Slow Down for More Profit

Conventional wisdom remains that you do better by being a nimble trader, getting in and out of positions ahead of the behemoths. The surprising result is that by going slower, you do better.

-David Harding, CEO of Winton Capital, $32 billion assets under management

It seems we're always in a hurry.

But there's a good reason for that. We need money, and we need it now.

How do we get money? Well, we don't get it by not trading.

If we're not trading, we're not profiting. No one gets rich by not having trades on. The more we trade, the more we get. That's just science.

So we daytraders first look at fifteen-minute charts and then we look at five-minute charts, and then, when we're finally ready, we decide to trade on the one-minute charts. Do you know how many trades you can take on a one-minute chart??

I've heard interviews where traders detail how they take hundreds of trades a day. The great trading book, One Good Trade, talks about how their prop traders sit and take trade after trade all day long, every day. Why do they do that? So they can make more money!

And what's the end result of all this fast trading?

For a few, it's the riches they were looking for. For others, including me, it ended up being a lot of sound and fury signifying nothing.

It turns out, it's really, really hard to find edges in short-term trading. On one-minute charts, what repeatable patterns exist? We live in a world of one-second attention spans. How do we find reliable trading edges when traders are changing their minds every few minutes?

And if it's not a trader changing her mind, it's high frequency computers pounding millions of trades into the market. All those quick pivots make one-minute charts a very difficult battlefield.

In short, trading fast gives us a lot of trades. It also gives us a lot of losing trades.

For example, let's take a look at the USDJPY Hornet robot. Using a trade size of 2.0 lots, testing since 2011 shows that it made $37,000 of profit, had a max drawdown of -$4,500, and took 605 trades. That's on a 15-minute chart.

If 15-minutes is good, then 1-minute is better, right?

Switching to a 1-minute chart, and keeping everything else the same, testing shows that it LOST $280,000, had a max drawdown of also -$280,000.

But at least it took 5,930 trades!

This is what David Harding was talking about. We naturally think that trading more often, being nimble, is the way to get to the promised land.

But for him and his $32 billion, the way to profitability is by going slower, taking less trades, being more picky. Instead of running into the market with guns blazing, Harding recommends that we take our time and only pull our guns when the time is right.

The Hornet data bears him out. The profitable method took ten times LESS trades than the highly-active method and makes way more money. If we want to be profitable, maybe we need to calm down and go slower.

It reminds me of that old story:

One day, an old bull and a young bull were sitting on top of a hill. The young one says to the old one, "Hey, let's run down there and talk to one of those pretty cows!"

To which the old bull replied, "Let's walk down. And talk to them all."

Tomorrow we'll look at more systems and see if the old bull was right after all.


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