The Importance Of Smaller Steps

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“Why do you like him?”
“Because he gets on base.”


For those who haven’t seen the movie Moneyball (or read the book), the basic story is about an American baseball team who was the absolute bottom of their league, and realized that all they had to do was consistently get enough “base hits” (small successes) that in total over time, would add up to a big success. And it worked. If you like, you can watch the scene I’ve quoted above, here:

Now, the reason I’ve made this the topic for my post today is because over and over again I see traders only swinging for “home runs” (big wins). They want every trade to be “the big one” that is going to make their week, their month, even their year. And of course inevitably they blow up spectacularly because of this refusal to go for small but consistent wins.

It’s an easy trap to fall into, and I’m as guilty as anyone. Have you ever been so sure that “this one’s gonna work…” so you put on an extra contract, or another 100 shares, etc.? Or you find yourself with a negative P&L and so you see a particular trade as “the one that will save the day” so you load up to get back to positive P&L? Or do you ignore perfectly good little trades because you want to go for the big game? Or maybe for you it manifests as simply not taking decent profits when you have them, because you want the big profits?

How is your P&L looking over the last week, month, year? If it’s negative, would it look any different if you had just taken small profits every trade? Have you found yourself taking big losses because you stubbornly held out for the big win, only to give back a modest profit and have it compound into a big loss?

This is the power of small, consistent gains. They add up, and fast! In fact as an exercise, put together a spreadsheet that scales your trading based on account size, assuming just 3 ES ticks of profit per day. If you could consistently profit 3 ticks every day, after $4.20 total commissions per contract, and keep your position size at 10% of your account balance (so a $1k account trades 1 lot, when it reaches $2k it scales to 2 contracts, $5k trades 5, $10k trades 10, etc.) with a maximum position size of 50 contracts, by the end of 250 trading days you would be approaching $250,000!

Now of course this is totally unrealistic, because the fact is that most people will not be able to demonstrate the discipline required to get 3 ticks of profit every single day and stop. Plus most people’s psychology starts to go crazy as they scale, and they begin to do extremely risky things and make huge mistakes. But this exercise demonstrates the power of small, consistent wins.

The General Manager of the Oakland As knew it, and I suspect you know it too. So then the question becomes – why aren’t you going for small but steady wins? What’s holding you back from this? What makes you keep wanting more? It’s easy to say “greed”, but what motivates that greed? Is it something in your upbringing? Your culture? Your family? Do you have something to prove to someone? Do you feel like you will only be a “real trader” once you have made X dollars?

What’s actually going on below the surface, that nobody else sees? You need to really look deep within yourself to find the answer to these questions, but when you do, then you can start to unravel this mystery for yourself and just possibly, spot the trap before you fall into it and see a better equity curve as well.

Until next time, trade well!

Jonathan van Clute
Community Manager, Trading Research Group

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