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In the pursuit of financial success, the conventional wisdom often emphasizes winning more. However, upon closer examination, it becomes evident that increasing profits is not the only way to profit more. Rather, a more nuanced approach suggests that the path to greater profitability may lie in a different direction altogether. It's arguably more feasible, and certainly more prudent, to focus on minimizing losses as a means to amplify gains. This recalibration of perspective forms the foundation upon which the inchworm principle is built—a principle that invites us to shift our attention towards fortifying our weakest links rather than relentlessly chasing victories.In his acclaimed work "The Mental Game of Trading," Jared Tendler introduced the captivating concept known as the "inchworm principle." At its core lies a profound truth: in the volatile realm of trading, we can only assure ourselves of our most unfavorable decisions. This principle underscores the reality that while we may strive for optimal outcomes, the certainty lies in the inevitability of encountering our worst decisions.Illustrating this concept on <a data-mce-href="https://asfxtv.uscreen.io/catalog" href="https://asfxtv.uscreen.io/catalog" target="_blank" rel="noopener">ASFX TV</a>, I engaged my audience in a thought-provoking exercise during a recent livestream. Encouraging participants to reflect on their 10 poorest performing days of the last year, we delved into the mathematical ramifications of mitigating these losses. Consider, for instance, an individual experiencing ten days of an average of 4% downturns throughout the year. By directing efforts towards halving the frequency of these dire days and diminishing their impact by 50%, the transformation on the bottom line is striking. In the hypothetical scenario presented, the losses shift from a staggering 40% over ten days to a significantly more manageable 10%.<figure id="figure-493266ws32lses8710" class=""><img id="493266ws32lses8710" src="https://cdn.durable.co/blocks/1cEq4HApLjpXHEVO2NC6m0o9RsLpQNuWQt5cq153w83fjbE3j6CIC14Wwqj7W2X8.png" alt="pink and black ceramic piggy bank" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 1/1; object-position: 100% 90%;" data-corners="default" data-aspect="1:1" data-caption="" data-positionx="100%" data-positiony="90%" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/1cEq4HApLjpXHEVO2NC6m0o9RsLpQNuWQt5cq153w83fjbE3j6CIC14Wwqj7W2X8.png" data-mce-style="aspect-ratio: 1/1; object-position: 100% 90%;"></figure>This demonstration served as a powerful revelation for viewers, illuminating the profound influence of refining our worst decisions as opposed to fixating solely on enhancing our best choices. By embracing the inchworm principle and prioritising our trading lows, we pave a more sustainable path towards bolstering our bottom line and achieving enduring success in the dynamic arena of trading.Please note that this post serves as an introduction to the concept of harnessing the power of refining your worst decisions to minimize losses, rather than fixating solely on winning more. Its purpose is to raise awareness of this transformative approach to trading performance.&nbsp;&nbsp;It is important to acknowledge that the intricacies of the inchworm concept cannot be fully encapsulated in a single blog post. For a deeper dive into actionable strategies and insights in how to improve your C game, I highly recommend delving into Jared Tendler's acclaimed work, 'The Mental Game of Trading.' Tendler's book offers a comprehensive toolkit for addressing the psychological and strategic challenges of trading.

The Surprising Secret To Increasing Profits Revealed!

One euro, one Russian ruble and Ukrainian hryvna coins with rifle military ammo on black background. Symbolizes war for money- biggest problem in world.

