Friday, 30 November 2018

Frequently Trading Does Not Guarantee Consistent Profit, This Is the Reason

How often do traders have to open positions to get consistent profit? The answer is simple, the more often trading, the more dizzy it is, let alone fortunately it gets stumped. Obviously, the burden of trading costs is getting swollen, but not only that, it turns out there are still many other problems from too often open trade.



The more frequent trading, the greater the risk
Basically every time you open a trading position, you have exposed a portion of the capital as a guarantee (Margin) to get a profit on the Forex market. The problem is, there are only two possibilities for every trading position that is still running; get a profit from accumulating positive points or even lose due to accumulated minus points.

Example:
Budi opens five trading positions in several major pairs every day. Each position is only allowed to run without Stop Loss at all. The assumption is that the initial capital is USD 1,000 on a mini account, Win Rate 60% (above the terms of Win Rate 55% to maintain consistent profit) and maximum leverage of 1: 200.

At a glance, just from the Win Rate, Budi should be able to make a profit. However, after further investigation, after 1 week of trading in a row he even lost money. Here's the detailed calculation:


  • Number of positions closed = 25 positions, because Budi does not trade on Saturdays and Sundays.
  • Number of profit positions = 15 positions (60% of positions closed)
  • Total loss position = 10 positions (40% of positions closed)
  • The average profit per position is around 10 pips, then Gross profit = 150 pips.

Because Budi never uses Stop Loss, the average loss per position is 20 pips, then Gross profit = 200 pips
From the calculation above, after one week of frequent trading every day, Budi loses up to 50 pips, or around USD 50. That doesn't even include trading costs.

In short, the greater the number of positions opened, the greater the burden of trading risk. In essence, frequent trading does not guarantee consistent profitability even though Win Rate is quite large.



Frequent Trading Potentially Triggers Excessive Stress
The more trading positions run, the greater the anxiety caused by excessive expectations to get big profits in a short time. Slowly, unconsciously the habit of often trading makes you spend most of your time just looking at the chart and checking each position compulsively.

One position is actually enough to upset a beginner trader if the price turns out to be unexpected. So just imagine the effect if there are many positions running at the same time. You can be sure stress will appear repeatedly if market conditions fluctuate.

The tendency, traders will fall into Overtrading practice because they want to repay a loss position by opening a new position. In a long time, if allowed to continue, the habit of too often trading will ensnare traders to experience depression.

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Too Often Trading Precisely Inhibits Consistent Profit
Achieving consistent profits actually does not require traders to trade frequently. According to one of the professional Price Action traders, Nial Fuller, it takes patience to get big profits from one strategic trading position. That is, you have to wait patiently for high-accuracy confirmation signals before opening a position.

The analogy is like a sniper. He will only press the firing trigger after the target is actually right on the projectile trajectory. As with a trader, a market order will only be executed if the price is at a certain level according to the signal confirmation:

The problem is, the habit of trading often arises from the impatience of traders to wait for the right time to open and then close the position. Examples like the following case:

Example:


From Chart GBP / USD (H4) above, the formation of a high-accuracy candlestick pattern, Three Outside Down (in a blue circle), indicates that the rally is at its nadir. At that time, traders have been able to execute sell orders to gain a large number of profit opportunities.

Note that the price does not necessarily go down without resistance once the sell signal appears. Sellers and buyers are still trying to push prices to the market in Sideway conditions for days. Herein lies patience and the trading system is tested.

If you have a habit of trading frequently, usually the position will be closed prematurely before the price actually moves according to the profit target. Even worse, new positions are opened opposite the initial position because they want to follow the latest market price movements. That's the main reason why frequent trading habits make it difficult for the process to achieve consistent profit.

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How to deal with frequent trading habits?
Overcoming the negative effects of frequent trading habits is actually quite simple. Follow the steps below:

First, you have to change your mindset, make sure that consistent profit does not come from the number or number of positions opened. One position in fact is enough if the signal quality is well confirmed. For example, when a signal from one indicator or one price pattern is formed, wait until there is a confirmation signal from the indicator or other supporting price patterns.

Second, try to reduce the desire to open a new position before the previous position reaches the target profit or is hit by Stop Loss. In this way, you will exercise patience to control the urge to trade too often. Give a pause to rest if the price has reached the TP or SL, so that on the next trading opportunity, the mind is free from the burden.

Third, practice managing each position with Money Management. The hope is that trading risk becomes easier to control so that total profit gains can withstand small losses, which are the main factors of consistent profit.

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