I was reading something the other day that made me think about this enough to want to share with you.
If you are playing Roulette and you always bet on black then your chance of winning is about 47%, assuming numbers 1 to 36 and double zero.
If you bet on black one time then red the next, and then maybe black a few times, then try red again here and there, do you think your odds increase or decrease?
I would say the odds diminish heavily. Because you are no longer consistent. Without consistency you do not stand a chance of coming out ahead.
Take Blackjack as another analogy. Do you hit on 16 or stay? If you only hit sometimes on 16 then your odds will be much lower than if you consistently hit on 16.
In trading there are similarities with this. If you are in a position but you exit the position in a non-consistent way then you lower your chances of success. Maybe you lose one or two trades but if you start altering your strategy then instead of winning the next several, you probably turn those into losers as well.
There is nothing more important than a good solid trading plan. I've said before the trading plan needs to be simple so you can hold yourself to it and not use it as a loophole when something goes wrong, namely when you screwed up you can't blame it. You can't change the plan midstream meaning you can't change your strategy in the middle of a day or middle of a trade. Your strategy needs to be consistent.
In trading what separates winners from losers are consistency, well thought out trading plans and methodologies. Winners exhibit these qualities while losers are always changing their plans, their charts and playing with new indicators.
"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain
Last edited by caprica; July 27th, 2009 at 09:30 AM.
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is there any study that support "consistency" opinion? What if someone enter the trade based on dice roll? is it consistent plan ? what is consistency? enter market on certain time? on MA crossover? we know that neither of that strategies works, so then again, what is PROFITABLE consistency?
Interesting. There is another thread here about random entries on this forum, it would be similar to your dice roll principal.
I am of the belief that entries are far less important than exits and a sound money management strategy and trading plan can safely guide you to long term profits. That means minimizing the risk on the so called random entries that would violate your trading plan otherwise.
I know of no source to support my consistency theory. But I do believe it to be accurate. To give a real world trading example, how many of us have taken one trade that failed (that was our setup) then took another one that failed (again, our setup). Then the third trade came up and we talked ourselves out of it, finding reasons or excuses to not take it.
You can guess what happens, it almost always works. That is because if it was part of a sound trading plan then the odds were heavily in our favor that it would not fail again a third time (given an average trading plan). However our emotions take over our mind and we find excuses to not take the trade even though our plan, our rules, everything says to take it. Does your trading plan say to stop if you take two bad trades in a row? If so, is that based on emotion or is that based on facts that doing so will minimize your losses long term?