Don't Make Consistency Your Trading Goal

Don't Make Consistency Your Trading Goal

| Rich Clifford | Blog
  • I have never really been successful because I lack consistency.
  • I have many years of experience but I’m still missing consistency.
  • Looking for a consistency way of generating return fr share market. (sic)
  • 15+ years – finally got some consistency.
  • I’ve only been doing this for 7/8 years now I have moderate to great success currently but lack the consistency and some of the knowledge.
  • Have not developed any strategies with great level of consistency.

Consistency. If the emails we receive were translated into word clouds, consistency would be one of the largest words on display (“win rate” and “accuracy” being the others).

 We hate those words by the way.

What is Consistency?

Well, as defined by google, consistency is “consistent behavior or treatment” (thought we weren’t supposed to use the word itself in the definition?). Basically, consistency as a result means showing or seeing the same result over and over and over again with only slight variations. A low standard deviation… if you will.

Consistency in trading means continuously generating a profit or continuously generating a result. Consistency is a great goal. It sounds like a low stress, stable way to grow an account. It’s also a myth. It’s a unicorn. It’s… just nonsense.

Traders referencing consistency as a goal often state things like “averaging 40 pips per day” or “2% yield per day” or “I’d like to constantly make about $500 per day.” (See exponential returns)

Consistency in trading is another way to describe an average. Averaging a steady return over a set number of days is consistent. Consistently generating a prescribed result is a steady average. Same… Same.

But here is the problem with averages

Twenty people in a bar all have a net worth of around $1 million dollars ($20 million total). Then… Jeff Bezos walks in and suddenly everyone in the bar is a billionaire many times over ($200.02 billion total… ish). The average changed with one subtle adjustment. And suddenly that average is no longer consistent.

This analogy translates to trading as well. Twenty trades with alternating returns and losses and no net return. Then one trade comes in with a $10K result… and suddenly your trading is profitable… but not consistent.

Pareto Principle

Trading for results is less closely related to consistency and more closely related to the Pareto Principle.

The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes (the “vital few”).

It’s the old 80/20 rule.
80% of revenue comes from 20% of your clients.
80% of workers do 20% of the work.
80% of your returns come from 20% of your trades.

Trading for consistency

Trading for consistency means constantly trading until a specific goal is met over a specified time period. It means targeting a $500 profit per day, coming up short a few times and then needing to take additional risk to “make up” the difference. We’ll let you guess what happens next.

Trading for consistency is not how trading works. Results are sporadic. They come and go with the big results being few and far between (the 20%). And while they may be rare, those big returns are what annual returns are based on. The rest of your trading should be a wash (some wins, some losses… and no real result. The 80%).

More importantly, the markets themselves don’t move with consistent pace. One day may see a 3 point range while another sees a 100 point range. If a “consistent” trader is targeting 20 points per day, then that becomes impossible one day and unsatisfactory on another.

No one generates a consistent return day by day, week by week or month by month (we could go on… but you get the idea). No one targets a specific return per day and keeps trading until that return is realized. If they are doing so, ask them how many days they come up short… then recalculate the average. It will be significantly lower than suggested (also called Gambler’s Amnesia).

Seeking consistency is a major reason why traders take losses. A lack of consistency is not the problem. The pursuit of consistency is. Stay away from sites that suggest:

“Steps to find consistency in trading” and
“How to trade consistently without having the perfect strategy.” and
“7 ideas for improving your trading consistency”
Don’t… just don’t.

Don’t be afraid of taking small losses to realize larger gains. Don’t be afraid of having a couple of dud days to experience strongly profitable ones. Consistency should not be the goal. Consistency should be the result… The result of following a consistent system with rules and definitive actions. Consistency is the method and the reward… not the objective.