Inconsistency, not a bad sign but a sign for sure.

In a thread over at Aussie Stock Forums I made a comment about the causes of inconsistency being a signal that you’re not trading to "your" niche. If you are a beginner obviously you are going to be wildly inconsistent because your skill level is going to be low. In fact as many have found out recently their results have more to do with the trading environment that their own skill. That’s fine a beginner at any task is going to experience wildly different results during there initial "learning" period.

But what of a reasonably experienced trader? What causes inconsistency in a trader that has been around the breakeven to profitable range for some years? The trader that has traded different markets and survived. Knows about money management and has a sound high probability trades that have been tested in the market. A trading plan that makes sense and even shown good profitability at times. What causes such a trader to veer from their trade setups? Not take trades when they are begging to be taken and what causes traders to pull out before profit targets are hit?

To give an example of the situation I am talking about I once tried out at a prop shop for a trading gig. Going in I had 2 weeks to show how I could trade the Futures market. It look like the perfect gig, I had a profitable record, they traded the same market mostly the same way I did(intraday) and the promise of trading size that my account would not be able to trade for years.

During the trial I think I made 40 points each day for the first 4 days which is pretty good trading 1 contract but by the end of the second week I had a heap of trouble hanging on to trades and also entering trades. So I was going nowhere. I would sit in the trading room and call out the next couple of ticks or think “this is going 5 points higher then back”. But I didn't trade it because my plan was looking for minimum 12-15 ticks with a 5 tick stop. So I started to stew and just watched trade after trade disappear.

As the last week wound down I knew I wasn't going to get the gig and started to place some quick trades in my own account and of course they all came in winners.

I didn't get the gig but it was the best failure of my trading career thus far. As the trial went by I got worse & worse. Why? It wasn't that I couldn't see the setups, they were there for sure. After having a good look at my effort I realised I wasn't a position day trader like I went to them as but a scalper. My trading plan was sound; it just didn’t gel with me. I was trying to trade a way that my brain didn't agree with. I could see for sure the next 5 ticks up and back yet I was trying to enter a position and hold on during what I knew was going to be movement against me. With the added pressure it was too much. I was out of my niche. And the end result was Inconsistency. Profitable for the first 4 days going to useless for the last 4.

Probably a better example is one that doesn’t involve trading. Imagine how a football team would go if you took the gun forward and swapped him into the full back position. They would probably have some good games but their results wouldn’t be consistent (yes I know that some can do this) They would be outside their niche as defenders in spite of them knowing how to play football and having all the skills of an elite footballer. You would expect them to play with inconsistency. They would be attaching when they should be watching the forward they are on.

Conventional trading wisdom would say that in the example of my trading I need better discipline to stick with my trading plan. The coach would probably tell the forward now new backman that they were also playing without discipline as they run up the field leaving their man to do as he wishes. I think the discipline line is a load of crap. The fact that my plan fell to bits when I had a blow touch applied to my forehead had little to do with discipline and more to do with gravitating towards my nature trading style. Discipline will stop a fast blow up but if you’re trading not to your nature you are still going to struggle.

A quote from a book Enhancing trader performance (B.N.Steenbarger) has always stuck with me from that time

“When you have found your niche, you don’t need discipline to do the right thing: you won’t want to do anything else”

Comments

[John Forman]

Great post, and spot on. It really is amazing how quickly things can start going amiss when you step out of your niche.