In the world of trading, understanding the impact of variance is essential for making informed trading decisions. Variance, particularly short-term variation, can have a significant influence on trading outcomes, yet it's often overlooked or misunderstood by many traders. In this blog post, we'll explore the concept of short-term variance in trading, using the analogy of flipping a coin to illustrate its effects. We'll also discuss the pitfalls of relying on short-term data and provide insights into how traders can effectively navigate variance to develop robust trading strategies.The Coin Flipping Analogy Imagine flipping a coin 200 times. In the first 100 flips, you might find that you win 65% of the time, while in the next 100 flips, your win rate drops to 35%. Despite these fluctuations, the overall win rate aligns with the expected 50% win rate for a fair coin. This scenario perfectly illustrates the concept of short-term variance in trading. Now imagine those coin flips were trades. How many of you would get overconfident during the first 100, size up to only take the next 100 and end up down overall, or quit completely?&nbsp;Pitfalls of Short-Term Data AnalysisMany traders fall into the trap of analysing short-term data and drawing conclusions based on limited sample sizes. They may backtest a trading strategy using only a handful of trades and mistakenly believe they've discovered a foolproof method for success. However, short-term variance can lead to misleading results, as random fluctuations in market conditions can significantly impact performance over a small number of trades.The Importance of Long-Term AnalysisTo truly understand the effectiveness of a trading strategy, it's essential to analyse data over a more extended period, encompassing a larger sample size of trades. By examining performance over thousands of trades, traders can better assess the consistency and reliability of their strategies, accounting for the effects of short-term variance.Navigating Variance in TradingTo navigate the challenges of short-term variance, traders should focus on developing robust trading strategies that are resilient to fluctuations in market conditions. This may involve incorporating risk management techniques, such as proper position sizing and diversification, to mitigate the impact of variance on portfolio performance.The Psychological Aspect of Variance To help with trading psychology understanding variance plays a pivotal role in maintaining a balanced mentality. By diligently tracking their trading data and analysing performance over time, traders gain valuable insights into their own patterns of success and failure. This self-awareness allows them to adjust their mentality accordingly, whether they're experiencing a hot streak or going through a cold spell. Recognizing that short-term variance is a natural part of the trading journey can help traders avoid emotional highs and lows, enabling them to make rational decisions based on long-term data rather than short-term fluctuations. Ultimately, mastering the psychological aspect of trading is just as critical as mastering the technical aspects, and understanding variance is a powerful tool for achieving emotional resilience in the face of market volatility.ConclusionIn conclusion, short-term variance is a fundamental aspect of trading that can significantly influence outcomes. By understanding the limitations of short-term data analysis and emphasizing the importance of long-term analysis, traders can develop more reliable and effective trading strategies. Remember, success in trading requires patience, discipline, and a thorough understanding of the dynamics of variance in the market. So, the next time you're tempted to draw conclusions based on short-term results, take a step back, analyse the bigger picture, and make informed decisions based on a comprehensive evaluation of data.

Understanding the Impact of Short Term Variance in Trading

a computer screen displaying a stock market chart

Backtesting is a crucial step in developing and validating a trading strategy. However, many traders fall into the trap of conducting tests in idealised conditions, leading to unrealistic expectations and disappointing real-world results. In this blog post, we'll explore the essential elements of comprehensive backtesting and common mistakes to avoid for long-term trading success.Understanding Real-Life Conditions: It's imperative to acknowledge that trading doesn't occur in a perfect world. Therefore, backtesting should simulate real-life conditions by incorporating all associated elements that can impact a strategy's performance. These elements include commission fees, swap fees, slippage, and, if executing manually, accounting for human errors. Overlooking these factors can lead to skewed results, ultimately hindering the strategy's success in live trading.The Cost of Ignoring Associated Costs: Many traders, in their eagerness to make their strategies appear profitable, often neglect the associated costs during backtesting. This approach can be misleading, as it creates a false sense of security. Traders must confront the reality that finding a sustainable edge in the market over the long term is challenging. Ignoring costs during backtesting might yield positive results, but these strategies often collapse when exposed to real-world trading conditions. It's crucial to address these costs upfront to avoid wasted time and resources later on.The Pitfall of Small Sample Sizes: Another common mistake in backtesting is using a small sample size. Testing a strategy over a short period or with limited entries exposes it to the volatility of different market environments. To ensure robustness and statistical significance, traders should conduct backtests with a sufficiently large sample size, encompassing thousands of entries over an extended timeframe. This approach helps the strategy withstand variations in market conditions and provides a more accurate representation of its potential performance.Due Diligence in Backtesting:Whether conducting backtesting independently or considering courses or algorithmic trading systems, due diligence is paramount. Traders should thoroughly examine and account for all associated costs, as overlooking them may lead to inaccurate performance expectations. When purchasing strategies or investing in algorithms, it's essential to demand proof that associated costs have been considered. Failing to do so could result in wasted time and financial resources.Conclusion: Comprehensive backtesting is a cornerstone of successful trading, providing insights into a strategy's viability under real-life conditions. Traders must avoid the pitfalls of idealised testing environments, acknowledge associated costs, and ensure a robust sample size for accurate and reliable results. By approaching backtesting with diligence and realism, traders can increase their chances of long-term success in the dynamic world of trading.

