How do you assess if a spread is (relatively) large or small?
Assess the Spread by comparing it to its own average. You can process the tick data in real-time and maintain a moving average on the spread.
I personally use an EMA because it is much easier and quicker to calculate than an SMA. I keep track of both the EMA and its Variance, and use that to decide when to stay out of the market if the current spread is too high.
You can also have an input parameter on your EA specifying the maximum allowable spread for trades.
I think you should consider the time frame where you are trading... If you are in lower time frames where your TP or SL is close then you become more concerned about spread. My suggestion is taking SL/TP into account when it comes to assesing spread. Just check what percentage of your Reward/Risk Ratio is going to be lost due to spread. If it is too much then ignore that trade.
You are absolutely right. The smaller the timeframe the more you have to take the spread into account. Especially because of the trading costs on lower timeframes.
Assess the Spread by comparing it to its own average.
You can process the tick data in real-time and maintain a moving average on it.
I personally use an EMA because it is much easier and quicker to calculate than an SMA. I keep track of both the EMA and its Variance, and use that to decide when to stay out of the market if the current spread is too high.
You can also have an input parameter on your EA specifying the maximum allowable spread for trades.
There is a misunderstanding. I don't talk about special situations where the spread widens. I mean how do you measure a spread and decide if it is a large or small spread? Like I said 3-5 points on EURCHF isa very high spread compared to the ATR and 3-5 points in GBPJPY is a very small spread.
There is a misunderstanding. I don't talk about special situations where the spread widens. I mean how do you measure a spread and decide if it is a large or small spread? Like I said 3-5 points on EURCHF isa very high spread compared to the ATR and 3-5 points in GBPJPY is a very small spread.
It also depends on the volatility of the traded asset. You can calculate the daily spread average and divide it by the daily volatility average to see what percentage of daily volatility the average spread is. It is going to be miniscule but at least you get a number to compare.
The only reason I can see to compare the spread to the bar range is to calculate if the percentage cost of the spread compared to any potential gains of trading the volatility offered by a symbol.
Any subjective term about it being "small" are "large" are irrelevant too me. What matters to me is how much the spread will take away from my trade's gains and whether the volatility (bar range) is sufficient to make reasonable good profit even after losing out on the spread.
I also check that the usual price swings are sufficiently large to compensate for the spread, and at which minimum time frame this occurs.
I also compare the money value of the spread, for each symbol, to see which one offers a better advantage for trading it.
It also depends on the volatility of the traded asset. You can calculate the daily spread average and divide it by the daily volatility average to see what percentage of daily volatility the average spread is. It is going to be miniscule but at least you get a number to compare.
This is by far the best way to consider a spread "too high" or not.
Anyway, unless you are trading ticks and closing trades in few seconds, you can simply work with low spread brokers and ignore it.
Hello guys,
I am not sure how to assess if a spread is large or small. I tried to compare it with the average daily range and I also compared the spread to the value of the currency itself.
What makes most sense for you? It is not only the points because 3 points are not the same on EURCHF or GBPJPY. Therefore I can't just use the spread itself without a reference to compare to.
This might save you the trouble of doing the math...
GBPJPY generally has the best spread to volatility ratio. You can verify this by reading forex stats on any website that posts them.
I should note that my experience is in swing trading, and not scalping.
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Hello guys,
I am not sure how to assess if a spread is large or small. I tried to compare it with the average daily range and I also compared the spread to the value of the currency itself.
What makes most sense for you? It is not only the points because 3 points are not the same on EURCHF or GBPJPY. Therefore I can't just use the spread itself without a reference to compare to.