In a previous article, we highlighted the necessity of consistency while trading. This is one of those areas that we all recognize to be important but often overlook. Rather than examining how we can create constancy, we tend to look for super-secret indicators and strategies.
Last time, we considered the benefits of a stable trading environment. In this article, the conversation moves beyond the “whys” of consistency into the “how” dimension of this key attribute. In other words, if you want to increase consistency, below you will find methods to assist you in the growth process.
As always, you need to read content the same way you analyze the markets – with a critical eye. No content can change your life simply by reading it. However, these reflections serve as a tool that enables you to get started putting in the work toward improving yourself. The intention is for you to treat this article as a conversation partner, engaging with self-understanding and recognizing which portions are necessary for you to adopt and adapt for your own purposes.
Plan for consistency
Okay, I’ll start with a softball. Even if you know you want to be consistent, achieving this doesn’t come automatically for most of us. It comes through a process of planning. Suppose you are going to make the most of your potential trading career. In that case, every area of your life and trading must be accounted for and considered in order to generate dependability. It requires putting an infrastructure in place that will keep you on track. Now that we’ve established this, we are ready to move on to the next thing.
Live consistently
Unfortunately, I’ve met too many traders who thought that even with an inconsistent lifestyle, they could somehow trade consistently. Sadly, this outlook produces predictable disappointment. I’ve had a decade and a half of experience observing traders who performed exceptionally well and also those who frequently encountered failure. I can affirm this: I never saw a regularly profitable trader who did not have a routine.
One way to begin is by setting parameters to ensure proper sleep. This means going to bed and waking up at consistent times. In addition, this enables you to conduct a healthy pre-trading morning routine of diet, exercise, and preparation for the day.
Scheduling sleep is but one example of lifestyle consistency. You can also examine the habits you’ve developed in your social life, relationships, and financial habits, and then consider how stability in all these areas will breed further consistency.
One example that comes to mind involves a trader who found value in attending a place of worship each week. In his case, he began to realize that when he missed this time of religious devotion, his trading would be affected later in the week. Now, perhaps this was because of some higher power. However, it’s more likely that it was because he had altered course in a personal area of life that was important to him, which translated to broken consistency in other aspects of his week, including trading.
This concept can be adapted to various scenarios by each of you according to your life routines.
Prepare for consistency
Preparation is another crucial habit. One trader told me simply that when he prepared for his day, he was generally profitable, but when he didn’t, his losses mounted. Stability in preparing for a trading day means putting in the necessary time to analyze your charts. For some of you, this may be more involved than for others. However, for those who manually draw trendlines and other notes on your charts, it’s absolutely essential that you make the time to do whatever you do best to start each day.
Trade the same time frames
I have found that traders who constantly adjust their time frames are not usually successful. Maybe you have not found your ideal time frame, and if that is the case, then your issue is more about system failure. However, for those with a solid system, it is best to learn to trade during the same time frames during the day.
For example, there is a particular behavior in the markets at the session open as opposed to later in the day. When you trade during the same time frames, the market and that specific time of day become a friend. You end up with a better idea of how your market should act within that time period.
Trade the same markets
This idea echoes the sentiment of the previous section. If you shift your concentration among different markets, chances are you lack a consistent system. In that case, your first step is solidifying your system; otherwise, you may regularly encounter disappointment. However, there is another way of looking at this.
I knew a trader who had a good system. His problem was that he would get bored with his best market(s) and seek to fish around other charts looking for opportunities. In my experience, there is a sharp distinction in the level of success for those who are trading what they know as opposed to what they are not used to.
Inconsistent trading, as in being in one market one day (or hour) and a different one the next, is an inconsistent attribute that will frequently produce undesirable results.
Be consistent with your risk (and reward)
Now, before I dig into this, I’ll preface. You may have a system that calls for a separate risk function from one market variable to the next. In that case, if your system is well defined and tested, I’m not referring to you. Instead, what I am attempting to identify is traders who just decide to randomly “wing it” and elect different risk-to-reward components from one trade to the next. The problem is that this is usually the result of subjective reasoning deriving from emotion rather than from the functionality of market statistics.
