I’ve read numerous times through the forum that people with Equities backgrounds really have a probelm with people talking about how many pips their system is producing. Since someone could be trading on a .10 cent pip or a 100 dollar pip. That we should be saying what % it is making of the entire account.
My thoughts on it are this, even in Equities just saying a mere %'s your system is producing can be misleading. Given you don’t know the person’s money management risk level.
has 10k account, he invest 1k into a 10 dollar stock giving him 100 shares sells at 11 dollars giving him a 1,100 dollar gross profit or 100 dollars net profit, 10% on what he risked or 1% on his total account.
Trader 2 (does the same but has a bigger account) 100k account
he buys at the same as the above 1k into 10 giving 100 shares yada
It will still be 10% on what he risked but it will only generate a mesely .10% for his total account
With that being said % can be misleading since you don’t know how the trader money management “risk level” is [U]you can’t merely use a % number and pretend your going to drop your entire nest egg on said %'s return[/U].
Just as misleading as you sorting the big mover and shakers of the industry screen and find the biggest % movers, only to see the screen sort all the 1 dollar stocks at top of the list, well that is true it did move 1000% today but I really don’t have the stomach for a 1 dollar stock. ;o) So if % on total account can be misleading, what about return on investment or amount risked, well that is true 11 from 10 price is 10% no matter how much money is slung at it. But at what level of risk did he go at to achieve that % on amount risked. Just because you make 10% on a penny stock on amount risked or 10% on a hundred dollars the mere gauge of % on amount risked is not painting the big picture either.
But it can give you idea how profitable said system might be, and you apply your money management and risk tolerance to it. I Don’t see the probelm with someone in Forex saying how many pips they generate with their system, it is the same scenario. You have to know their risk level and leverage amount to recreate exactly what is going on. But you can apply your MM to it and see if it will work for you. If it will stand up to “your” [I]Definition of what a profitable and/or successful system is.[/I]
But to be fair no one really ask on Equities a person’s money management when he shows he just squeezed 10% on a 10 dollar stock, making a whopping 1% on his total account. well that is a great system but I have 10 times your account so if I play your system it is only going to generate me
.10% for my account balance and not the 1% on yours. So what is my time worth to me since I was thinking I was going to get 1% for my account balance playing your system.
It has been my experience that you wont find out the other person’s account balance to see what his mm is looking like on Equities so you are left with only what his system generated on increment level 10 to 11 stock is 10% without putting MM in the equation, which is the same thing by saying how many pips you make apply your own MM to said pips to see if it is worth it to you.
One thing for Forex I see, that I don’t see in Equities as much, people are a little more forecoming with MM since it is crucial in not whiping out your account with a margin call.
So I think across the board, just saying what increment it moved in your system, is fair enough and let each trader apply their own MM and risk tolerance to it.
Just my observation and thoughts on it. ;o)
It has been said by me on Number Cruncher thread that you capture Forex returns on Equities Market without being margined all boils down to MM and Risk tolerance, You can turn Forex on even ground with the wrong leverage and % risked and basically be trading huge piles of cash in Forex, in what is basically a “pink sheet stock price, risk tolerance” at half or more increment for increment movement loss as seen in Equities. ;o)
Leverage and % of what is risked is all it is about.