PIPs before Dollars, a simple approach to measure success

Trading Discussion Risk Management Practices
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PIPs before Dollars, Simple approach to measure success
13 January 2015
Author: Mason Tuttle

Any trader you ask will likely give the same answer when asked “Why do you trade?”. The answer comes in slight variations; to help my family, buy a new house, quit my job, but these are all the same. Trading provides an opportunity of [B]freedom[/B].

Associated with this is the idea of sitting at home, or on a beach, making a few clicks and then
relaxing your days away. This is not the life of a full-time trader. Look at hedge fund managers, investment bankers, or the simple guy down at your local bank. Investing, and do not be mistaken as trading is investing, is a full-time “8-5” endeavor, though the hours may vary.

To frame the full-time trader lets define this as earning a livable income, and assume that for a single individual this is $3,000 per month.

Successful hedge funds, of which there are few, are happy to see a 40% return in a single year, or 3.3% monthly. Some simple math:

100/3.3 = 30.30 $3,000 x 30.3 = $90,909 or roughly $100,000

To state it matter of fact, to earn a living, and trade responsibly you would require at least a $100,000 start-up account. Few of us live in the realm where this is possible right now.

Rather than setting a dollar goal, I practice setting daily/weekly/monthly PIP goals. Whether on demo or a live account measure your success up against your goal. Use proper position sizing, recommending a maximum of 1% loss per trade.

Final note, keep a journal of your PIPs earned. Are you seeing your goals reached? To what degree? If you feel like moving forward towards a sense of freedom, calculate your PIPs earned, start scaling up position size in moderation. Grow your account, compounding interest is amazing!

The job of a trader is not to make money, but to avoid losing it.

I welcome everyone’s thoughts on the matter, and am eager to hear how others measure success.

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Trade Your Way to Financial Freedom

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The problem with a pip goal is you can make money even when lose pips or lose money when you make pips. If you’re risking 1% on a 10 pip trade and you lose then risk 1% on a 100 pip trade and win you’ve made pips but no money.

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Don’t worry about this guy, Galaxy Trader bro. Not capable of original thought merely recycling the same old same old guru’s preach. Out on a recruitment drive.

Doesn’t understand expectancy, diversification, exposure or asset allocation. I had to pay good money to learn that, he thinks funding an account and getting a free EA will pay his bills. What your rank soldier, Master of arms yet or earnt that sniper bag

Hope I’m wrong but doubt it …

And b4 you start MJ you brought it to a public forum. Goodness hope my spellings ok :46::46::46:

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Oh…Ok I just read some of the Galaxy Trades thread. Now I feel a little more up to date!

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I’m not sure I understand the drive behind this post, maybe BOB is right…but, I’d like to comment.

Pips are the most worthless measure of success for a trading system.
I can’t figure out why anyone would want to “focus on the PIPS”- this doesn’t make sense to me.

10 pips to you can be $10.00
10 pips to another trader can be $1,000.00

A trader with a $10,000 account, who nets $10.00 off [B][U]10 pips[/U][/B], books a return of .001%.
A trader with a $10,000 account, who nets $1,000 off [B][U]10 pips[/U][/B], books a return of 10%.

So, by your logic, you’re telling me that if all we were measuring was the [I]system’s ability to gain pips[/I], these two hypothetical traders above would be “equal” in your eyes?

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I think success should be measured on percent gain, not # of pips gained and not dollars gained. Those will vary on trading strategy and account balance.

Now i guess you could set pip goals, such as a target of +100 pips a week, if you were always going to set a SL at -10 pips and were going to risk the same amount for every trade (say 1%). But that is just another way of saying your goal is 10% a week

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Yes my apologies my friend. After re-reading my post I understand. My comments where aimed @ tuttle. Your post refered to expectancy. And quite correct. Also been enjoying your jornal. Best of luck this year

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No problem…Thanks!

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Sure. You handel youre Trades more objective.

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The way i see this, is that you have to try and make consistently a certain amount of pips on average no matter your wins or losses (that will be your goal) and once you’ve gained enough profits out of your initial capital then you can “step-up” the game into bigger lots and the circle goes on.

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The problem is you guys are all not paying strict attention to how the thread title is worded. “Pips before dollars” is technically accurate, as everyone knows (or should anyway) that pips are worth a lot less than dollars. Now, are they more important a basis to calculate your earnings over dollars? As many said, uhm, Hell No! You need to base your income and loss on something that can show real value, such as account balance. Since pips do not all have the same value, basing your trading style strictly on pips, to put it mildly, is moronic. Sorry if I offended morons.

