In this episode of Truth About FX, Walter talks about pips and how traders mistakenly see them as a basis for a good trading result. He also talks about the importance of understanding risk/rewards and how it all boils down to the kind of system that you have and trading psychology.
Download (Duration: 02:48/ 3.20 MB)
In This Episode:
00:24 – what is a good result in pips?
00:47 – the concept of hour
01:27 – how much can you suffer through drawdowns?
02:12 – compare apples to apples
Tweetables:
It’s going to depend on your system and psychology. [Click To Tweet].
Look out at it in terms of percentage and risk to rewards. [Click To Tweet].
Pip stop doesn’t really tell the whole story. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hey, Walter. Quick question. What do you think is a good result in pips? Trading on the four hour chart and the daily chart, what would you consider a good month in pips?
Walter: I don’t look at it that way. I understand why people look out in pips. You should look out at it in terms of percentage or ,really, risk to rewards. If you’re familiar with the concept of hour which is, basically, you’re grading out each trade in terms of how much did you make versus how much did you risk and things like that.
This is going to depend on your system. It’s going to depend on your psychology. Basically, there really is no one answer. I know traders in our little private forum that they are making one or two thousand pips a week. At the end of the month, they’ve got five thousand, seven thousand, eight thousand pips in the bank.
What is that in terms of the real account money? It might not be that much. You’re really going to look at it in terms of risk/reward and that’s going to depend on how much you can suffer through drawdowns.
The trader who’s risking three percent per trade should be very psychologically prepared for the big deep drawdowns that come. Whereas, the trader who’s risking a quarter of one percent or half of one percent, that trader realizes that he’s not going to be on a sit through a twenty percent drawdown so that’s why he has to skill back his position size and that sort of thing.
It’s much easier to see how you’re doing if you look at it in terms of risk or hour, say “okay I made seven hour this month”. That means for every one percent I risk, I made seven percent. That sort of thing.
That’s how I would look at it if you wanted to compare apples to apples. PIPS just doesn’t work. It’s just not. It doesn’t tell the whole story because some people are going to use a four hundred pip stop. Some people are going to use a thirty pip stop. It’s really going to depend on how much you’re risking. Unfortunately, I don’t really have a number four yet.
Hugh: Yeah. That’s a common question though, but thanks for clarifying that. Talk to you soon.
Walter: Okay, bye.
Hugh: Bye.
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