I’ve gotten into a discussion on another thread about this, but as it’s getting off topic I thought I’d start a new one and ask everyone else’s opinion on the matter.
Isn’t it misleading to new traders to discuss the profitability of a particular trader, or a particular system, solely in pips? I see people claiming their system makes �x pips per day� (I’ve been guilty of this as well) but they never seem to tell you what those pips are worth, or how much you need to risk to get those pips. A pip is a variable unit, it can be worth a penny or a thousand dollars. You can be a pip positive but dollar negative trader, and vice versa, depending on your risk/reward ratios. Here’s some math to demonstrate this…
Assume all trades are at 1% risk.
Account Balance = $1000
Trade #1: 100 pip stoploss, 100 pip takeprofit. You lose for -100 pips (-$10).
Account Balance = $990
Trade #2: 10 pip stoploss, 10 pip takeprofit. You win for +10pips ($9.90).
Account Balance = $999.90
Trade #3: 10 pip stoploss, 20 pip takeprofit. You win for +20 pips ($20).
Account Balance = $1019.90
Total pips = negative 70.
You made money but lost pips!! It can also go the other way around, you can gain pips and lose money. I’ve had people tell me I’m �crazy,� �wrong,� and most recently �dealing in semantics� whenever I point this out.
If you follow proper money management rules, a system that makes 100 pips per day with a 20 pip risk is a much better system than one that makes 500 pip per day with a 500 pip risk. Yet people will flock to the 500 pips system because they think it will make them more money, when the math clearly shows otherwise.
I know it will never happen, but wouldn’t it be better to report our, and our systems, profits in percent over time instead of pips?