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Learning a consistent way of generating profit w/ low risk.

  #3 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

The platform question has been asked and various opinions regarding those sorts of questions are readily available. Regarding consistency, I'm not sure that I have the answer but I will point out a few things:

* High frequency trading firms have the highest consistency. They tend to have very short holding periods and try to profit primarily by facilitating trade versus attempting to predict it. Most trading firms are actually facilitators.

* A trade is generally considered better if it has a higher profit factor or a higher average profit per trade. There tends to be an inverse relationship between profit factor and net profit for trading systems meaning that if one is willing to take more marginal trades then the net profit can increase even as the quality of trade decreases. More over, increasing the number of trades will decrease the risk for a given level of return because you can risk less per trade. The limiting factor is your trading cost. As your profit per trade decreases, the certainty that you can profit anything decreases as well.

* Think about the inverse relationship described above. Next, realize statistically that there must be fewer great times to buy or sell then there are average times in any time frame or sample set. Great opportunities are by nature limited opportunities.

* Reward is very much a symmetrical function of risk taken in markets. If you want a low risk trading method, you can simply decrease the reward. For example, a system that returns 50% with 50% DD could just as well return 12% with a 12% DD with either a smaller position size or a larger account.

* It is thought that markets or strategies may profit from various random factors. Diversification among the factor components is thought to smooth out returns. This would suggest that developing a variety of trading setups is more likely to smooth your returns.

* Elite discretionary day trading is most-likely the result of implicit processing or non-verbal pattern recognition combined with complex cognition regarding markets. Linguistically, we refer to all trading as "trading". However, the specific cognitive processes for each specific form of trading may be different and may require different cognitive styles. More over, successful trading with-in any sub-discipline is most likely a specific combination of variables.

* One should take time to differentiate between a "consistent trading" and "consistent results" and "robust trading" and "robust results".

* Regarding "how to learn", it is best to first identify your existing strengths and compare that to market opportunity. The result of this processing can be thought of as perspective shift. Let's say you are great at trading moderately volatile markets off the open but you are trading a market that has a very low volatility. You have the right skills more or less but you need to reframe them into the right context by switching markets. Next, you should set yourself short-term targeted specific goals that will lead you to the answer. This is an evolutionary feedback driven process where you (1) test/simulate/experiment, (2) evaluate, and (3) repeat the process using what you learned.

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