Forex Signal (Fri, July 30 2010, 8:30am NY Time EST) - US Adv. GDP q/q

Dear Mr. Liu,

Let's say we graded our trade according to the following scale:

40-45 pips A
30-39 pips B
20-29 pips C
1-19 pips D

This trade I got a C+ and I'm looking for a long run on the Aussie dollar next week.
Thanks Mr. Liu

In my humble opinion, the raw number of pips is not the sole governing factor on whether a trade was a good one or not. With proper money management, the question is how the number of pips gained compares to the risk required to make them.

For example, it's far more profitable (ignoring spreads/commissions) to gain 15 pips with a 5 pip risk (stop loss) than it is to gain 500 pips with a 250 pip stop loss. That because with proper money management in both cases, where the risk amount represents a fixed % of your account (say 2%), the first scenario will make your account rise by 6% (15/5 x 2%), and the latter will only make your account rise by 4% (500/250 x 2%).

In the long run, this assumes, of course, that the win/loss chance is the same in both scenarios, but that's yet another factor that diminishes the significance of the raw number of pips you gain in a given trade.

It seems that news trading has the advantage of being tradable with a stop that is usually smaller than targeted gains (limits), which makes them extra valuable. That as opposed to technical trading where it seems stops bigger than limits is wiser.

Plus, every news trade behaves differently, and you shouldn't grade yourself based on what opportunity the news release provided. If in hindsight it only offered a max of 18 pips and you picked up 15 of them, I'd say you aced it.
 
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