Comprehensive Backtesting Strategies for Trading Success

Technical analysis by online traders risking money gambling by day-trading.

In the fast-paced world of online trading, the allure of quick profits often overshadows the reality of consistent success. We've all seen the flashy posts on social media, showcasing traders apparently making a fortune overnight. But is this portrayal accurate, or is there more to the story? To demystify the world of trading, I delved deep into the strategies of the best in the business, focusing on traders with verified track records on platforms like <a data-mce-href="https://www.darwinex.com/" href="https://www.darwinex.com/">Darwinex</a>. Here's what I discovered.<h3>The Quest for Reality:</h3>Last week, I embarked on a research journey to uncover the truth behind successful trading strategies. The goal was to understand the methods of traders who had stood the test of time, separating fact from fiction and debunking the myths perpetuated across social media platforms. Everyone always preaches how easy it is to make X % a month and I believe we have a warped perception of what successful trading actually looks like.&nbsp;<h3>Methodology:</h3>I meticulously examined the top 15 of earners on Darwinex, collecting a myriad of data points, including risk-reward ratios, win rates, assets under management (AUM), trading timeframes, and the number of trades, amongst other now. My analysis aimed to uncover patterns that could shed light on what truly makes a trader successful in the long run. With a focus on trying to understand how they are trading and what realistic trading actually is.<figure id="figure-sfn0ezkk23lnt374v6"><img id="sfn0ezkk23lnt374v6" src="https://cdn.durable.co/blocks/2dLFMhwt1tPJHMDQn1niPk771C54mqkt9RQt7IL2dp8F6zGPC0QcbTGVmv9dTorf.png" alt="" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="Top 15 earners in Darwinex" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://cdn.durable.co/blocks/2dLFMhwt1tPJHMDQn1niPk771C54mqkt9RQt7IL2dp8F6zGPC0QcbTGVmv9dTorf.png" data-mce-style="aspect-ratio: 16/9; object-position: center center;"><figcaption class="body-normal text-gray-500 mt-2">Top 15 earners in Darwinex</figcaption></figure> <h3>Key Takeaway 1: Frequent Turnover of Edge</h3>One of the most striking revelations was that successful traders don't sit back and wait for opportunities; they actively seek them out. These traders consistently turned over their edge, focusing on high trade volume. Imagine having a rigged coin in your favor - the more you flip it, the more you stand to gain. This analogy perfectly encapsulates the approach of these traders: they maximize their edge by taking frequent trades, making the most of every favorable opportunity that comes their way.&nbsp;<h3>Key Takeaway 2: Smaller Returns, Longer Timeframes</h3>Contrary to the popular narrative of instant wealth, the successful traders I studied made smaller returns over longer periods of time. Their strategy was built on the foundation of consistency rather than quick gains. Instead of aiming for a home run with each trade, they focused on base hits, accumulating profits steadily over the years. This patient and methodical approach proved to be a winning formula, emphasizing the importance of endurance and resilience in the world of trading.<h3>Key Takeaway 3: The Edge Isn't Enormous</h3>Intriguingly, none of the top traders boasted a 50% win rate coupled with a 2:1 risk-reward ratio over extended periods. This&nbsp; challenges the common misconception that a massive edge is necessary for success. Instead, these traders honed their skills, finding edges that, while not enormous, were consistent and reliable. It's not about hitting the jackpot; it's about making informed decisions and turning the odds in their favor, even if it's by a modest margin.<h3>Incorporating Collected Stats:</h3>My analysis revealed that the successful traders I studied had some eye-opening statistics:Risk-Reward Ratios: Only 2 of the top 15 had a risk reward ratio &gt; than 2 (THA &amp; PTK). 