My broker has a 15-20 pip spread on major pairs. So that doesn’t allow me to have a 1:1 ratio. For example, with a 20 pip spread when I enter a trade, I’m already down 20 pip. So if I am targeting 50 pip profit, that means the trade has to move 70 pips in my favor for me to get a 50 pip profit. With 1:1, the stop would also be a negative 50 pip from the entry. So that means that the trade has to move only 30 pips against me to hit the stop (as I would already be negative 20 when I enter).
Please explain to me how should I make this work if I want to have at least 1:1 risk-reward per trade.
Sorry, I don’t understand where you think I am wrong. My understanding of a pip is the last decimal point in a quote. For example: 1.2665. The last digit 5 is a pip.
The following two screenshots were taken 5 seconds apart of the same pair. My broker has floating spreads so they keep changing (which is annoying since I can’t lock in a spread when entering a trade). Anyways, the screenshots will show you a 15 pip spread and 28 pip spread (if pip is the last decimal).
Personally I don’t count for spread. I call it a cost to trade. All businesses run a basic formula of
Gross profit = Gross sales minus cost of goods
Consider spread, commission and swap all as cost of goods. Start trying to account for these costs in your RR ratio will see the edge you might have disappear.
I use pending orders with pre-defined TP and SL - so you HAVE to account for the Bid / Ask spread in calculations.
Stop in my way is 7 pips further away than my calcs say, TP is 7 pips closer than calcs say.
Similarly Pending order needs to be 7 pips closer than I would like to place it. Those figures are an integral part of the calculations.
So I suppose “it depends” is the real answer.(like everythingg else in this Game) for very short term trading the “cost” may be a cost. For me it is an integral part of the movement itself.
Well that’s obviously the answer. And did you know that 90% of traders can’t work out 90% of percentages within 90 days, while another 20% are just breaking even and the remaining 25% are undecided.
@tommor is correct. You have confused tenths of a pip (AKA pipettes) with whole pips.
The screenshots you shared are of USD/JPY*. In one screenshot, your broker shows a sell (bid) price of 106.61[6] and a buy (ask) price of 106.63[1]. The spread in that case is 1.5 pips, not 15.
Suppose you bought at 106.63[1] and were seeking a profit of 50 pips. You would set your profit target at 107.13[1] which would require the sell (bid) price to rise 51.5 pips from 106.61[6] to be hit.
To have the 1-to-1 risk-reward you seek, you could set your stop loss 50 pips below your buy (ask) price at 106.13[1] which would be triggered if the market dropped 48.5 pips from the 106.61[6] sell (bid) price when you opened the trade.
That said, you may want to look at this discussion where we explain why you might not want to risk or seek a fixed number of pips on each trade, and instead let key support and resistance levels guide you: Do you know how many pips are the most appropriate level for SL?
*Note that for all JPY pairs, the pip value is 2 digits to the right of the decimal point. For most other currency pairs ending in USD, CHF, AUD, etc. the pip value is 4 digits to the right of the decimal point.
This very morning I had my stop at 1.4030 (GBPUSD) and got stopped out when price only got down to 1.4034 ! (re-entered at 1.4053)
The strategy is new and I am trading it on demo with IqOption, who are currently quoting a 9 PIP spread on this instrument. Spreads vary as we know on volatility and also on time of day, so I’m using 7 Pips as my current assessment of a realistic situation.
I want a system which is good for decent profits - SO I treat this a little like training for a cross-country run - "Train in Wellingtons or Working boots - do the actual run in plymsols or bare feet "
Bearing in mind it was 2004 when I stopped trading and went back to work, and that things have changed a lot since then, I want as seamlwess a transition back into “Live” as possible.
Greetings, looks like the pips are not right, thats good otherwise I would say find a new broker.
If you are using a fixed R R I would say move the SL & TP so that the R R is what you need, bearing in mind that the costs of the trade which would be the spread and broker commission (for ECN Brokers). The broker commission is a little harder to price into the SL & TP distances, but you are right that the costs of trading change the distances you need to travel to win or lose and therefore the probability of winning and losing, that is the built in disadvantage of trading which your edge would have to overcome to be profitable.
How that would effect your trading results overall would depend on how large your SL & TP distances are compared to your spread. A 1 pip spread with and SL & TP of 10 pips each would be more significant than if their distances were 50 pips each. I guess in a way you are inadvertently being told to trade longer term over larger distances.
That sounds dreadful!!!
Today has not been anything special that such a currency pair should have such a wide spread? This is my spread right now for this pair (it is varying between 1 and 4 pipettes):
True, but I can’t help feeling that we are ignoring an important issue here.
IMO, fixed SL and TP should only be the initial “default” levels that one starts with. But then the levels should be adjusted within a sensible distance to a point which makes sense chart-wise i.e with regard to S/R levels, high/lows or whatever one is using. This is usually far more important than building in an extra pip or two to cover the spread/comms?
I agree with you completely. Ideally you should size up the trade and then check that the R R fits within your approved levels. I used to exclusively program trade with a binary pre set R R level. At that time it was important to adjust the SL & TP distances to make sure the R R was right.
But that approach was very stats oriented and data driven and I decided that that was probably a bad way to go because of the temperamental nature of the markets and frankly because it would take immense math and programming skills to succeed long term with that approach.
Even being able to describe mathematically things that you can easily decipher with a quick glance of the chart is incredibly hard, and that would be just the first step of taking in the inputs properly before processing it and trading.