Pips are only a stepping stone, a necessary one for sure, but only a marker along the way to potentially increasing the number that matters, your account balance.

If you are basing your trades on your account balance, then 1% would get you more if you were trading a $100,000 account than it would if you were trading an account of only $1,000. This would give the $100,000 trader more return than the $1,000 trader if the market moved in the direction they wanted, all for the same number of pips, as FOREXunlimited stated.

This “idea (PIPs before dollars)” reminds me of another financially related saying, “Stepping over dollars to pick up dimes.”

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Sorry JD4, but you are completely wrong.
The monetary value of each pip rises as your trade size increases.
When you start with a small account, trading say 0.01 lots, your X pips profit will yield Z usd.
When the account grows and you trade 0.10 lots, X pips yields 10 x Z usd.
Grow further and trade 1.00 lots, X pips yields 100 x Z usd
So you can stick to the exact same trading plan and money management rules without adding risk, yet increase your earnings with the exact same number of pips won

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[quote=“JD4,post:13,topic:69983”]
The problem is you guys are all not paying strict attention to how the thread title is worded. “Pips before dollars” is technically accurate, as everyone knows (or should anyway) that pips are worth a lot less than dollars.

Pips are only a stepping stone, a necessary one for sure, but only a marker along the way to potentially increasing the number that matters, your account balance.

As FOREXunlimited stated.

This “idea (PIPs before dollars)” reminds me of another financially related saying, “Stepping over dollars to pick up dimes.”[/QUOTE]

As far as my first comment, it was meant tongue in cheek. You cannot make any dollars at all if there is no pips being made. If you are basing your premise on that one line, then you would be correct. However, there was a lot more to my post than that one line.

I am at a loss where you feel I am completely wrong? You are saying the same thing as I am. It is simple math. Pips’ “monetary value”, to use your phrase, are based on the exchange rate between the 2 currencies in that pair at that point in time. The pip value for each pair DOES differ based on the currency pairs, but that is it. If you can get the equivalent of 1,000 pips at $0.77 return because of larger lot size, over 100 pips at that same value because of smaller lot size, the pip value is the same, a larger lot size is what is increasing your return, not pip value changing.

If you only get $10 USD return because of a 10 pip movement, or you get $1,000 return because of a 10 pip movement, both movements were only 10 pips, so they must both be the same, according to OP. The number of pips is not the important thing. The value per pip matters, not the number of pips.

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The number of pips does matter. If you can consistently trade a way that returns you a steady number of pips per day then you have a good system. To increase the monetary value of your returns all you need to do is increase the trade size.

On the other hand, a trained monkey (okay, slight exaggerated) could earn $100 per day if it started with a $10, 000, 000 account. Thats why most traders talk about trades and earnings in terms of pips made rather than $, pip growth is universal regardless of account size or currency pair

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I mistyped from what my head was meaning to how it came out. I was not trying to say they don’t matter at all, but compared to the dollars they get you, the pips are inconsequential. If you are making money, that is what matters. The pips are only a small stepping stone to get there. In the way a little tiny screw is necessary for an expensive watch to operate properly, pips are necessary to a successful trading strategy. Just saying the dollars (or whatever currency the trader uses) they bring in is more important than the pips. If your trading style is constantly losing money even if you are bringing in more pips than you are losing, then chasing the pips is pointless.

I think they use pips because it gives everybody a standard to be able to compare, because their accounts have all different currencies in them, depending on where in the world they are. Ultimately though, the account balance is where the true measure of a trading system lies.

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I think ‘success’ depends on individual traders. Some may have a trading system build around PIPS. So for them success will be built around pips gained. Personally, I measure my success on the amount of money lost or gained because ultimately, forex trading is a business, meaning success means profits and failure means losses

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Even am of the same opinion that making consistent number of pips always helps for the traders. Because the number of pips would remain constant, but as we scale up the trading capital the lot size would increase and thus the gains would increase even more.

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The last few posts I believe are what the OP intended to convey in his post and he specifically said so at the very end…

I have used this same manner of explaining the importance of pips to my son. It is important for him to understand that if you can trade a system and be consistent, gaining pips, then don’t worry about the fact you might only be making pennies trading micro lots. Because if you increase your trading capital and begin trading larger lot sizes with the same number of pips gained… you will effectively increase your profit to where your hard work is now worth it.