Costs arise on every trade, whether it wins or loses. The smaller the before costs, the larger the part the costs eat up. A rule with many short trades and small moves can look good before costs and lose after costs. That is why all our tests calculate after costs.
Do the math
Avg. trade +0.50% before costs, costs 0.20% per side: after buying and selling, about +0.10% remains. Four fifths of the result go to costs. At +2.00% before costs, about +1.6% remains – there the same amount only costs one fifth.
Costs in the statistics
Costs not only lower the avg. trade, but also the : a trade with +0.1% before costs becomes a loss after costs. Short-term rules are especially sensitive to this, because their gains per trade are small.
How the exercise calculates
The calculator starts with the costs of our tests for stocks (0.15% per side) and reinvests the whole capital trade by trade. Here every trade has the same result, so that the effect of costs becomes visible. Real results vary from trade to trade.