Hello D70
Thank you for your post
I look at what I consider to be the seven 'major' currencies pairs (thats is USD vs.: EUR, JPY, GBP, CAD, CHF, AUD, NZD) and all of the combinations thereof.
I also look at (but very rarely trade) SnP, DJ, FTSE, DAX, Gold, Silver & Oil
I can easily review all of these on a weekly basis and filter out those which I think are worth looking at more frequently on each day (and some times after the close of each 4 hourly candle bar if the price has reach a level, which I have marked and alarmed as a good area for a trade entry) to identify if a 'trigger' candle (usually I like to use 'hammer' and 'shooting star' or 'pin bar' candle bar formations as 'triggers' to set my trade orders as they provide clear entry and stop levels (which are vitally important, to know that I'll be out of a trade if the set up I have decided to use is proven to be invalid).
With reference to the spread, on my platform the spread is 6 pips, which I am comfortable with.
My strategy is to 'broadly' identify set up 'triggers' with 50 or less pips risk and a realistic potential reward of at least 100 pips
If we assume every trade set up provided either -50 or +100 and 50% win ratio, then I would have lost
500trades X -50pips
and won
500 trades X 100+pips
which would have cost me 500 X 6 pips 'spread'
500 X -50 = -25,000pips
500 X +100 = 50,000pips
'profit' = 25,000 pips
'cost' = 6,000 pips (spread of 6 pips for 1,000 trades)
'result' = 19,000 pips
cost = 24% of total won
24% of total profit is significant I agree, especially compared to other pairs, but
If some of the winning trades ran to more than R2, the 'cost' in percentage terms would be lower
If the win ratio was higher than 50%, the 'cost' would be lower
If my 'set up' shows up more frequently on pairs / indices / commodities that have lower spreads than my average 'cost' of trading, over a sample 1,000 trades would be lower
Finally, if I only traded this pair and made the example risk reward and win ratio used above I would be very happy, despite the 'large' spread:
If we assume a risk of 50pips @£1 per pip represents 2% of my starting capital, then the capital 'investment' is £2,500
A 19,000 pip return (ie after the 6 pips per trade 'cost) is £1 per pip £19k, or 760%
Clearly that s a phenomenal return, but there is no way my strategy would offer 1,000 trade opportunities in one year.
To make the numbers easier, if I took 2 trades a week for 50 weeks of the year (more realistic) I would have exactly 10% of the 1,000 trades scenario.
Assuming I only took the GBP AUD pair (or others with the 6 pips spread) then I would make a net (after spread) profit of £1,900 on my £2,500 capital (assuming no compounding during the course of the year, such as increasing £/pip each month to remain the 3% of capital risk), which is an annual return of 76%. I still find that phenomenal for an "after all costs and charges, before tax" return (and if you spread bet in the UK, there is no tax due!)
So, yes I agree with you that this pair have a large spread, but not prohibitively so, given my hypothetical example described here. Does that make sense?
