A lot of trading journals out there still measure Forex trading results in pips.

This short blog post will show you why tracking pips is the wrong way to measure trading performance and show you a much more effective way of tracking your results.

## Why Pips Don't Matter

The bottom line is that when you only measure trades in terms of pips, you leave out three very important pieces of information about your trades:

- Risk
- Volatility
- Net result

### Factoring in Risk

If your trading journal tells you that you made 100 pips on a trade, that's great.

But how much did you risk?

Maybe you risked 500 pips to make that 100 pips.

Do that too many times and you will probably lose your account.

When you measure your trading results in terms of P-Ratio, or “Percent of Stop,” you can see exactly how well your trade turned out, relative to amount you risked on the trade.

**P-Ratio is calculated by dividing the number of pips made (or lost) on a trade by the number of pips risked. **

You can also measure your potential profit on each trade, how much each trade goes against you, and much more, in P-Ratio. This way of measuring your results is much more useful and can lead to optimizations that we will talk about more in future blog posts.

### Factoring in Volatility

The EURUSD is a relatively low-volatility currency pair compared to other more volatile pairs like the GBPJPY.

So if you set a 25 pip stop loss in the EURUSD, you are less likely to get stopped out, compared to a 25 pip stop loss on a GBPJPY trade.

Therefore, you cannot optimize your entries and exits by using pips. A better way to optimize is to use P-Ratios.

Traders will usually set wider stops on more volatile pairs because price action will generally dictate a wider stop. So using P-Ratios will usually take into account the relative volatility of the currency pair.

Pips will not.

### Factoring in the Net Result

Take a look at these two trades:

- Loss of 50 pips for -$125
- Gain of 25 pips for +$250

If you add up the net profit, you get +$125. But if you only measure pips, then you will register a 25 pip loss.

What really matters here is the percent of the account you risked per trade and the dollar value per pip.

Neither of which are reflected in your results when you measure pips.

## When Pips May Help

Now, there is a case where measuring pips can help. So in all fairness, let's take a look at that case.

If you only trade one currency pair and one strategy, then measuring pips is OK.

You are comparing apples to apples.

But once you trade more than one currency pair with the same strategy, or you trade multiple strategies, then pips become irrelevant.

Even if you only trade one pair and one strategy, using P-Ratios can still give you a lot more insight into your trading performance than pips alone.

## Conclusion

To sum it up, I'll say it again…pips don't matter. The same goes for $ per share in stocks and ticks per contract in futures.

Start using real metrics like P-Ratio instead and you will start get data that you can actually use to improve your trading results.

Get this data inside RazorJournal.