How To Master The Fine Art Of Consistency
There is only one true path to success in the financial market, although it is easy to think that there might be two.
The deceptive shortcut to success is the idea that a small number of big, risky trades will make so much money so quickly that you meet your targets as a prop firm or individual trader and just coast throughout the rest of the quarter. This almost never ends well.
In reality, the long road to success is the only way to succeed as a trader and investor rather than as a casino capitalist, for reasons that will be covered alongside the benefits and methods behind cautious, consistent trading.
In this guide, we will explore the fine art of consistency in the financial world, how to resist the pressure and temptation to make huge market plays, some particular strategies that benefit from a consistent approach, and how to manage your time as a trader.
Marathon Not A Sprint
Becoming a master of any skill and sowing the seeds of success takes time, regardless of the field you are in. People are not born able to run a marathon; it takes months for a baby to even learn to crawl, let alone stand on their own two feet.
The first step to improving as a skill is understanding that it is absolutely fine for it to take time. A weightlifter does not start throwing around atlas stones but instead starts by stretching their muscles, lifting their own body weight and lifting smaller dumbbells as their muscles build up.
Similarly, a guitarist does not pick up their first guitar immediately able to play the guitar solo to All Along The Watchtower. It takes gradual building up not only of their finger dexterity but also their musical knowledge to the point that complex arpeggios become second nature.
Trading is very similar to this, in the sense that progress very often comes in waves and does not always correlate with results.
You can have a successful few days whilst making some fundamental mistakes, and other days you can make a very carefully calculated move and have it go down in flames when it was not necessarily your fault.
Valuing consistency and prioritising becoming a consistent trader will not only make you a better trader and boost your career, but it will also save you a lot of the stress that comes as part of the market.
What Is Trading Consistency?
Most people will have a very good working definition of consistency in their everyday lives; if something is consistent, it is expected to be reliable, coherent and repeatable. If you do the same action, you will get mostly the same result.
Consistency in trading is not necessarily about getting the same results, but is more about using the same approach and methodology with every single move you make in the market, sticking to a certain number of trades, a particular level of risk and having a consistent mindset when it comes to analysis.
Because the market is inherently volatile and not consistent, being a consistent trader is not about getting the same results but executing a robust strategy and routine that will help your portfolio grow to meet your targets and avoid the pitfalls that come from fear and greed.
Suffering From Success
Consistency is important because the pressures of trading, meeting your targets and ensuring you avoid drastic drawdowns amidst the constant fluctuations and noise of the market can be overwhelming, especially if you are the type of trader who tends to micromanage positions.
A short-term loss can be quite an emotional hit, and this can cause traders to make moves that are not necessarily wise.
A rather infamous example came from one of the world’s best and otherwise most consistent traders, Stanley Druckenmiller.
Most famous for working with George Soros and the Quantum Fund to short the pound in 1992, Mr Druckenmiller moved from forex to technology stocks and made one of the most infamous and costly emotional trading blunders ever.
He correctly spotted the bubble in the technology sector in 1999, but shorted too early, losing money. He made that money back, sold his technology stocks in 2000 but then decided to invest again literally an hour after the Nasdaq peaked in March, losing billions of pounds and ultimately forcing his resignation.
This story shows the perils of emotional trading and how even the best and brightest financial minds can be swayed by heuristics, biases and emotions, Whilst emotional trading is most obviously an issue when a trade goes badly, it can be potentially even worse in the long term if a bad trade goes well.
Whilst a well-planned, carefully executed position ultimately leading to a loss due to volatility in the market or an outright black swan event can be utterly devastating, it can also prove to be a learning experience and a trader can come out stronger if they analyse what they did right.
On the other hand, if someone puts a lot of their money in one risky trade and by complete chance it turns out to be highly profitable, what lesson will the trader learn from their position?
They will learn that whatever they did, even if it was laughably risky and irresponsible, was the right move, and something they should repeat in future trades. They may have made a lot of money then, but it encourages habits that will lose them even more money later.
This can be such a problem that some traders enforce a consistency rule or profit limit, where they try to avoid having the profits of a single trading day account for more than half of their total profits for the month.
Other traders will analyse their performance not based on profits but based on how closely they followed their trading plan to do so. If they let themselves get swept up in emotion, they will note that down in their journal and continue following their plan.
Not every trader needs to do either of these steps, but they can be good methodologies to follow if you are worried that you might be swept up in either a bad day or a jackpot.
What Can You Do To Be More Consistent?
Consistency is the biggest ingredient for traders to be successful, profitable and financially stable both now and in the future. At the same time, however, it takes time to build a foundation of consistent trading, especially if you are relatively new to your sector or to prop trading in general.
The first step, as it is when learning any skill, is to be receptive to learning and developing as a trader. If you are concerned about consistency and want to learn to be a less volatile trader, you have already put yourself in a very good position to improve as a trader in the long term.
As well as this, it is vital that you are patient, not only with the market but with yourself. Depending on your strategy and how much you fixate on the price action, stocks, currency pairs and other assets can fluctuate in price at a truly alarming and overwhelming speed.
You need to look for the trends in those micromovements rather than fixate on the random noise of the market, and use as much information as possible to inform your decisions.
Set a limit to how many trades you can do in a day. Not only is this important to maximise your profits, given that every trade will inevitably incur fees, but it can also reduce the risk of overtrading, where you buy stocks and enter positions just to enter them.
Being patient with yourself means taking neither gains nor losses personally or as a barometer of your skill. Ultimately, every trader will have a losing trade at some point in their career but actualising that loss can be the most effective move you can make. If you feel yourself getting swept up in your emotions, whether it involves angrily chasing losses, gleefully letting unexpected price spikes ride or being scared about your position when it fluctuates in real-time, feel free to take a step back from your terminal and take a break.
Not trading is sometimes the best trade you can make.
Have a robust trading plan that takes as much emotional strain out of the equation as you can. Use a few methodologies for analysing whether a trade is worth executing and stick to them.
Keep a journal of your trades as well, including notes on how you feel about the trade, what you felt went right and how you feel you could improve your methodology.
As well as this, make sure you set take-profit and stop-loss orders, to maintain a consistent level of profit, and utilising carefully considered risk management strategies will help you to be the best trader you could possibly be.
This means having clear entry and exit points, how much you are willing to risk on a given trade and ensuring you have a diversified portfolio where one bad trade will not have a contagious effect on the rest.