Podcast:

Do you measure your Forex success in Pips or Percentages?

In this video:

00:30 – Money management and Risk

00:50 – How important are Pips?

01:30 – Percentages are the same regardless of your account size

02:15 – The problem with counting success in Pips

03:20 – All trades should have equal risk

03:52 – Download my Forex Calculator and use it – It’s Free!

04:30 – I’ve taught people from all over the World how to trade Forex

05:20 – A +2.3% account gain this week

05:50 – Help eliminate emotions and stop blowing your account

How do you measure your success as a Forex trader? Do you look at the number of Pips you make, or do you look at the percentage return on your account you make? Let's talk about that and more right now.

Hi traders, it's Andrew Mitchem here, The Forex Trading Coach. Today is Friday the 12th of February. I want to talk about a really topical subject.

Money management and Risk

I've had quite a lot of emails this week from people asking about money management and risk. I've also had quite a few emails from people saying, "Andrew, look, you know, I've made my account go from $1000 to $5000 and then I've blown it all in one day. I get that type of email quite often. What it shows me is that there are so many people out there who don't understand correct money management.

How important are Pips?

Unfortunately, when you look around online the vast majority of people tell you to measure your success of any strategy or years as a trader in terms of the number of Pips you make. I personally believe that that is not correct. I'll give you some examples of why. Just to quickly read out an email here that someone sent to me. "Hey, Andrew, can you tell me why I express my success in percentages and why I think that's better than Pips?" This person says, "Percentages depend on the account and, actually, say nothing about your success whereas Pips show you what's going on right now. That's from Jera Flow.

Percentages are the same regardless of your account size

I'm not sure that it's quite right, because for me a percentage is a percentage. It doesn't matter, regardless of your account size. As an example, this week right now I'm up 2.3% on my account right now. If I had a $10,000 account that means I've made $230 this week. If I had a $100,000 account it means I've made $2300 this week.

It's still the same amount. It's the same amount risked. It's the same amount in terms of percentage gain made. The only thing that makes the difference between actual monetary value is the size of the account, but I'm still risking the same amount on each of the two accounts, and I'm still making the same amount on each of the two accounts. To me that's a far better way of being profitable than by looking at the number of Pips you make.

The problem with counting success in Pips

The problem is, let's say you took many trades on shorter time-frame charts, say like one-hour charts, 15-minute charts, and you made lots of small profitable trades, let's say. You made 10 Pips, and 15, and 20, and 30, etc., those sort of smaller amount of Pips. The thing is then you go and take a trade on say a daily chart and it loses 100 Pips, so that one trade that goes wrong completely outdoes and takes away from all those gains that you've made on all those shorter time-frame charts on lots of really good successful trades. You may have 80-90% win rate within your trading in terms of your profitable trades, but that way of trading in terms of looking at the number of Pips you've actually gone backwards and lost money.

Whereas, if I had an equal risk on each one of those trades, regardless of it's profit target and regardless of its time-frame chart, for instance,