The Cost of Being Comfortable

The Cost of Being Comfortable

August 2, 2017

For a long time, I’ve been obsessed with achieving immediate success.

I’ve always chafed at coaches/gurus who say that you need months or years of suffering before their genius instructions pay off.

I think people should be successful as soon as possible and then continue to be successful as often as possible.

However, one thing I discovered is that playing just for the immediate future is not nearly as potent as playing for the long haul.

That doesn’t mean losing in the short-term. Not at all.

That means learning fundamentals that will last for many years, instead of many minutes.

Here’s an example. You can hold a tennis racquet with an unorthodox grip and use good fundamentals to make that grip successful today. The problems arise when playing against elite hitters because some grips won’t work against top players. Elite players hit hard, and odd grips won’t work against pace.

In that case, it would be better to learn how to hit a slightly uncomfortable grip today (knowing it will pay off huge in the future) rather than sacrificing the future just to stay comfortable in the very short term.

In both cases, the student should see some success. But by using fundamentals good for the long-term (even if they feel a bit uncomfortable right now), you get a much bigger payout over time.

I’ve found that to be true in trading also.

Let’s take a look at a daytrading system to see what I mean.

Personally, I would love to always have a high win percentage (and I wrote recently about that here). I’ve said many times that a high win percentage makes checking the charts so much fun. No one wants to suffer through a loser. But what are we really giving up if we go for the short-term results? What kind of money are we talking about?

Using our old friend, the Hornet robot, we definitely see comfortable results if we shrink the profit target. Obviously, when the profit target is easy to reach, the winning comes more often–and that makes it very comfortable, indeed!

By dropping the profit target down as low as possible (note: anything under 5 pips is too small, according to my research), we get a good payoff. The win percentage skyrockets to 89.4% and we get a ton of long winning streaks–the longest being 136 in a row! That is soothing and easy to live with. That makes me want to trade this way immediately and forever.

But if I am patient and can handle just a little more losing in the short-term, what do I get?

I get more money.

Here are the numbers.

The high win percentage robot makes $60,400 (using 2 full lots since 2003). Not bad. A decent amount of money, a ton of winning, and only a $3,000 max drawdown.

But the more patient robot (with a lower win percentage and a much bigger profit target) makes $97,000 over the same period and has a smaller drawdown at $2,900.

In the first case, we win right away and win a lot. In the second case, we win right away (just not as much) but are much more fundamentally sound over the long-term (more money).

It’s hard to look at losers. It’s easy to want to be comfortable winning a trade today. And I never advocate punishing ourselves with failure after failure in hopes it will pay off someday.

But if we are patient and can take a little more losing in the short term, we can do a lot better over the long haul.