Guide to Achieving Trading Profitability in Six Months
In the dynamic world of trading, consistency is key to long-term success. One principle that significantly impacts trading frequency and profitability is the Law of Large Numbers (LLN). This concept, which describes the result of performing the same experiment a large number of times, has a profound impact on trading strategies.
According to the LLN, as the number of trades increases, the average outcome of those trades converges to the expected value or the true probabilistic mean of the trading strategy’s performance. This means that systems or traders executing a large number of trades benefit from the LLN by smoothing out variability inherent in individual trades, resulting in greater consistency in profitability.
For instance, high-frequency trading (HFT) strategies, which operate with very large volumes of trades in extremely short intervals, rely on the LLN. HFT firms execute huge numbers of small profit trades, where the LLN ensures the aggregate performance closely matches the strategy’s statistical expectation, enhancing consistency.
However, traders must also consider trading costs, liquidity, and market impact, which can affect actual returns. Efficient algorithms integrate probabilistic and liquidity measures to optimize trade execution under these constraints.
When it comes to trading, it's essential to have a well-structured plan. A trading plan is a set of guidelines that define your trading, helping remove subjectivity, reduce "roller coaster" experiences, and keep you focused on your trading goals. An effective trading plan should answer questions such as what is your time frame, what markets are you trading, how much are you risking on each trade, what are the conditions of your trading setup, how will you enter your trade, where is your stop loss, and where is your profit target.
To find a trading style that suits you, reading "Market Wizards" by Jack Schwager is recommended.
In terms of trading frequency, the daily charts are focused on when trading currencies. If the price is above 200 EMA on daily, the trend is considered bullish. When entering a trade, it's crucial to ensure that the loss does not exceed 1% of the account.
If the trend is bullish, an area of support where price could retrace to is identified. If price retrace to your area of support, wait for a higher close before entering. If long, place the stop loss below the low of the candle, take profit at swing high.
Trading currencies can result in profitability in most years with swing/position trading, which averages 5 - 15 trades a month. Day trading, with an average of 3 - 5 trades a day, can result in profitability in most quarters.
In conclusion, increasing trading frequency leverages the law of large numbers to reduce outcome variance, helping traders achieve more consistent profits over time. This principle is central to quantitative and algorithmic trading strategies focused on statistical edges realized through numerous trades rather than isolated bets. Record trade metrics such as date, time frame, setup, market, lot size, long/short, tick value, price in, price out, stop loss, profit & loss in $, initial risk in $, R, and save charts for future reference to track your progress and refine your trading strategy.
- To benefit from the consistent profitability that the Law of Large Numbers provides in trading, one might consider investing in high-frequency trading strategies, which involve executing numerous small trades to approximate the strategy's statistical expectation.
- In order to foster education and self-development in trading, it's advisable to study books like "Market Wizards" by Jack Schwager, offering insights from successful traders that could help find trading styles that match individual preferences and financial goals.
