forex-scalping.com

The comparison trap with another trader's pips

Someone posts that they made 80 pips today scalping EURUSD. Impressive, until the details are asked.

Eighty pips on what size? With what spread? After commission? Was it over two hundred trades or ten?

Pips are not profit. They ignore size, costs, and risk. A trader making 80 pips with a tiny size and a massive drawdown is not doing better than one making 20 pips with proper structure.

On forums, pips are an easy unit to boast with, since they look universal. The better metrics are return on risk, expectancy, and drawdown relative to profit.

Asking for these figures is not rude. It is the only way to compare.

One more detail: screenshots of pip totals rarely include the account's drawdown. A day of plus 80 pips with a floating loss of minus 150 along the way is a different story from a clean climb. Asking about the worst point reached during the day is a polite and revealing question that serious traders answer without fuss.

What metrics make a claimed result meaningful enough to take seriously?

Comparing pip totals with another trader can be misleading in several ways. Pips do not account for position size, so a trader making fifty pips on small size may earn less than one making ten pips on larger size. They do not account for risk, since a trader using wide stops may make more pips but with much larger drawdowns. They also differ between pairs, since a pip on USD/JPY is worth a different amount from a pip on EUR/USD. And they hide costs, since some traders report gross pips before spread and commission. Without all that context, pip comparisons say very little about relative performance.

I got caught by this on the other side of the table. A few years ago I posted a good week of about 110 pips on a forum and a more experienced trader asked me for my average lot size and my worst floating drawdown during the week. I hadn't looked, and when I did, the drawdown was nearly 190 pips in the middle of Wednesday, taken on a position I should have closed. The headline number hid a week I wouldn't have wanted to repeat.

Since then I report results in R, with the risk of each trade as one unit, and I always include the worst point reached. A week of plus four R with a worst drawdown of minus five R tells someone far more than eighty pips can.

When I read other people's claims now, the first thing I check is whether the number is net of costs. A pip total quoted before spread and commission on a scalping system can be off by 30 percent or more, so I'll ask that before anything else.