Hi all,
Recently i have been trade only one pair (EURUSD) on the 5 min TF, using a SL of around 15 - 25 pips, varying form trade to trade, and using a trailing SL method based on elliot waves would close profitable trades for anywhere form 1 - 150 pips, with an average win of 18 pips. My average losses were 11 pips. Lately i have been thinking about trading cost and win rate, did some calculations and was surprised to see just how much of an impact trading cost make to profitability. basically when trading with small average wins/losses you need a higher win rate to cover trading costs. Here is an example to explain this better:
Lets say it cost 3 pips per trade (spread, slippage, commissions, swap) and you make 2 profitable trades for a gross profit (excluding ALL cost) of 10 pips for each trade, that is 7 pips net profit, so total net profit = 14 pips for the two trades. Then you have a loss of 10 pips, + cost = negative 13 pips, total = just 1 pips. So in this example you have are shooting for a small move (10 pips) and you are going with a gross win:loss ratio of 1:1, you need to have a 66% win rate to BE. However if you aim for 100 pips per trade and you win 17 trades of 100 pips each gross, that is 97 pips net profit, total net profit = 1649 pips, then you have 16 loss of 100 pips, + cost = negative 103 pips, total = negative 1648 so total profit = 1 pip, in this case you broke even with a win rate of only 51.5%. So by aim to capture larger moves, trading cost are proportionally lower, however, trading a 1Hour time frame will generate considerably less trades per week, this can be counteracted by trading more pairs, as each trade won't need constant attention.
... any thoughts?
Recently i have been trade only one pair (EURUSD) on the 5 min TF, using a SL of around 15 - 25 pips, varying form trade to trade, and using a trailing SL method based on elliot waves would close profitable trades for anywhere form 1 - 150 pips, with an average win of 18 pips. My average losses were 11 pips. Lately i have been thinking about trading cost and win rate, did some calculations and was surprised to see just how much of an impact trading cost make to profitability. basically when trading with small average wins/losses you need a higher win rate to cover trading costs. Here is an example to explain this better:
Lets say it cost 3 pips per trade (spread, slippage, commissions, swap) and you make 2 profitable trades for a gross profit (excluding ALL cost) of 10 pips for each trade, that is 7 pips net profit, so total net profit = 14 pips for the two trades. Then you have a loss of 10 pips, + cost = negative 13 pips, total = just 1 pips. So in this example you have are shooting for a small move (10 pips) and you are going with a gross win:loss ratio of 1:1, you need to have a 66% win rate to BE. However if you aim for 100 pips per trade and you win 17 trades of 100 pips each gross, that is 97 pips net profit, total net profit = 1649 pips, then you have 16 loss of 100 pips, + cost = negative 103 pips, total = negative 1648 so total profit = 1 pip, in this case you broke even with a win rate of only 51.5%. So by aim to capture larger moves, trading cost are proportionally lower, however, trading a 1Hour time frame will generate considerably less trades per week, this can be counteracted by trading more pairs, as each trade won't need constant attention.
... any thoughts?
