Ed Mamula.com

Retail FX traders have an odd habit of reporting how many PIPS they have gained or lost.  A pip is a “Price Interest Point”.  It is the smallest possible fluctuation in any trading instrument.  So if GBP/USD is bid at 1.9280 and offered at 1.9284, we say that the spread between the bid and the ask is 4 pips.  In this case, a pip is 1/100th of a cent.

Seeing as how the FX market offers all traders fantastic opportunity to get creative with their position sizing via a smart use of leverage, I have a hard time understanding why anyone would quote their profit and loss in terms of pips.  If I invest in a stock, it would be common for me to tell you that I made 10%, not that stock XYZ went up by 326 cents.  To quote profit and loss in terms of pips is to completely ignore the least sexy, but of course, most important part of any successful trading strategy, and that is the position sizing algorithm.  It may be convenient to quote an individual trade’s profit or loss in terms of pips, but over a series of trades, the percentage return will tell the only story that is relevant for the trader;  the MARKET may have moved a certain number of pips, but my ACCOUNT‘s return depends heavily on how I vary my position size relative to my account size, market volatility, etc.  While it IS fun to speak in pips to describe price action, it’s more fun to talk about how that price action affected the account.

Part 2 is here

I was browsing the web tonight looking for other Forex blogs, and I found http://www.forexproject.com/ ; Trader Rich has been blogging since 2005 and is posting his real results with Forex trading.  His site is open, honest, and refreshing.  The truth is that this trading thing takes a hell of a lot longer to master than you might expect.  I was trading forex for 12 months with absolutely horrible results, and I nearly threw in the towel.  There was something about almost quitting that changed my perspective on the situation, and somehow, if only indirectly, allowed me to stumble upon the successful system that I call the Cable Glider…a system which has re-couped my initial losses and then some, all within the last 4 months.

No, I’m not saying that 12 months or 16 months or any set period of time is “enough” to become a success.  The point I’m trying to make is that there is a high level of commitment and perseverance required in order to develop and implement a trading system that works for you.  Successful traders pay a tuition in the form of losses early in their career.  If they are properly evolving as traders, they can reach the proverbial light at the end of the tunnel, and step into a world of consistent trading success. The key is to stay in touch with one’s “evolution”.

If we make the same dumb mistakes year in and year out, we are destined to perpetual failure.  The next time you tell someone that you have 10 years experience doing one task or another, stop and think about whether or not you learned anything new in years 2 through 10.  If the answer is no, and you are still failing, quit the game, and save yourself some wasted time, money, and energy.  If, however, you are committed to the path of personal growth and continual evolution in trading attitudes and methods, AND your evolution is validated by decreasing losses and hopefully increasing profits, then never lose faith that you are on the proper path to your goal.