk compared to what I’ll be doing if it continues to show this great potential. I’ve been trading it on demo for 3 weeks and whilst demo trading is important, I feel there is no replicating trading with real money. You need to know how it performs under human interaction, emotions and so forth. On demo you have zero emotion and you can easily talk yourself out of a losing trade blaming it on x, y or z. Live accounts do not lie.

Anyway, onto why I dislike people quoting pip gains as a means to how successful a system/strategy is. Let me use two examples of two different strategies. Strategy A uses 3% risk and has a SL of 150 pips. Strategy B uses 3% risk but with a 50 SL. Strategy A makes a total of 1,500 pips a month…sounds amazing right? Whilst Strategy B made 750 pips.  Joe public would pick 1,500 pips over 750 pips every day of the week based purely on the higher amount, I know I did when first starting. However, look a little deeper and do some simple maths and you’ll find it isn’t as straightforward as picking the higher total. I do the following to work out a % increase for any strategy. Divide the risk % by the SL which will give you a % per pip. For strategy A that gives each pip a value of 0.02%, for B it gives 0.06%. Triple the value. So strategy A made 30% over the month and B made 45%, a massive 50% better return. So before diving straight into something with astronomical gains, stop and have a little think and work out if it’s actually any more beneficial than something with less pips but have % value.