8 of the 15 actually had a risk reward ratio &lt; 1:1. As an average of all 15 the risk reward is 1.26:1 - skewed heavily due to THA with a risk reward of 4.4:1. If we remove the top and bottom 2 the risk reward is just 1.05:1Win Rates: 10 of the 15 Darwins had a win ratio of &gt; 50%. As an average across the 15 the win rate is 55.2%, if we remove the top and bottom 2 this increases slightly to 56.3%.&nbsp;The relationship between risk reward and win rate is 1:05:1 and a 55% win rate. I found this remarkable as we often hear that you NEED a 50% win rate and a 2:1 risk reward ratio to be successful. This really isn't the case when looking through these stats.&nbsp;Assets Under Management (AUM): They manage substantial AUM, proving that patience and consistent performance attract investment capital. Combined the top 15 are currently managing &gt; $60,000,000.Number of Trades: They took more trades than anticipated, emphasizing the importance of frequent turnover of their edge.<figure id="figure-6mpd3wn0holnt3cq5s"><img id="6mpd3wn0holnt3cq5s" src="https://cdn.durable.co/blocks/0LLv5V4uLp6wE6Fft9aXxZjMZ31GEMJJFnbttl36v43bJOIwWdy1Sfy09vyINKkD.png" alt="" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="Some further statistics" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://cdn.durable.co/blocks/0LLv5V4uLp6wE6Fft9aXxZjMZ31GEMJJFnbttl36v43bJOIwWdy1Sfy09vyINKkD.png" data-mce-style="aspect-ratio: 16/9; object-position: center center;"><figcaption class="body-normal text-gray-500 mt-2">Some further statistics</figcaption></figure>Now, let's delve into some revealing statistics that provide a realistic perspective on trading:<h4>Realistic Trading Statistics:</h4>From a monthly perspective:<ul><li>The average monthly return among these top traders was a modest 0.94%.</li><li>Winning months averaged a 2.76% return, while losing months averaged a -2.10% loss.</li><li>There was a 63.8% chance of having a positive month. </li></ul>From a yearly perspective:<ul><li>The average yearly return was 11.39%.</li><li>Winning years saw an average return of 16.96%, while losing years experienced an average loss of -8.58%.</li><li>Out of 111 analyzed years, there were 89 winning years and 22 losing years, representing a 79.34% probability of ending the year profitably.</li></ul><figure id="figure-aaexeyjfmlnt3egwd"><img id="aaexeyjfmlnt3egwd" src="https://cdn.durable.co/blocks/15b08SJfAie4686dvoTk9XVOEsryzMomVdWOelEv80Gm0Sd1KV3nsZSQQqu1aPat.png" alt="" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="Monthly and annual stats" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://cdn.durable.co/blocks/15b08SJfAie4686dvoTk9XVOEsryzMomVdWOelEv80Gm0Sd1KV3nsZSQQqu1aPat.png" data-mce-style="aspect-ratio: 16/9; object-position: center center;"><figcaption class="body-normal text-gray-500 mt-2">Monthly and annual stats</figcaption></figure>These statistics provide a clear picture of the trading landscape. While there are opportunities for monthly and yearly profits, there's also a significant chance of encountering losing periods. In fact, there's roughly a 20% probability of experiencing a losing year. As a trader, it's crucial to have alternative means of income to cover expenses during these down periods.<h3>Conclusion: Redefining Success in Trading</h3>In a world inundated with get-rich-quick schemes and overnight success stories, the truth about trading is refreshingly pragmatic. Successful trading isn't a sprint; it's a marathon. It's about the frequent turnover of a reliable edge, making consistent but modest returns over the long haul. The myth of the high-risk, high-reward trader has been debunked. Instead, the spotlight now shines on those who approach trading with discipline, patience, and a deep understanding of their craft.As aspiring traders, we can learn valuable lessons from these insights. It's not about chasing after elusive fortunes but about building a sustainable and enduring trading career. By embracing the strategies of these successful traders, we can navigate the complexities of the market with confidence, knowing that real success is a product of consistency, resilience, and a deep understanding of the game.

