Spread vs Range

Z

Zr1Trader

How much are you willing to give up on a percentage basis ...spread cost vs range?

Just for this scenario we will assume 1:1 RR

Lets say you are trading EUR/USD with a spread of 1 pip and no added comish .
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If you target 10 pips then 10% of your profit went to spread.

Aim for 20 pips and 5% went to spread cost

Aim for 30 pips and 3.3% went to spread cost

Aim for 40 pips and 2.5% went to spread cost

Aim for 50 pips and 2% went to spread cost

Aim for 60 pips and 1.6% went to spread cost

Aim for 70 pips and 1.4% went to spread cost

Aim for 80 pips and 1.25% went to spread cost

Aim for 90 pips and 1.1% went to spread cost

Aim for 100 pips and 1% went to spread cost.
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Interested in others goals of where they like to keep their execution costs on a percentage basis in forex?
 
I factor the spread into my 'risk' side of the R:R ratio.

Using your numbers (1:1 RR and 10 pip target, and 1 pip total cost): If I was aiming for 10 pips, then my stop would be set to 9 pips so my total risk was 10.
 
Quote from Jack_Larkin:

I factor the spread into my 'risk' side of the R:R ratio.

Using your numbers (1:1 RR and 10 pip target, and 1 pip total cost): If I was aiming for 10 pips, then my stop would be set to 9 pips so my total risk was 10.
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So if you were aiming for 10 pips and your target got hit, 10% of your profit goes to the house (spread)

If your stop gets hit (9pips) then 11% of your loss goes to house (spread)

Correct?

I also calculate spread into my initial risk per trade.... but what percentage of each trade are you willing to give up in execution cost to the house?

I would guess the majority of people don't even figure in execution costs as a percentage of each trade. I would think people would try to keep it under 2.5% or something like that.
For eur/usd that would mean with a 1 pip spread you'd have to aim for 40 pips on avg. to keep your execution cost at 2.5% or below.

Thing is in pairs like usd/cad with larger spreads you'd obviously have to aim for more pips to keep those costs down. Other folks have a "execution cost" figure you like to keep within?
 
I’d look at this in terms of average trade, by which I mean...
"avg trade" = {what you win (before costs) x probability of winning} - {what you lose (before costs) x probability of losing}

[or
= {what you win (before costs) x # winners/all trades} - {what you lose (before costs) x # losers/all trades}]

And then I’d compare the above "avg trade" with expected (and realistic!) per trade transaction costs (commission - rebates + slippage) .
Then I’d assess whether there was enough of a realistic expected profit margin to make it all “worth it”…


= = = = = = = = =
Of course, the above assumes that you can model the system mechanically, and so test it against historic data.
 
What does this have to do with the market? Does the market know and respect your criteria? Have you also done a complete MAE or MFE study to arrive at your criteria?

Do not misunderstand me, I am not a fan of backtesting...but the market you are trading and how it moves could render a sensible strategy such as yours... meaningless.

Typically I have discovered that Retail Spot Forex Traders tolerate higher drawdowns. Even the professionals. I have observed that the industry norm of 15% is 30% in Retail Spot Forex.

ES

P.S. This is a good thread. I have been experimenting with Chandelier Stops and discovered that when I loosened them up I could stay in the trend longer.

Quote from Jack_Larkin:

I factor the spread into my 'risk' side of the R:R ratio.

Using your numbers (1:1 RR and 10 pip target, and 1 pip total cost): If I was aiming for 10 pips, then my stop would be set to 9 pips so my total risk was 10.
More...
 
Quote from Zr1Trader:

How much are you willing to give up on a percentage basis ...spread cost vs range?

Just for this scenario we will assume 1:1 RR

Lets say you are trading EUR/USD with a spread of 1 pip and no added comish .
-----------------------------------------------------------------

If you target 10 pips then 10% of your profit went to spread.

Aim for 20 pips and 5% went to spread cost

Aim for 30 pips and 3.3% went to spread cost

Aim for 40 pips and 2.5% went to spread cost

Aim for 50 pips and 2% went to spread cost

Aim for 60 pips and 1.6% went to spread cost

Aim for 70 pips and 1.4% went to spread cost

Aim for 80 pips and 1.25% went to spread cost

Aim for 90 pips and 1.1% went to spread cost

Aim for 100 pips and 1% went to spread cost.
----------------------------------------------------------------



Interested in others goals of where they like to keep their execution costs on a percentage basis in forex?
More...
for me it depends on size and trading style. anything under 80 pips one way or the other is just noise, but if I was moving big size ...

I also pay commissions

and interest
 
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