Announcement 22nd June 2010:

Calculating the pips made during the trading day may seem straight forward, but the reality is different. A trader who makes 5 pips on a million dollar position ($100 a pip risk) has a very different risk profile to the trader who makes 10 pips on a $100k position($10 a pip risk). Seemingly the trader who made 10 pips is better off than the person who made 5 pips.

At WhichWayToday we trade a model portfolio. The portfolio started on the 16th January 2010 with £25k in the pot. We decided that we wanted to trade our positions with a risk of 1.5% per trade. We also decided that on our swing positions we would have a stop loss of 120 points. Our intra-day positions would also be traded with a 1.5% risk, but the stop loss would be 50 points.

The reason we have done this is so our clients can see how much monetary risk the portfolio is subjected to during the month, and it enable us to track our performance. However, it also presents a problem. When we trade a Forex position, say Euro $, we will risk 1.5% of the portfolio with a 120 point stop. If the portfolio is £25k, it means we are risking £3.125 per pip (£25k*1.5%/120 = £3.125). If we make 30 points on a Euro $ position we will have made £93.75.

However, if we take a position intra-day in for example the FTSE 100, the risk is still 1.5% but the stop-loss is 50 points. Hence the stake size per point is £7.50(£25k*1.5%/50 = £7.50). If we make 15 points on a FTSE trade, it may seem we have made much less than we did when we made 30 points on the Euro $ trade. The reality is that the Euro $ trade made £93.75 and the FTSE trade made £112.50. So although we made half the points on the FTSE than we did on the Euro $, we made more money on the FTSE trade.

This has confused many subscribers and potential subscribers. Therefore we are publishing our "point count" as if they were swing trades. Hence if take the example of the FTSE trade above, it made 15 pips on the actual trade, but converting it into swing trading format, it made 36 pips.

Why are we doing this? First of all we want to have a uniform measure which enable us to chart our progress through the weeks and months. Secondly we don't wish to undersell ourselves. We have exceptionally low drawdowns during the trading month (the highest drawdown from peak to through has been less than 5%). We believe that in terms of risk to reward, we are amongst the best in the world. We may not swing for 100% years, but we believe in steady growth of our capital. As of the middle of June 2010 we are up almost 20% in 6 months. We trade ourselves and trade significantly bigger stakes than the ones described in the model portfolio. The model portfolio is for your benefit. It allows you to see what we are doing in the room.