A spread-to-range ratio is a better filter than a fixed spread limit

[Shadow Trader]

Plenty of scalpers set a rule like "no trade if spread is above 1 pip." Reasonable, but blunt. A 1 pip spread on a pair moving 40 pips an hour is a very different cost than a 1 pip spread on a pair moving 8.

A ratio handles that. Take the current spread and divide it by the average range of the last few minutes, or by the target size.

A few ways to apply it:

- Spread divided by target. Skip any trade where this exceeds 20 percent, for example.
- Spread divided by the average one-minute range. Skip when the market is too quiet to justify the cost.
- Spread divided by the average spread for that hour. A spike in this ratio signals unusual conditions.

The specific thresholds are less important than the idea. A filter based on cost relative to opportunity adapts as the market changes, while a fixed number doesn't.

It also handles the difference between pairs without needing separate rules for each.

What threshold has worked for filtering, and is it tied to target size or to recent range?