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The Single Most Important Thing to Improve Your Day Trading
Most of us wannabe George Soroses like to toil under the illusion that we are “macro traders” who will hold positions for weeks or months in search of the billion dollar profit. But let’s face it 95% of us are day traders. Certainly most of you reading my column are day trading for 10 pips or less rather than position trading for a 1000 or more.
Ask yourself these three simple questions. Did you do at least three trades today? Is the average hold time for those trades a couple of hours or less? Do you check quotes on your smartphone at least a couple of times each hour?
If the answer to all three is yes then you my friend are a day trader and I have only thing to say to you.
Spread is the single greatest factor in whether you succeed or fail ( assuming of course you have some feel for the market).
Spread can be THE difference between winning and losing.
Recently I changed my account to raw spreads plus commission. Many of the BK tweeps who did not do that, emailed me to tell me that a broker with raw spreads plus commission is no different from a broker who just puts the full mark up into the spread. In other words if my raw spread on EUR/USD is 0.3 pips plus I get charged 0.8 pips commission for total of 1.1 pips -- that is no different than a broker who just offers a marked up spread of 1.1 pips. Mathematically the two brokers are the same but in reality there is a world of difference when it comes to results.
Allow me to illustrate.
Last week I started a LIVE TRADING ROOM where I trade my exclusive VT strategy on my own personal account live with a bunch of students from across the world. (Feel free to join me.)
In just the first day of business here is what happened. Friday morning I got caught in a bad GBP/USD trade that spiked against us. I had a stop at 1.5150 and the pair rallied right into the UK news and rose to 1.5149. Those traders who did not have raw spreads on their platforms got stopped out. I managed to survive the rally and then got lucky when the news turned out to be mildly pound negative allowing me to get out of my trade for essentially scratch.
A few hours later that day, after the US NFPs were released, I spotted a buy opportunity in EUR/AUD at 1.4400 and went bid the pair in hopes that price would come down to my level. On my raw spreads platform I got hit and the price then immediately rebounded and all of us made a quick 10 pip profit. ( We actually had a great opening day banking 40 pips in 12 hours on top of 80 pips we made the 24 hours prior).
However, some of the traders who traded on marked up spreads never got executed on their 1.4400 buy and therefore never made a dime on the trade. So in a period of less than 12 hours my raw spreads saved me 35 pips ( no -25 pips loss and +10 pip profit). Understand that I trade every day making 5-20 trades per day and average more than 1000 trades per year, so imagine how much of an edge I have when I trade on raw spreads.
I probably pick up an extra 1000 pips per year and all that profit has nothing to do with strategy, market environment or money management skills. It is something that all of you have the ability to enable.