Add Spread on Buy Order

In the trading market quotes are include a bid and ask. The bid is the price to sale the base currency by the client for exchange of counter currency and ask is the price the client can buy the base currency in exchange of the counter currency. The difference between the bid price and the ask price is called spread.

The spread is always a hard thing to grasp. MT4 by default setting always shows the bid price and charts the bid price, so everything is bid (on the MT4 chart properties, there is a check box that says Show Ask Line. So you can see BOTH the bid and ask lines if you want, and they both move with with market). Ask is spread pips higher (2 or 3 pips are common for GBP/USD depending on your brokers). As you know, you sell at the bid and buy at the ask, and that is how the brokers get their cut. If you bought and sold immediately with no market movement, (or, sold and bought), you would sell at bid (312, say),and buy at 315 so for a net market movement of zero, you got -3 pips on the trade, the spread.

We always want to NET 20pips TP or NET 30pips SL. So, really, we are MAKING 23pips, or LOSING 27pips. In other words, we are including our spread in our NET calcs, so that WE end up with 30/20.

As soon as we enter a position, we are down 3 pips. For a Sell, we enter when the BID hits 21p below pivot. (sell at bid, remember), and we are 3 pips down, so we really can only take a -27 movement. and, the chart shows bid, so we can just watch the chart when the line (bid) gets down to. In our example here, 312-30, or 282, we hit our stop and buy but we are REALLY buying at 285 Askprice, which is only -27pips chart-wise, but a NET -30 because of spread.

For buying we sort of have to think backwards, because the chart shows Bid. So, we sold when the chart line (bid) hit our level, and we want to buy with the chartline (bid) hits our buy level, here, say 312. But if we just bought at 312, we actually are telling MT4 to buy at ASK of 312. When the Ask is at 312, our CHART shows 309 (bid, remember?), so, by the chart, it looks like an early entry. Even though we said buy at 312, so to make it right, we ADD spread to our buy level, and enter the StopEntry order at 312+3, or 315. Now, when the CHART gets up to 312, (it show bid), our ASK is really now 315, which is our entry point, and we take the buy. The above discussion goes from here to figure when to get our TP or SL, we have to account for spread because we want a NET 30 or 20. we have to MAKE 23 pips in order for us to MAKE 20pips, or in other words, our broker gets 20% of our profit.

The trading can still “work” if you don’t add spread to the Buy orders, but it is not the same system. In essence, you are then entering at 17p above PP, or 21p below, and that is not D20p. But it might work. would have to backtest, forward test etc, you would get some buy entries that D20P would not get, but you would get wins/losses that D20P would not get as well.

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