Trading Returns: What Is Realistic?

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As a trading coach, I have had the privilege of working with numerous individuals striving to achieve success in the world of trading. Through my experience, I have observed several commonalities among those who have managed to excel in this challenging field. In this blog post, I will share some of these key traits and habits that successful traders possess, as well as some of the behaviours of the ones that don't.<h3>Desire To Learn﻿</h3>Successful traders have an insatiable hunger for knowledge. They immerse themselves in the trading room, actively seeking feedback from coaches and peers on their ideas or mistakes. They're unafraid to ask questions that often go unasked by most, no matter how basic, and they soak up every bit of information they can.&nbsp;&nbsp;Traders that succeed understand that the financial markets are dynamic and constantly evolving, so they stay updated with the latest market environments &amp; which of their strategies perform well and where. By continuously expanding their knowledge, they are better equipped to adapt to changing market conditions and identify new trading opportunities.Every trader, new and old is a student to both themselves and the market whilst on their trading journey<h3>Coachability</h3>Perhaps surprisingly, not everyone takes feedback well. But our successful traders are coachable; they understand that constructive criticism is a vital part of growth. They check their egos at the door and are open to learning not only from their own mistakes but also from the mistakes of others.&nbsp;Being stubborn in the market and as a student is only going to end one way in this profession.&nbsp;<h3>Discipline and Patience</h3>Successful traders understand the importance of discipline and patience in their decision-making process. They follow a well-defined trading plan and stick to it, even in the face of market volatility or unexpected events. This disciplined approach allows them to avoid impulsive trades and make rational decisions based on thorough analysis.Many people see social media traders and expect the path to money to be quick and easy. The ones that take the fast and hard route, just end up broke quicker. The journey to success in trading is a marathon, not a sprint.&nbsp;<h3>Risk Management</h3>Successful traders prioritize risk management and understand the importance of preserving capital. They carefully assess the risk-reward ratio of each trade and set stop-loss orders to limit potential losses. By effectively managing risk, they can protect their trading capital and ensure long-term profitability.Staying in the game should be the #1 focus for any trader, both new and old.<h3>Emotional Control</h3>Emotional control is crucial for successful trading. Seasoned traders know how to manage their emotions and avoid making impulsive decisions driven by fear or greed. They maintain a rational mindset, even during periods of market volatility, and stick to their predefined trading strategies.This is easier said than done (as we all know) and the biggest reason I see traders fail. A lot of the time people can make money in the market, but do not have the ability to keep it under pressure. Its not the emotions that cause us to give back profits though. They are the signal that we are about to react and a lot of time its not a way that is conducive to profitable trading. The best traders can great self awareness of their emotions and the potential reactions.<h3>Consistency and Adaptability</h3>Successful traders maintain consistency in their trading approach while also being adaptable to changing market conditions. They understand that what worked in the past may not always work in the future, so they are open to adjusting their strategies and techniques as needed. This flexibility allows them to stay ahead of the curve and capitalize on emerging opportunities.<h3>Strong Analytical Skills</h3>Successful traders possess strong analytical skills, enabling them to interpret market data, identify patterns, and make informed trading decisions. They utilise various technical and fundamental analysis tools to gain insights into market trends, price movements, and potential entry or exit points.A good understanding of probabilities and the relationship between win rate and the risk reward of their strategies is also key. If they don't align to create expected value, you won't be able to make money in the markets, so grasping this concept is crucial.<h3>Resilience and Perseverance</h3>The path to trading success is not without its challenges and setbacks. Successful traders exhibit resilience and perseverance in the face of adversity. They view losses as learning opportunities and remain committed to their long-term goals, bouncing back from setbacks and continuously striving for improvement.<h3>Networking and Collaboration</h3>Finally, successful traders understand the value of networking and collaboration within the trading community. They actively seek out opportunities to connect with other traders, share insights, and learn from their experiences. By building a strong network, they gain access to valuable resources, ideas, and support systems that enhance their trading journey.By embodying these commonalities, successful traders set themselves apart from the crowd and increase their chances of achieving consistent profitability in the financial markets. Whether you are a seasoned trader or just starting your trading journey, incorporating these traits and habits into your approach can significantly enhance your chances of success.If you're ready to take your trading journey to the next level, don't hesitate to reach out. Whether you're a beginner or a seasoned trader looking to refine your skills, our coaching programs are tailored to your needs. Contact us today to learn more and start your journey toward trading success.

