forex-scalping.com

Many scalping ideas look profitable on a chart and break even or lose after costs. The common reasons are structural, not bad luck.

Why strategies fail after costs:

• Average winner is small compared with spread plus commission.
• High trade frequency multiplies a small cost into a large one.
• Stops slip in fast moves, so losers are larger than planned.
• Entries at market during momentum pay the widest spread.

Characteristics of strategies that do survive:

• Average winner at least four to five times the total cost per trade.
• Fewer trades, focused on the best hours.
• Limit entries where the setup allows.
• Exits that avoid paying spread twice in quick succession.

A useful exercise: recompute your last 100 trades with costs doubled. If the result turns negative, the strategy is very sensitive to execution and needs a better cost structure or larger targets.

Has adding realistic costs changed your view of a strategy?

I find it clearer to express costs as a fraction of the stop rather than of the winner. With a 1.0 pip spread and 7 dollars round turn commission per lot, or 0.7 pips on EURUSD, every trade costs about 1.7 pips before slippage.

On a 6 pip stop that is 0.28R gone on every trade, win or lose. A system winning 55 percent at 1R makes 0.10R per trade before costs and loses about 0.18R after them.

The doubled cost test is a good stress, though I apply it unevenly. Limit entries get no extra slippage, while stops and market exits get an extra 0.5 pip, because that is where my real fills differ from the backtest.

Scaling out is a cost people tend to miss. Some accounts carry a minimum charge per fill, so on small lots closing half at 1R and the rest later can cost more than it earns.

Moving from 6 to 10 pip stops with targets scaled to match brought my cost down to about 0.17R. Fewer setups qualified, which was the point.

Has anyone measured how much of their edge disappears in the first ten minutes of London? My guess is the spread alone eats most of it.