Follow your rules consistently
First off, if you don’t have rules, then I’d suggest you ascertain some. However, for those who do, you know it is much more challenging to keep rules than to generate them. Of course, any long-term seasoned, experienced, and successful trader likely knows when to sidestep a rule, but that goes beyond the current discussion.
Keeping your rules is a much more sustainable and robust approach to trading than deviating from them. I know a seasoned trader who is aware of when to break the rules. However, she is so programmed that she determined some time ago that she’d rather keep the rules and miss out on some quick profits than break the rules at all.
If you frequently renegotiate your rules, you are unlikely to be successful; just think of all the mental energy that trading takes. Frankly, we don’t need to subject ourselves to the greater level of fatigue that ensues from the process of bending or breaking the rules.
How you can become consistently profitable
Being consistently profitable should be the goal of every trader. It’s not about turning a $10,000 account into $1 million as quickly as possible. It’s possible, but that will be the same mentality that will force you to turn a $1 million account into $10,000.
As much as you may tell yourself that you’ll add risk management when you have a big bankroll, you won’t. Instead, great traders are made in the base hits and small gains.
Recently, Anthony Crudele, host of the Futures Radio Show, sat down with trader Rayner Teo to talk about his experience trading and work towards finding that elusive consistency.
Here is Rayner’s advice.
1. Get a grip on expectations.
In the first three years of a traditional business, you wouldn’t be looking to go from $0 to $1 million in sales. So don’t expect to make tons of money out of the gates trading. (In fact, many traders have said early gains were responsible for huge early drawdowns.)
In those early years, focus on building your business. Identify your goal and find the strategy that wraps around that.
2. Realize that trading is uncertain.
In trading, Rayner said that 1 + 1 does not always equal 2. The only thing that you can control in trading is your actions, so it’s important to make them consistent. In that case, consistent actions can result in very different results. In trading, 1 + 1 can equal 2. And sometimes 1 + 1 will equal 3. You can’t control that.
If you don’t realize that trading is uncertain, Rayner suggests that you may jump from strategy to strategy, trying to find the perfect one. That’s time spent in the wilderness with very little benefit.
3. Identify your goal and overlay the perfect strategy.
What is your goal in trading? Do you want to make X% a year or to make a consistent amount each month? If you want to make a consistent amount each month, then you may not want to be a trend follower. Though trend following shows good results over longer timeframes, it can be inconsistent in the short term as traders take lots of mini losses waiting to ride that big wave.
Conversely, if you are looking to grow your account by X% each year, you probably don’t want to be scalping. For that, you may look at a trend following approach.
Ultimately, your trading strategy should not just meet the goal but also be related to the amount of time that you have to spend in markets.
Putting the process before profitability…
Listen, nobody’s perfect. Everyone eventually puts on a losing trade; it’s an inevitable fact of life in this business. Today, the guys are going to walk you through a few lessons they’ve learned over the years about maintaining consistent profitability.
A key takeaway should be to “focus on the process.” If you take the time to hone your strategy and remain disciplined enough to not deviate from it, then you will start to see returns. If you spend the day trading around your p/l, it’s safe to say that you’re doomed to fail. Like John says, “If you focus on the money, you’ll never find it.”
What John is trying to say here is that you should never abandon your process for short-term gains. There are 2 reasons for this. First, there is no such thing as a guaranteed short-term gain. And second, abandoning your strategy will take you out of the game emotionally when you lose.
You should have a reason for being in the market every time you execute a trade. Let me be even clearer on this point: you should have your own reason for being in the market every time you execute a trade. It’s your trade, nobody else’s.
Be confident in what your goals are
What kind of goals are you setting? Are you trying to make $1000 a day? $10,000 a month? We’ve found that it’s much more realistic to have a profit idea of where you need to be on a longer time frame.
You’re not going to make money every day, so having an idea of where you need to be, in terms of profits, just to pay the bills each month, is a good starting point. Take special note of the story Dan shares about his cable bill. Keep things like that in mind before you let a profit turn into a loss.
Trading is uncertain, and the market doesn’t care how smart you think you are. Never forget, the market is infallible. It’s never wrong. The sooner you can accept this hard truth, the better off you will be. Remember this when you are setting up your trading process, too. It could save you a lot of money one day!
