I know I can calculate a notional value by simply Spread x Pip Value, my question is that if should I consider it as a cost at all, that diminishes my annual return? Or is it more of a market condition by which I simply adjust my entry / exit rates?
Without modifying any entry / exit strategies, I’m counting it as a modifier that eats into profits, or magnifies losses. Either way it makes my Risk / Reward ratio worse (that diminishes annual return indeed).
What are you on about???
You start the year with $100K and end it with $110K. You’ve made 10% for the year gross. Where’s the problem and why the unnecessary complication???
I’m making a simulation of a year where I can forecast my expected profits / losses and costs. I just had hard time to figure out how to calculate spreads, but now I found a way.
The dotted lines show the balance without spread cost, the solid lines show the actual balance (blue is expectancy, gray is an actual simulation).
Well I suppose if you want to go into that type of detail then fair enough. For analysis purposes that is. But at the end of the day it’s really only the cash value at the end of the year (or whatever your accounting period) that matters let’s face it. I mean to say I’ve paid a lot in commissions and dividends and spread and interest over the years. Also received a lot by way of dividends. And while it’s sometimes nice (or painful) to generate reports and itemize everything: it changes nothing.
Thanks for getting back, and for the pragmatic angle. For now I’m only planning to start trading, just wanted to see an estimation of all the figures.
Seems no matter what, spread and commissions cuts around 5% (considering day trading). Interestingly enough, involving some currency pairs can hurt the costs so badly.
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Well for what it’s worth: at least your blue line indicates that your expectations are not outlandish and your grey line doesn’t have huge swings so I wish you well.
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Thanks there!
For me, statistics are pretty useful. It also prepares me to bear a low-performing first year. Multiple simulations show how the same expectancy can lead to pretty various outcomes.
Starting from 1K, it varies between break even (still 1K after a year) to 2,5K. Still, both outcome perfectly aligns within the expected probabilities. Seems that in trading a single year should be considered “short term”.
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Nice. I guess my point is with realistic expectations you will probably do just fine. And if things go even better well then it’s a nice bonus. It’s these unrealistic expectations that 99% around here have that lead to tears sooner or later (usually sooner).
Thanks for the inputs, it is always good to have feedback from real-world traders.
Yap, tuning in expectations can definitely help evaluate outcomes. Even it can help calm you down if with some extra luck the first year turns out to be over the ceiling.
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