Unveiling the Success Secrets: What Sets Apart Winning Traders

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In the world of trading, adaptability is often the key to success. It's a lesson I've learned over three years of navigating the financial markets. Today, I want to share a significant part of my trading journey with you - the art of recognising changing market environments and mastering the art of managing losses.Trading isn't just about buying and selling; it's about understanding the ever-shifting landscape of the market. This understanding is crucial because not every day is conducive to every trading style. I've come to rely on statistical models to help me assess whether the market is in sync with my trading strategy.The second week of August was a tough one. The market seemed to be dancing to a different tune than my expectations. I took only two trades and ended up breaking even. However, I wasn't disappointed; in fact, I was proud of my patience during this period. This patience was my shield during unfavorable market conditions.<figure id="figure-y5ot8mhsfllnfqkwn"><img id="y5ot8mhsfllnfqkwn" src="https://cdn.durable.co/blocks/28i20mvaSFOGb59Ev2GNUgtavdwZZnEa9NuJmyw5FkFauWhV8nZDoxfOS1ICsOIZ.png" alt="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: center center;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionX="undefined" data-positionY="undefined"/></figure> Statistics and probabilities have become my guiding light. They help me make informed decisions and keep my emotions in check. If you expect something to happen a certain percentage of the time, you also expect it not to happen at times. This realisation has been crucial in shaping my psychology as a trader.For the first time in my trading journey, I've been able to quantify market environments and recognize them in real-time. I've developed a system that tells me when conditions are favorable or not. Armed with this knowledge, I can switch gears, play defense, and manage losses when necessary.Then, when the market inevitably returns to more favourable conditions. My best trading setup materialised, and I seized the opportunity. This single trade covered all my losses for the month of August thus far. But the real victory, in my eyes, wasn't the winning trade. It was the resilience I showed during those two challenging weeks when my preferred market environment was absent.In trading, change is the only constant. Recognising shifting market environments and managing losses are skills every trader must master. By adopting a data-driven approach, using statistics and probabilities to set realistic expectations, and staying patient during rough patches, we can thrive when conditions are favorable.The journey of a trader is a continuous learning experience, and I'm excited about what lies ahead. Let's continue this journey together, adapting and growing as traders.

The Kaizen Trader

Blog

The Surprising Secret To Increasing Profits Revealed!

Understanding the Impact of Short Term Variance in Trading

Comprehensive Backtesting Strategies for Trading Success

Trading Returns: What Is Realistic?

Unveiling the Success Secrets: What Sets Apart Winning Tr...

Recognising Market Environments & Managing Losses