Hey tradomaniacs,
ever since I`m in this business I see posts about "Profit in pips" and how important allegedly pips are.
I can tell you... this is non-sense unless you trade the same PAIR with exact the SAME Risk-Reward over and over again!
In this post, I want to clarify and show you that it is absolutley senseless to count the profit in pips as it says nothing about your actual profit!
NOTICE: THERE IS A BUG IN THIS POST SO OPEN THE SNAPSHOTS AND CLICK ON IT AGAIN!
So let`s have a look at the first chart and see what we got here...
In this scenario you see two trades with exact the same risk-reward-ratio of 5:25. This means you risk 1$ for 5,25$ or can win 5, 25x more than you can lose.
We assume here that we risk 1% per trade.
Scenario 1️⃣: 👉You win EUR/USD and lose USD/JPY
EUR/USD:
Risk: 1%
Profit in pips: 68 pips
Profit in %: 5,25
USD/JPY:
Risk: 1%
Loss in pips: -5 pips
Loss in %: -1%
Result in pips: 68 pips - 5 pips = 63 pips profit
Result in %: 5,25% - 1% = 4,25%
Scenario 2️⃣: 👉You lose EUR/USD and win USD/JPY
Risk: 1%
Loss in pips: 13 pips
Loss in %: -1%
USD/JPY:
Risk: 1%
Win in pips: +25 pips
Profit in %: +5,25%
Result in pips: 25 pips - 13 pips = 12 pips profit
Result in %: 5,25% - 1% = 4,25%
The real profit on your account is 4,25%, no matter which trade you`ve won and how many pips you`ve made! The pip-difference is 51 pips, but you still have these 4,25%, no matter which trade you win!
Why is that? Now look at USD and at JPY-Pairs.
A pip in USD, or MAJOR-PAIRS is always the fourth figure behind the komma. 👉 1,248(0)0
A pip in JPY, or JPY-PAIRS is always the second figure behind the komma. 👉 107,6(8)5
Let`s calculate the pip-difference from Entry to target for both pairs:
1️⃣ EUR/USD:
Take-Profit - Entry
1,2547 - 1,2479 = 0,0068 = 68 pips
2️⃣USD/JPY:
Take-Profit - Entry
107,935 -107,685 = 0,25 = 25 pips
Also notice that if you lose both trades that a -5 PIP loss and a -13 PIP loss are both the same LOSS of 1 % if you stick to a consistent risk! IT DOESN`T MATTER!
Okay, let`s say you trade the same pair with the fourth figure behind the comma as a pip, but you trade with different risk-rewards but a huge move you catch!
In this case you trade with a different risk-reward as you need a wider stop-loss due to volatility and you want to advoid to get stopped out!
You use the same strategy to follow the trend, but now we had news that pumped EUR/USD like hell!
Scenario 1️⃣: 👉You lose the first EUR/USD trade and win the second EUR/USD trade
EUR/USD #1:
Risk: 1%
Loss in pips: -13 pips
Loss in %: -1%
EUR/USD #2:
Risk: 1%
Win in pips: +140 pips
Win in %: 4%
Result in pips: 140 pips -13 pips = 127 pips profit
Result in %: 4% - 1% = 3% profit on your account
Scenario 2️⃣: 👉You win the first EUR/USD trade and lose the second EUR/USD trade
EUR/USD #1:
Risk: 1%
Win in pips: +68 pips
Win in %: 5,25
EUR/USD #2:
Risk: 1%
Loss in pips: -37 pips
Loss in %: -1%
Result in pips: 68 pips - 37 pips = 31 pips profit
Result in %: 5,25% - 1% = 4,25% profit on your account
Even though you`d make 127 pips in scenario 1, the real profit would be 1,25% less on your account!
ERGO: More pips = Less profit
So let`s head into a very extreme example of HOW pips don`t tell you a s**t about your profits! ;-D
In this example we compare a GOLD-TRADE with our recent EUR/USD-TRADE.
