Spot the error! FPA signals and ROE ?!?!

[CoreWorx]

Help me to straight this out please..

FPA signals average 150 pips per week according to this site's ad for Elite membership (for which I have signed up btw).

If trading standard lots on the EUR/USD the pip value is 6.73 EUR / 10 USD.

150 pips per week is 600 pips per month and with above pip value that's approx 4000 EUR / 6000 USD per month.

Where's the catch?

Ok, I may not get to 600 pips a month the first few months but half is good enough to begin with.

I guess I would need a 10 000 EUR account to have a few standard lot trades running.

With a 600 pip per month gain I have a return on equity of 40% PER MONTH!

Something doesn't make sense here. Please tell me where I go wrong!

 

[Stony]

That´s very simple: There are no signals which can guarantee 150 pips per week as an average. Even for a most experienced trader who trades "by hand" on the basis of his experience, it is extremely difficult to achieve an average score of 150 pips per week. So just don´t believe in such signals or expert advisers that are being offered in the forex world!

 

[CoreWorx]

Ok. So 150 pips a week is unrealistic.

The signals have many followers, what do you (followers) say?
Can you trade on the signals to get towards the 150 pip per week average?
(according to FPA they've held this for 2 years now)

And Stony and anybody else saying it's unrealistic - how many pips a week is realistic?

 

[CoreWorx]

I have taken my calculations on this a bit further, bear with me...

With a conservative risk profile I am willing to risk up to 2% of my account per trade (+/- to get to lot sizes). Starting with a €10 000 account I am willing to risk €200.

Let's say I set me Stop Loss (SL) to 30 pips and my Take Profit (TP) to 75 pips (1:2.5 Risk:Reward ratio).

So for 30 pips to equal €200 I need a lot size of approx 100 000 = 1 standard lot.
Calculation: €200 / 30pips = €6.67 per pip => approx $10 per pip => 1 standard lot.

The potential profit on this trade is 75 pips => €500 ($750).

1. Assuming that I have a success rate of 70% i.e. I hit TP on 70% of the trades and SL on 30% of the trades then I have an average return of approx. €300 ($450).
Calculation: -€200 x 30% + €500 x 70% = €290 => approx average profit €300 ($450)

2. Same as above but with a 50% success rate => approx average profit €150 ($225)

For 1 above:
To get to €4000 profit per month I need a total of 13 trades per month => approx 3.5 trades per week.
Assuming that I have maximum of 3 trades open at any time and leverage of 1:100 I have a maximum margin utilization of €3000 ($4500) => 30%.

For 2 above:
27 trades per month => approx 6.7 trades per week.
With maximum of 5 trades open at any time I have a maximum margin utilization of €5000 ($7500) => 50%.

So far I think it all seems reasonable.
2% risk, 70% success rate, 13 trades per month and not getting anywhere near a margin call.

I still need to look into which pairs that have enough volatility to get me 75 pips 3.5 times a week.

Am I on the right track here?

 

[Stony]

Principally yes. But: a success rate of 70 % and a TP of averaging 75 pips and the occurrence of such trades three times a week do not seem realistic to me. Usually, you will have to deal with much smaller TP´s.

And: if you have opened 5 trades at the same time, your risk is 10 % of your equity in your example. Experienced traders take 2% to max. 5% total risk.

Try your strategy on demo accounts - practice is better than mathematics...

 

[Pharaoh]

The absolute most I've ever seen risked in the Diamonds room was 2% of an account. Redo your calculations based on 1% risk per trade with reasonable stoplosses. Gaining an average 150 pips per week on that level of risk is profitable, but won't make you a trillion dollars overnight.

 

[CoreWorx]

Principally yes. But: a success rate of 70 % and a TP of averaging 75 pips and the occurrence of such trades three times a week do not seem realistic to me. Usually, you will have to deal with much smaller TP´s.

And: if you have opened 5 trades at the same time, your risk is 10 % of your equity in your example. Experienced traders take 2% to max. 5% total risk.

Try your strategy on demo accounts - practice is better than mathematics...

I would not open 5 trades on the same pair at the same time as that would obviously equal to 5 standard lots and thus increasing risk. Would need to work with 3-4 pairs and timing to spread the risk.

But, your point about practice rather than theory is taken. I will test this but need to study technical analysis more so that I can design my strategy.

 

[CoreWorx]

The absolute most I've ever seen risked in the Diamonds room was 2% of an account. Redo your calculations based on 1% risk per trade with reasonable stoplosses. Gaining an average 150 pips per week on that level of risk is profitable, but won't make you a trillion dollars overnight.

Reducing the risk by 50% would mean that I need twice as many deals a week to reach the same profit level (ceteris paribus) => 7 deals a week.

What is reasonable SL and TP levels (per time frame)?
(let's stick to EURUSD in this exercise)

And I would love to get some feedback from the people trading on Sir Pipsalots signals - do you track close to the stated track record of 150 pips per week for the last 2 years?

( and I am not looking for "trillion dollars overnight", I am looking to learn from successful people so that I can build a trading strategy that makes my time and money investment worthwhile. So far, there's mainly a lot of noise (superduper systems, signals and more or less bold statements), little evidence of success. )

 

[Stony]

Reducing the risk by 50% would mean that I need twice as many deals a week to reach the same profit level (ceteris paribus) => 7 deals a week.

True. And this will prove very hard.

What is reasonable SL and TP levels (per time frame)?
(let's stick to EURUSD in this exercise)

This depends on the volatility, the trend and the chart picture in the whole, which can be very different at different times. You should not define fixed stops and TPs proportionally to the time frames.

And I would love to get some feedback from the people trading on Sir Pipsalots signals - do you track close to the stated track record of 150 pips per week for the last 2 years?

Sorry, no idea - I don´t trade signals.

Regards, Stony