It is interesting when looking through the past few years of my trading activity that my profitability came from the longer term trades. The profits were in the trades that caught trends of weeks and months not a trade for a day or two. I have found the less I trade the more money I make for many reasons. It is not surprising but here is why trading works this way.
10 reasons that profitability come from longer term trades:
- If you are using stop losses properly then the trades you hold the longest will be your winning trades.
- If you are letting a winner run you are on the right side of the market trend. This is where the money is made.
- On the long side returns have come primarily overnight since 1993 in $SPY. Intra-day moves long term have been flat. Alpha happens overnight.
- Short term trades can happen when you do not have the patience to hold a winning trade.
- Short term trades could be a sign that your entries are not good probability set ups.
- Your stop loss getting hit too fast could be a sign that it is not at a low probability price level.
- Not having long term wins may be a sign that you are trading too big and get nervous and take your winners too fast.
- You need big wins to have good size rewards in your risk/reward ratio.
- The less you trade the less you pay in commissions.
- The best way to beat high frequency traders is to be a low frequency trader by trading above the intra-day noise.
Trading less is a sign of patience, ability to hold winners, and placing stop losses at low probability price levels.