I don`t want to spamm this post with too many calculations so I try to keep it simple here.
Important to notice is that the PIPS for GOLD are represented by the second figure behind the comma.
In this scenario we buy Gold at 1.800$, or 1800,0(0) <- Cents
A dollar change in Gold , for example 1800 to 1801, is called a POINT.
A dollar change in Gold would be 100 Cents, or 100 pips!
So let`s say you buy gold with a risk-reward of 2:1, means you risk 1$ for 2$ or can win 2x more than you can lose.
In this case you would make 20 POINTS as the price moves from 1.800$ to 1.820$. In pips you would make 2.000 friggin pips but only 2% profit compared to your 68 pips in EURO /USD with 5,25% profit.
One last example:
In this scenario you win the EUR/USD trade and LOSE the GOLD-TRADE:
EUR/USD #1:
Risk: 1%
Win in pips: +68 pips
Win in %: 5,25
XAU /USD:
Risk: 1%
Loss in pips: -700 pips
Loss in %: -1%
Result in pips: +68 pips - 700 pips = -632 pips profit
Result in %: 5,25% - 1% = 4,25% profit on your account
You would lose -632 pips but make a real profit of 4,25% on your account!
So when do PIPS really matter? If you would trade the same PAIR with the same RISK-REWARD over and over again as you would always win and lose the same amount in %.
If you`d trade the same EUR/USD trade, PIPS would actually make sense to be counted. But who trades that way? Almost noone!
What does that mean for your positionsize in LOT?
They always VARY! Use a position-size-calculator to get your right position-size.
But thats a topic for another post... :-)
IF YOU WANT TO SEE MORE EDUCATIONAL CONTENT PLEASE LEAVE A LIKE AND A COMMENT.. especially when this helps you! :-)
Peace and good trades
Irasor
Wanna see more? Don`t forget to follow me
ever since I`m in this business I see posts about "Profit in pips" and how important allegedly pips are.
I can tell you... this is non-sense unless you trade the same PAIR with exact the SAME Risk-Reward over and over again!
In this post, I want to clarify and show you that it is absolutley senseless to count the profit in pips as it says nothing about your actual profit!
NOTICE: THERE IS A BUG IN THIS POST SO OPEN THE SNAPSHOTS AND CLICK ON IT AGAIN!
So let`s have a look at the first chart and see what we got here...
In this scenario you see two trades with exact the same risk-reward-ratio of 5:25. This means you risk 1$ for 5,25$ or can win 5, 25x more than you can lose.
We assume here that we risk 1% per trade.
Scenario 1️⃣: 👉You win EUR/USD and lose USD/JPY
EUR/USD:
Risk: 1%
Profit in pips: 68 pips
Profit in %: 5,25
USD/JPY:
Risk: 1%
Loss in pips: -5 pips
Loss in %: -1%
Result in pips: 68 pips - 5 pips = 63 pips profit
Result in %: 5,25% - 1% = 4,25%
Scenario 2️⃣: 👉You lose EUR/USD and win USD/JPY
Risk: 1%
Loss in pips: 13 pips
Loss in %: -1%
USD/JPY:
Risk: 1%
Win in pips: +25 pips
Profit in %: +5,25%
Result in pips: 25 pips - 13 pips = 12 pips profit
Result in %: 5,25% - 1% = 4,25%
The real profit on your account is 4,25%, no matter which trade you`ve won and how many pips you`ve made! The pip-difference is 51 pips, but you still have these 4,25%, no matter which trade you win!
Why is that? Now look at USD and at JPY-Pairs.
