Your trading journey will inevitably have some highs and lows, but it doesn’t have to be the rollercoaster of winners and losers that too many of us experience. What we want to achieve is consistent profitability – where the wins may be tempered, but also the losses are smoothed out.
This kind of progress is not only less stressful, but is also considerably more profitable – as I’ll show you in a moment.
Who is making money from their trading year in, year out?
You may expect the experts to be good at consistent profitability, but a glance at hedge funds will tell you different. Hedge funds last on average about 5 years, with one in three of them failing on an annual basis.
And most trading strategies have a relatively short lifespan. They might bring in profits for a year or two, but hit the rocks and get cast aside for the next great hope.
The reality is that very, very few people are achieving consistent profitability. It is not easy to do, but the steps I’ll show you here are the clearest pathway to achieving it.
The first and most obvious step to consistent profitability is to actually be trading the markets consistently. Find a trading strategy that you’re able to stick with – it needs to just become a habit.
If you’re finding it tough to devote enough time/money to your trading, then you’re probably using the wrong strategy. Find something that takes less time, or that has a smaller minimum bank size.
If you’re dipping in and out of the markets rather than consistently following your rules, you’ll always struggle to catch the ups. Likewise, the system-hopper will miss more winning runs than losing runs …
The system hopper trades one system after another, tossing one aside if it isn’t working (ie has a losing run). As a result this trader starts using a system as it hits new highs, and jumps ship after losses. Their progress will look something like this …
This bad habit makes earning a profit from your trading very hard to do.
Trade consistently and stick through losing runs. That doesn’t mean you should suffer in silence – there are plenty of ways you can mitigate the effects of loses, and protect yourself from the downside (or from a flawed strategy).
I can’t stress enough how important this is. And the reasoning can be clearly seen in the maths.
The saying goes: Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.
Let’s make sure we’re the ones earning it – and to do that, it’s important to understand that compounding also has a downside.
Big winners will look very tempting – why wouldn’t they? But they are often accompanied by volatile returns. If you can win 100% this month, chances are you could lose a similar amount next month. And, even if this strategy has a positive growth rate in the long term, if you apply compounding to it, it will work against you.
This is because, even if you’re losses are smaller (percentage-wise) than your winners, you’re taking that off a bigger sum.
Imagine you have £100 and you gain 10%. You now have £110. If you then lose 10%, you now only have £99.
However, if you have £100 and make 20%, you’ll have £120. If you then lose 20%, you’ll be left with only £96.
In both cases, the average growth has been 0%, but both have left you out of pocket because of compounding. And the situation with more volatility has cost more money.
Here’s an example of two trading strategies with compounding applied …
The green line represents £5000 invested in a strategy that makes 20% in a good year and loses 10% in a bad year. So, it’s got an average growth rate of 10% p.a., with volatility of 30%.
The red line represents £5000 invested in a strategy that makes 100% in a good year and loses 55% in a bad year. So, it’s got an average growth rate of 45% p.a., with volatility of 155%.
As you can see, the strategy with the more modest 10% growth rate outstrips the one with the impressive 100% gains – which is almost wiped out.
To achieve long-term consistent returns, it is vital to look for low-volatility over high profits.
The principle of holding on to capital being more important than making profits really follows on from my last point about volatility. If gains are small, even negligible at times, it means that we are still in play, with the full power of our bank to try again the next time.
Techniques to reduce losses include the use of trailing stops, drawdown limits, and you can find more ideas here.
For compounding to do its job, time is important.
One of the first questions the trader and educator, Val Harrison would ask his clients was: Have you the patience to get rich?
It was the ethos behind his HAV Trading system – steady gains that could be maintained over the long term.
When he introduced me to the system, he’d been trading it for just a couple of years (although his testing went back a lot further). It didn’t occur to me at the time that it would still be going 10 years later, having outlived other strategies, hedge funds, and investment gurus – accumulating serious wealth for its members.
If you didn’t get into HAV Trading back in 2013, there’s no need to feel that you’ve missed the boat. This strategy continues to perform just as well now as it always has, and is the epitome of steady gains and long term wealth accumulation.
While I fully expect HAV to be around for another 10 years, it certainly won’t be available at the low price that I’m holding for just a few more days. So, if you’d like to test out this serious investment machine, please get your name down for a trial now.
JOIN US ...
Get exclusive access to members-only resources, plus my weekly email updates ...
I will NEVER share your details for marketing purposes. Privacy policy
