We are launching a series of posts comparing successful trades to unsuccessful ones.
Here’s the first insight: unsuccessful traders place 254% more trades per day than successful ones. This is a classic case of less is more. I can think of 3 reasons why this is the case. 1) looking for excitement, 2) insecure about your trading so feel the need to always be doing something, 3) fooling yourself into thinking a machine that can trade automatically knows what it is doing. Based on the evidence presented in this study we would be better off limiting our trading activity and not let ourselves get too carried away with low probability trading setups. We have developed a trading alert to help traders with this, stay tuned for a blog post about it.
Here’s the definition of success we’re using for this study:
6-month track record with 10% performance and less than 30% maximum drawdown = success. For unsuccessful we are using a return of less than 10% and a drawdown of greater than 30%. We are also only including traders that trade on a consistent basis – a minimum of 5 active days per month.
For those of you who would like to get a deeper look into the data, here is the total number of trades among groups broken down by drawdown and performance by day over 6 months. The table below shows the number of trades per active day
In this case on active trading days the successful trader would trade 1.20 times in a day (median) and the unsuccessful trader would trade 4.25 times. From here we calculate the overall difference between unsuccessful and successful is they over trade by 254%. This is the more appropriate statistic to look at as our alert activates based on daily trading.
The next table shows the number of trades per active day with the same relationship to success and show the results at the end of 6 months:
Working with median numbers you can see that 85 trades was the median for successful traders and 382 for unsuccessful traders. From here we calculate the overall difference between unsuccessful and successful is they over trade by 349%.