Module 12 Innerworth — Mind over markets

Chapter 209

The Consistent Trader

The winning trader is a consistent trader. A winning trader puts on trade after trade in a free-flowing, carefree manner. Profits pile on with each trade. Trading consistently means approaching each trade in a logical, well-prepared, and decisive manner. Striving for consistency should be the main objective, especially for novice traders.

Trading profitably is a matter of probabilities. If you trade a sound trading method with a strong track record, success is merely a matter of odds: If you make enough trades, the odds should work in your favour, and you’ll take home profits. It’s like rolling dice or flipping a coin. For example, if a coin is flipped over and over again under identical conditions, it will tend to come up heads 50% of the time. But the key to getting heads 50% of the time is to repeat the flip of the coin “under identical conditions.” When one views trading is analogous to flipping a coin, the theoretical probability of getting heads is the best-case scenario.

However, finding “identical conditions” when trading the markets is difficult. Market conditions are hardly ever “identical,” and the adept trader is always looking out for subtle changes. You can’t control the markets. You must take what the markets have to offer. Since you can’t count on the markets for consistency, you must search for it by looking inward. The first step in cultivating a consistent trading style is identifying sources of inconsistency. Remember the analogy of flipping a coin. You must flip the coin under identical conditions, time after time, to maximize profits.

So how can you trade consistently time after time? One way is to limit your risk in a consistent manner. For example, only risk about 2% of your trading capital on each trade. Novice traders have a tendency to get a little excited when they have hit upon a winning streak and increase the amount they risk-on trade to take advantage of the streak. This approach produces a jagged equity curve, however, and an emotional rollercoaster ride of extreme ups and downs. By keeping your risk constant, you can introduce consistency into your trading. 

Another source of inconsistency is the market conditions under which a trade is executed. Although top-notch traders have mastered a variety of market conditions, it’s wise for novice traders to stick with what they know, at least initially. Some traders, for example, know they are most profitable when trading in a bull market two hours after the open. This may not be a very challenging set of conditions in which to hone one’s skills, but trading under these ideal conditions builds confidence.

Your initial goal as a novice trader should be establishing consistency. Once this criterion is met, the novice can build skills in a variety of market conditions. By striving for consistency initially, you’ll build up the skills to trade profitably over the long haul. The profits will not only be monetary, but psychological as well.

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