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What Does It Take To Become A Consistently Profitable Trader 

Last Updated: April 13, 2020

By Rayner

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In today’s episode, you’ll discover what it takes for you to become a consistently profitable trader.

So listen to it now…

Resources

Forex Risk Management and Position Sizing (The Complete Guide)

The Price Action Trading Strategy Guide

My Story: How I Lost 50% of My Capital Before Turning Into a Profitable Trader

How to find an edge in the markets (a proven approach)

Transcript

Hey, hey what’s up my friend?

In today’s episode, I want to talk about what it takes to become a consistently profitable trader.

Because here’s the thing, anybody can be a profitable trader. You could make 50% in a given month. You could make $500 a day in the short run. Any Tom Dick or Harry can make money in the markets.

Now the question is, what does it take to be a consistently profitable trader? Because there’s a huge difference being a profitable trader and a consistently profitable trader.

1. You must have an edge in the markets

Without an edge, in the short run, you could be a profitable trader. For example, if you go down to a casino, the house always has an edge over the players, and it’s statistically proven.

But you can go down to a casino for a day, a week you might come out being net profitable even though you’re trading without an edge. It’s the same for trading.

If you want to be consistently profitable in the long run, then you must have an edge in the markets just like the casino. In the long run, they make money because they have an edge over the players. An edge is simply expectancy.

Let’s say you have a coin. Every time head comes up you make $2, but every time tail comes up you lose $1. For that coin toss, you have an edge in it because it gives you a positive expectancy. That’s what I mean by having an edge.

2. You must know what consistency means

Many traders, including myself, thought being a consistent trader means you got to make money every day and every week.

Then I realized that wasn’t the reality. There isn’t a one-size-fits-all because consistency depends on one very important factor and that’s your frequency of trades within a specific period of time.

Let’s use that same coin toss example, where every time head comes up, you make $2 and every time tail comes up, you lose $1. Let’s say you can only toss a coin once a day. Now, let me ask you, what are the odds of you making money every day from that coin toss?

I’m sure you’ll agree that some days you’ll make money, some days you’ll lose money, but in the long run, you’ll make money. But when we are talking about consistency, you’ll agree that you wouldn’t make money every day. Because you can only toss the coin once per day.

But what if you can now toss the coin 1,000 times a day. Now, what are the odds of you making money every single day? I’m sure you can see that the dynamics have shifted now.

The odds of you making money every single day if you can toss that coin 1,000 times a day is dramatically higher. I think you would make money on almost every day. You might have similar expectancy for your trading system, but your frequency of trades determines how consistent you will be as a trader.

So you’ve got to manage expectations. If you’re a trader that takes one trade a day, then clearly you don’t expect to make money every day. If you’re a trader that takes one trade a week, then you need even more time for your edge to play out.

Assuming you have an edge and your trading system has a positive expectancy, a general guideline is:

  • If you can take 100 trades within a month, then generally you can make money on most months
  • If you can take 100 trades within every six months, then generally every six months you’ll make money
  • If you can take 100 trades every year, then generally on most years you’ll make money.

Manage your expectations, consistency is not what you think.

Moving on…

3. You must know how to handle drawdowns

Here’s the thing, no trading strategy or trading system works all the time. Because the market changes all the time. The market is not static. It goes up, it goes down, it goes into a range, or a low volatility environment, etc.

This means whatever trading system that you’re using, you’ll have winning periods and losing periods, no doubt about it. The key here is how do you handle the losing periods? How do you handle your drawdowns? This largely depends on your trading methodology.

For systems trader:

you can use a filter to know when to stay in the markets and when to stay out of the markets. For example, let’s say you trade stocks and you usually make money in a bull market but not in a bear market.

So if the market is in a bear market or a recession, you’ll stay out and stop trading your system. That’s one way.

For discretionary traders:

Maybe you’re a price action trader. One way to handle the drawdown is to understand how the market conditions have changed and how can you adapt your trading strategy accordingly.

Let’s say previously, you’re making money buying uptrend. Now the market has changed, you seem to be losing money whenever you’re buying the dips. So you might have to pause, reassess, and consider selling into rallies as the market has shifted to a downtrend.

That’s where discretionary traders adjust their trading methodologies.

This is how you handle your drawdown and it’s what consistent traders are prepared for.

And finally…

4. You understand that anything can happen in the markets

Any professional traders will agree with that statement.

Only new traders who are “cock-sure” of their trading opportunity or their trading setup would go all in. When you go all in but something doesn’t happen the way you expect it, you’ll lose everything and more.

Consistently profitable traders know anything can happen no matter how good a trading setup looks, no matter how good the pattern looks, or how accurate the system is. They know there’s almost always a possibility of them losing money.

There’s always a possibility of them losing more than intended, that’s why they always respect the markets and they have proper risk management because anything can happen in a market.

With that said, I’ll say these are 4 critical things on what it takes to become a consistently profitable trader:

  1. Having an edge
  2. Knowing what consistency means
  3. Able to handle the drawdown
  4. Knowing that anything can happen in the markets

With that said, I’ve come towards the end of today’s episode and I’ll talk to you soon.

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