Trading = Losing

Oct. 21, 2020

Last week, we started an Experiment.

I’m going to publicly trade a small account and try to see how much money it can make.

Or fail and face the mockery of the internet traders everywhere.

So, how did it do last week?

I didn’t do much.

It only took one trade (and it’s down in that trade).

Well, there’s failure right there. Only one trade the whole week? You have to trade all the time if you want to make money.

Right?

No. Not right.

But it’s almost always the first question I get about my trading systems.

How often does it trade?

And that might be the least important thing to worry about. In fact, it might the one thing that ruins a system more than anything else.

Think about the systems that have stood the test of time.

Warren Buffett buying-and-holding. Dunn Capital trend following on Daily and Weekly charts for 40 years. The Turtles.

All of these systems hardly ever trade. At most, they trade an instrument a few times a month.

Trading too much is death to most trading systems. Those types of systems are eaten alive by trading costs, bad execution, and by degradation.

Sure, we’d like a good sample size.

But the worst systems I’ve tested over the years have been on 5-minute charts (or smaller). Why are those the worst? They trade too often and, thus, have to trade on flimsy signals.

A 5-minute system creates a lot of opportunities. But we don’t need or want a lot of “opportunities”. We want winning trades.

As a general rule, the less a system trades, the better the signal.

Yes, we don’t necessarily want a system that trades once a year.

But we really don’t want a system that trades 6,000 times a year.

And here’s one more thing.

I track a lot of systems. There are maybe 100 different systems that I’ve tested many months and years ago running in the background on my various platforms. From time to time, I’ll check in those systems.

Know what I’ve found?

The ones on the 5-minute charts go astray. Not all of them, but many of them.

And the ones on the Daily charts tend to keep cranking along just fine.

Getting back to my Experiment, the robots in this account don’t trade a lot. They trade maybe 6-7 times a month. A trading month has about 20 days in it, so we’re talking about one trade every third day.

I’ve found that to be a great sweet spot. Trading more than that usually leads to less money and less predictability and trading less than that usually leads to less profit and more drawdown.

But if I had to choose between trading often and trading occasionally, I’d pick occasionally every time.

So, if you’re not happy with your system. Try slowing it down (taking less trades).

That’s what I’ve done with the Experiment. I’ve put systems to work that look for solid signals and then stay in those trades.

Will it work? Time will tell.

In our next newsletter, we’ll talk about a new system that doesn’t trade very much. And we’ll see if it’s worth any consideration.

Talk soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.