Debunking the Consistent Profitability in Trading Myth

By | March 2, 2015

MythBustedThis post was inspired by an email exchange I had over the weekend with a reader of my site who, in his own words, is ‘an absolute beginner’. He was surprised when I told him that even experienced traders can have negative years. So it lead me to think about this common misconception that most people who are new to trading have: that after a learning period, who the most naive among them think it’s not longer than two months, they will reach the stage of ‘consistent profitability’ – a sort of trader’s nirvana – in which they will very rarely experience monthly losses and never have negative years.

I believe this myth is perpetuated mainly by a good percentage of those who sell trading systems and educational services, for reasons too obvious to elaborate here. So what anyone interested in this subject should do is look at those who actually trade – and have been doing it transparently for years, as opposed to those who are just selling trading related stuff. A good place to start is Altegris Manager Rankings. We can find here some famous names, like William Eckhardt, who together with Richard Dennis started the ‘Turtles’ experiment in the 1980s and was also featured in Jack Schwager’s New Market Wizards; Jerry Parker, an original Turtle; Salem Abraham, featured in Michael Covel’s The Complete Turtle Trader, and others.

Let’s now see how ‘consistently profitable’ some of these traders have been during the last ten years (2004 – 2014): Salem Abraham had 4 negative years, William Eckhardt two, Jerry Parker three, William Dunn three and we can go on and on like this. What we can see is that it’s very hard to find a trader who doesn’t have a negative year once in a while. If we look deeper, at the monthly results, we can see streaks of five or more consecutive losing months. How’s that for ‘consistent profitability’ ? :)

In conclusion, the real trading, as it can be observed by looking at professionals with decades of experience, is often very different to what new traders imagine or are lead to believe by unscrupulous salesmen. The sooner one deals in facts, rather than fantasy, the better it will be for him.

3 thoughts on “Debunking the Consistent Profitability in Trading Myth

  1. Freddy

    makes sense as there are no performance stats to back up the claims of consistent profitability. it’s also very sad when you think about it: The best known traders and investors (I’m referring to George Soros and Warren Buffett) have had down months and years. But people think they can make money month in and month out after purchasing some a $300 course from a random guy on the internet or attending a $2995 weekend seminar.

    Reply
    1. Christopher

      The other thing I’ve noticed is this type of mentality ( consistently profitable) goes beyond retail traders and is actually prevalent amongst industry professionals. For example, a lot of prop shops these days advertise for traders who can show track record and meet monthly targets. Well any real trader knows you can’t really have a monthly profit target. It can be up down or neutral for the month. The only thing we can target for the month is the amount of capital we are willing to risk/lose, as Vlad has already pointed out.

      Also, if you send a verified track record of trading to a bank or fund and you have as many loss months as profitable months, they dismiss you because your not consistent enough, even though you still end up in the black with a 50% return for the year.

      It amazes me that there is a culture of ‘consistent’ amongst professionals and monthly targets to achieve. This is not real trading. As long as you can keep your monthly losses to no more than x amount, prove it through your track record and still end up in the black at the end of year with a better than industry standard ( above 15%) than you should be able to get a go. But unfortunately it’s not that easy :(

      Reply
      1. JLTrader Post author

        Come to think of it, there is the mirage of consistent profitability with the strategies which have very high winning rates – as long as the market environment is right they’ll make profits every month. But people who’ve been around the block long enough (one would think those from prop firms fit the bill) know how fragile these strategies are.

        Reply

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