Brain Melt. Easy Help Required.

Hi guys, I just want to confirm something but my brain has failed me.

I want to make or lose 20 pips for a trade which is going to be equivalent to a 2% risk or gain. Is this correct

Buy at X,
tp at x +20 + spread
SL at x -20

Sell at X
tp at x -20
SL at X +20 + spread.

Thanks very much

max

Take whatever profit you can..if it gets to +15 and then flattens out...take the money and run.

Don't worry about the spread.. if trade is profitable,the market pays for it.

..... but your profit is reduced. And if the trade is a loss, the loss is increased.

We were discussing this very topic earlier this month at our TA group. There's one trader there who told us his return for the year ending 03/31/2009 was 83%. He worked out that if he didn't have to pay his broker, the return would have been around 255% !!

Don't be fooled..... spreads can make a huge difference, when accumulated over a long period.
________________________

Anyway, back to the original post. You buy at ask, sell at bid. Think of closing a long as selling, and closing a short as buying. Using these prices will ensure that the spread is covered in both the risk and return sides of your equation.

Skippy, the point is to try to equalise my profit and loss on each trade. If I can achieve this then I Just have to pick more winners than losers to be in profit

I guess the question is more from an ea point of view. I don't think that an ea can trade the way that I want but it can execute the trades that I allow it to faster than I can.

So, Do I include the spread in the ea?

thanks
ww

hanover ,while looking at your profile I came across this confession of yours:

"I really only dabble in forex. Another income stream would be a bonus... I'd rather be watching a political thriller, dining out, or singing on the karaoke at my brother's nightclub..... I will never be a great trader...I lack the..passion and dedication....I have other forex traders trading part of our investment portfolio for us"

I've been trading more than full time for almost 5 years,and I get returns that people think I'm making up.

Last night/this morning. I netted 235 pips last nite,nd it was a choppy night,not what I like to trade...if one was trading one 100k lot,that'd be a good return for the evening-figure it out.
Do I care that that is the net number,and that it supposedly cost me 16 pips in spread?? No.

If the guy would would of had 255% for the year without and only 83% with,the problem isn't the spread.
He has too many losing trades,a crazy spread, and/or he's taking profits at 5 pips.


Max: why try to equalize?You'll alway have slippage,or be slow in responding to a move,or the market will jump too fast.
Minimize your losses.

Why get out at just 20 pips profit? If the run continues RU just gonna sit there and watch it go?

As for counting them do whatever makes you happy-I pay attention to actual trading and not silly minutiea.

Fair enough, you've earned your bragging rights. I don't know why folk would think you're making your returns up; it's no secret that leverage and compounding can quickly turn a small edge into some decent money.

Anyway, back on topic....... I totally agree with you: the longer the moves you're capturing, the less the significant the spread becomes. You don't have to be trading for 5 years to understand basic math. The guy at our TA group was scalping very small moves, that's if I heard him correctly. With a 20 pip move, a 4 pip spread means you need a 20% edge just to break even.

And therein lies the problem with the method. If the method requires huge amounts of "wins" to overcome a few "losses" - this is a dangerous, DANGEROUS method.

Rule #1: Always make money.

You must find something that works for you and profits over and over and over, so that the few occasional losses are but a trifle and the spread is a mere trivial price to "play the game".

I mean honestly, who wants to scalp for low pips praying that you don't get stopped out because it will wipe out 10 winners when you could change your methodology and capture HUGE chunks out of the market with reasonable risk tolerance while keeping the losses at a minimum and at a low amount of pips. That's a methodology that everyone should be aiming for imho.

Sorry, just sounding off. Don't obliterate me please.

This has become more a conversation about technique for trading than it was supposed to be, but to continue it anyway - you'll find plenty of people who make good money out of scalping, for small gains and small losses or small gains and large losses. So don't mock any one elses succesful method.

We know the power of compounding so with that in mind a 2.5% return per week, ie one more win than loss per week with conservative money management is a 260% return per year. Thats pretty healthy. Now look at a chart for a week and try and pick one winner, thats all, one trade which you can look at, any time frame, which you are convinced would of made 20 pips with a 20 pip stop loss, or 50 pips with a 50 pip stop loss or whatever.

Ok, in reality its not that easy but in the last few weeks I've been looking and this and at the end of the week I have had more wins than losses in most cases, hence 20 pips might sould pointless to those of you who gain 1000 pips per week, but my 20 pips is worth 2.5% of my account and thats just plenty

max

theres a post on here somewhere by one of the 'wise ones'. It goes somthing along the lines of beginners are concerned with where to get into a trade, people with some experience are concerned with where to get out of a trade, but the most succesful/ experienced are concerned with money management! To whoever, excuse me for butchering that, however I am just trying to get into the third category.

max

hanover:
if u notice the 20 pip thing was directed at max.
Like you say,scalpers usually get hammered by the spread.

But with last fall/winter with the meltdown and wild days,I'd always have 3 and often 4 or 5 days a week where I'd get 1000+ pips a day.
It's a shame he was scalping,with all the slippage-when there was a fortune flowing by.

Go All Blacks!!

And yes guys, the less time you spend worrying about a couple pips spread and learning about what moves the market, the better off you'll be.

MM dam it!

ie.I usually trade multiple full lots, but the jumpy market that nite forced me into only one lot.
Knowing when not to trade is very important.

It's almost noon,off to bed.

Hi Max,

Sorry, it was largely my fault that the thread got off topic. I did try to answer your question back the the second half of post #3. But perhaps an example would help to clarify.

-- Whenever you buy, it's at the Ask price. Buying includes entering a long position, or exiting a short position (whether by TP, SL or just a manual 'close').

-- Whenever you sell, it's at the Bid price. Selling includes entering a short position, or exiting a long position (whether by TP, SL or just a manual 'close').

OK, now let's say I want to go long on NZDUSD, and my broker is quoting it at 0.6400 / 0.6403. The MT4 charts show the bid price (0.6400), but I must buy at the ask price (0.6403). Now let's say my TP is 20 pips above entry on the chart, i.e. 0.6420 / 0.6423. The TP is executed at the bid price (0.6420). So my actual return is the difference between 0.6403 and 0.6420, which is 17 pips (or the 20 pip difference shown on the chart, minus 1x the 3 pip spread).

OK, now what about the risk? Let's say my SL was 20 pips below the chart entry, i.e. 0.6380 / 0.6383. The entry was at the ask (0.6403), and the exit is at the bid (0.6380). So the actual risk is the difference between these, which is 23 pips (or the 20 pip difference shown on the chart, plus 1x the 3 pip spread).

If you go through the same process with a short position, you'll find the same applies, i.e. assuming that your'e using entering/exiting using the line on the chart (bid price), then you need to deduct the spread from the return part of the calculation, and add the spread to the risk part.

Hence, in the example, the return:risk is not 20:20 but 17:23. That was the point I was trying to make back in the first part of post #3. If you're trading small (e.g. 20 pip) moves, spread is significant. But if, as Skippy points out, it was (for example) a 200 pip move then 200:200 becoming 197:203 is nowhere near as significant.

I'm NOT saying that it's impossible to be a profitable scalper (check out the posts by FxRichard, for example). It's just that, everything else being equal, your method/approach has to be sufficiently powerful to overcome whatever transaction costs are being imposed by your broker. Of course this applies to every trading method, scalping or otherwise.

Great explanation for them han.

Unfortuneately,I rarely give a straight answer..my style is to nudge in a general direction to let them figure it out on their own.