Working / Raw / Effective Pips
Do you count how many pips you’ve made the right way?
In the Forex Smart Tools Trade Log, the pips made from a trade are calculated in numerous ways so you can accurately analyze your trading and not deceive yourself. The differentiation between “Working Pips“, “Raw Pips” and “Effective Pips” was born from our years of trading and teaching experience, watching people fool themselves into thinking they were making more pips than they really were, yet often wondering why they were not making money. With this new classification system of how you trade you can really begin to get a deep understanding of your trading systems.
The Trade Log is the premier tool for money management. When you analyze your trades you want to know if your money is working for you as efficiently as it can be. How you count pips makes a difference in whether or not this critical information is revealed to you or remains hidden.
These breakdowns are always shown on the Trade Input Tab and the Summary Tab. They can be shown or hidden on the Analysis Tab reports.
To see the difference between these methods of counting pips made, let’s take an example where a trade was placed and then closed out in 3 stages as various levels of profit were seen:
|Close out a third of your trade at||15 pips|
|Close out another third of your trade at||30 pips|
|Close out the rest of your trade at||45 pips|
|RAW PIPS:||90 pips|
|MAX PIPS:||45 pips|
|WORKING PIPS:||30 pips|
Raw pips count each leg of the trade as though it were a full trade. Raw pips gives a sum or totals of all the individual gains or losses. It’s great for bragging rights, but not very effective to analyze money management. If you had put one lot on the trade, did you get the profit of having closed out that lot at 90 pips? No.
Max pips looks at the furthest extent of any leg and counts that as the result of the trade. Whichever leg went the most in your favor or into loss is the result in this style of counting pips – the maximum – regardless of position size. This is an interesting statistic, but again, not supremely helpful for money management. If you had put one lot on the trade, did you get the profit of having closed out that lot at 45 pips? No.
Working pips gives you a way to have a true measurement of the pips made for the trade regardless of the trade management or scaling in or out. It most directly corresponds with your total investment , your overall position size. If you had put one lot on the trade, did you get the profit of having closed out that lot at 30 pips? Yes. Your profit would match exactly. Working pips tells you exactly how much WORK you got out of your investment. It gives you a standard technique of measurement across all styles of trading.
|first third||15 x 0.33||5 pips|
|second third||30 x 0.33||10 pips|
|last third||45 x 0.33||15 pips|
Effective pips are calculated on multi-leg trades in which one leg is entered 2 or more minutes before other legs are entered. It is not displayed if your trades are not of this style. It’s useful for trading styles using:
- stop and reverse
- closed leg cost average
- feathering in (open leg cost average)
For more information, please watch this excerpt from one of our webinars.
How working pips are calculated
Working pips are calculated as:
Net profit or loss ÷ (total lots used in the trade * pip value)
Working pips gives you a way to have a true measurement of the
pips made for the trade regardless of the trade management or scaling
in or out. This lets you view the actual profitability of a trade
relative to pips movement.
Pip values in the Trade Log are calculated by taking the gross value you enter and dividing it by the number of lots.
Not all trades will show Effective Pips
Effective pips are calculated on multi-leg trades in which one leg is entered 2 or more minutes before other legs are entered. They’ll appear on the trade input page when you save and return from the Allocation Breakdown page.
The Effective pips field only appears (on the Summary, Analysis and Trade input tabs) if you have at least one trade with one or more legs. If none of your trades have ever been entered using Allocation Breakdown, you don’t see Effective Pips mentioned at all.
Effective Pips give you a way to measure how effective your initial position was, when all was said and done, after the trade was closed. It’s a term and concept that we (Forex Smart Tools) created, because we saw that it showed us a quality of our trades that nothing else could quite pinpoint as well.
If you use spread betting you will only see raw and max pips. The Trade Log does not have the math in place for calculating either working pips or effective pips for traders using spread betting.