A pip in USD, or MAJOR-PAIRS is always the fourth figure behind the komma. 👉 1,248(0)0
A pip in JPY, or JPY-PAIRS is always the second figure behind the komma. 👉 107,6(8)5
Let`s calculate the pip-difference from Entry to target for both pairs:
1️⃣ EUR/USD:
Take-Profit - Entry
1,2547 - 1,2479 = 0,0068 = 68 pips
2️⃣USD/JPY:
Take-Profit - Entry
107,935 -107,685 = 0,25 = 25 pips
Also notice that if you lose both trades that a -5 PIP loss and a -13 PIP loss are both the same LOSS of 1 % if you stick to a consistent risk! IT DOESN`T MATTER!
Okay, let`s say you trade the same pair with the fourth figure behind the comma as a pip, but you trade with different risk-rewards but a huge move you catch!
In this case you trade with a different risk-reward as you need a wider stop-loss due to volatility and you want to advoid to get stopped out!
You use the same strategy to follow the trend, but now we had news that pumped EUR/USD like hell!
Scenario 1️⃣: 👉You lose the first EUR/USD trade and win the second EUR/USD trade
EUR/USD #1:
Risk: 1%
Loss in pips: -13 pips
Loss in %: -1%
EUR/USD #2:
Risk: 1%
Win in pips: +140 pips
Win in %: 4%
Result in pips: 140 pips -13 pips = 127 pips profit
Result in %: 4% - 1% = 3% profit on your account
Scenario 2️⃣: 👉You win the first EUR/USD trade and lose the second EUR/USD trade
EUR/USD #1:
Risk: 1%
Win in pips: +68 pips
Win in %: 5,25
EUR/USD #2:
Risk: 1%
Loss in pips: -37 pips
Loss in %: -1%
Result in pips: 68 pips - 37 pips = 31 pips profit
Result in %: 5,25% - 1% = 4,25% profit on your account
Even though you`d make 127 pips in scenario 1, the real profit would be 1,25% less on your account!
ERGO: More pips = Less profit
So let`s head into a very extreme example of HOW pips don`t tell you a s**t about your profits! ;-D
In this example we compare a GOLD-TRADE with our recent EUR/USD-TRADE.
I don`t want to spamm this post with too many calculations so I try to keep it simple here.
Important to notice is that the PIPS for GOLD are represented by the second figure behind the comma.
In this scenario we buy Gold at 1.800$, or 1800,0(0) <- Cents
A dollar change in Gold , for example 1800 to 1801, is called a POINT.
A dollar change in Gold would be 100 Cents, or 100 pips!
So let`s say you buy gold with a risk-reward of 2:1, means you risk 1$ for 2$ or can win 2x more than you can lose.
In this case you would make 20 POINTS as the price moves from 1.800$ to 1.820$. In pips you would make 2.000 friggin pips but only 2% profit compared to your 68 pips in EURO /USD with 5,25% profit.
One last example:
In this scenario you win the EUR/USD trade and LOSE the GOLD-TRADE:
EUR/USD #1:
Risk: 1%
Win in pips: +68 pips
Win in %: 5,25
XAU /USD:
Risk: 1%
Loss in pips: -700 pips
Loss in %: -1%
Result in pips: +68 pips - 700 pips = -632 pips profit
Result in %: 5,25% - 1% = 4,25% profit on your account
You would lose -632 pips but make a real profit of 4,25% on your account!
So when do PIPS really matter? If you would trade the same PAIR with the same RISK-REWARD over and over again as you would always win and lose the same amount in %.
If you`d trade the same EUR/USD trade, PIPS would actually make sense to be counted. But who trades that way? Almost noone!
What does that mean for your positionsize in LOT?
They always VARY! Use a position-size-calculator to get your right position-size.
But thats a topic for another post... :-)
IF YOU WANT TO SEE MORE EDUCATIONAL CONTENT PLEASE LEAVE A LIKE AND A COMMENT.. especially when this helps you! :-)
Peace and good trades
Irasor
Wanna see more? Don`t forget to follow me
Pleae ignore the wrong R-R in GOLD which is indicated by my mark-up. Important is the calculation - Can`t switch the snapshot anymore. :-)