Here is how to calculate your trading handicap. There are three different factors that create a handicap in trading.
1. Drawdown percentage
2. Spread
3. Commissions
Drawdown handicap percentage is only around 51-53% as long as you only risk 1-5% per trade. 2% risked per trade is a approx 1% handicap.
So, your initial handicap is drawdown... 1%.
Your second handicap is spread. In the EUR/USD if your getting a 1 pip spread that means two pips round trip. If your capturing 10 pips that is a 20% handicap. If your capturing 20 pips that handicap is reduced to 10%.
A lot of newbies are scared and doing small trades for small amounts... The irony about this is that this is lowering their odds of winning by a very LARGE amount. I only trade when I think I have a shot at more than 20 pips on the trade. Never trade during off hours chop.
Commissions handicap is more for stocks trades... But some FX brokers have commissions. It's calculated the same way...
Percentage of trade.
If your trying to capture $100 in the /ES at a time with one lot and risking $100... If your comms are $4 that is a 4% handicap. The spread handicap on that trade is $12.5 or 12.5% handicap.
So scalping $100 off the es at a time has a total handicap of 16.5%.
If your going for $250 a pop with one contract your handicap is 6.6%. Handicap is costs divided into trade target/risk amount. If they are both equal it's easy to calculate.
So, want to bring your handicap down to the level of the /ES futures in Forex? 30 pips is the magic number with a 1 pip spread... Equivalent to trying to capture $250 at a time with one emini.
Once you understand your handicap then you realize what win rate you need to achieve to make positive gains. I have another thread that explores drawdown handicap.
1. Drawdown percentage
2. Spread
3. Commissions
Drawdown handicap percentage is only around 51-53% as long as you only risk 1-5% per trade. 2% risked per trade is a approx 1% handicap.
So, your initial handicap is drawdown... 1%.
Your second handicap is spread. In the EUR/USD if your getting a 1 pip spread that means two pips round trip. If your capturing 10 pips that is a 20% handicap. If your capturing 20 pips that handicap is reduced to 10%.
A lot of newbies are scared and doing small trades for small amounts... The irony about this is that this is lowering their odds of winning by a very LARGE amount. I only trade when I think I have a shot at more than 20 pips on the trade. Never trade during off hours chop.
Commissions handicap is more for stocks trades... But some FX brokers have commissions. It's calculated the same way...
Percentage of trade.
If your trying to capture $100 in the /ES at a time with one lot and risking $100... If your comms are $4 that is a 4% handicap. The spread handicap on that trade is $12.5 or 12.5% handicap.
So scalping $100 off the es at a time has a total handicap of 16.5%.
If your going for $250 a pop with one contract your handicap is 6.6%. Handicap is costs divided into trade target/risk amount. If they are both equal it's easy to calculate.
So, want to bring your handicap down to the level of the /ES futures in Forex? 30 pips is the magic number with a 1 pip spread... Equivalent to trying to capture $250 at a time with one emini.
Once you understand your handicap then you realize what win rate you need to achieve to make positive gains. I have another thread that explores drawdown handicap.