It Is The Law

For the statistical minds out there among us… If a pure intraday trader regularly takes several (or more) trades thru an entire session, the long-term structure of their day to day equity curve progression is perfectly predictable. There is precisely 1/3 odds of hitting peak equity high on first trade of any given session. There is precisely 1/3 odds of hitting peak equity high somewhere in the middle of all trades inside any given session. There is precisely 1/3 odds of hitting peak equity high on the final trade of any given session.

The above is just pure math, statistical odds of random distribution. No two ways about it… if you trade long enough, law of averages will certainly play out just like that. Statistically speaking, you are better off quitting every day at some point of averaged profit gains versus hitting it all from bell to bell, every day.

On a fundamental basis that unfolds because some days price action is most favorable for your approach early, other days in the mid-session, other days at the end. Not to mention the personal execution variables involved. Which means that those who purposely opt to trade all day every day, exactly two-thirds of the time, two sessions out of three for their entire career, they will be frustrated at day’s end. Frustrated to some degree, because their peak equity curve was reached way earlier at the start of said day or at least several trades ago, and then drawn down by the close.

Simply the universal laws of distribution at work there

I also realize that a majority of aspiring traders who read the above don’t believe it, don’t want to believe it, or both. I know that they are searching thru their minds for logical reasons why those basic stats are wrong. But they are right. Too many traders think that a system or “edge” is for showing them winning trades. Close, but not exactly.

Any system, method, approach or “edge” over the markets known to man past, present and future can only show you where a majority of prevailing trades are in large sample size. No system, method, approach or “edge” over the markets known to man past, present and future can show you individual prevailing trades at random which circumvent the universal laws of distributional results above.

You need to apply your system, method or approach in consistent fashion over long periods of time to yield consistent results. And that will also include a rolling range of peak & trough equity curves along the way.

This has nothing to do with one’s system or prowess or acumen as a trader. It is purely the universal laws of mathematics at work. No single trader on earth ever has or ever will end every day at their peak equity high.

Matter of fact, no trader on earth ever ends even half their days at peak equity high over a long period of time. Should anyone ever ask you why, you can simply tell them, “It is the law”

For more daily updates from Austin, visit his blog at Coiled Markets.