Boost Your Annual Rate of Return with Trade Frequency
Nick Radge explains how to boost your annual rate of return by increasing your trade frequency but still managing your risk.
An important element of having a positive expectancy is trade frequency. In fact, I read the other day if on January the first, you buy the S&P 500 and hold for 25 years, and exit it with a 25% trailing stop, you’ve got an 89% chance of making money. But the problem with that, it’s going to take a whole lifetime to actually execute the strategy. So, regardless of how good that strategy is, it’s pointless in the real world.
There’s a balancing point between having a good system that’s useful and having a positive expectancy.
So trade frequency is a very important part of profitability.
Trade Frequency
There’s a number of ways you can increase trade frequency. Think of the casino analogy again. What do they do? They’re increasing their trade frequency by getting people in to play the casinos. They’re open 24/7, free alcohol, whatever. It’s gonna happen here in Australia sooner rather than later. We’re just dumb enough to pay for alcohol at the moment, eventually the casinos will keep us going there with free alcohol.
There are ways to increase trade frequency. You can trade other markets, other instruments. There’s a big wide world out there. Australia’s got 1900 stocks, we can go to the US and all of a sudden we’ve got access to thousands of Nasdaq stocks, for example.
And then we’ve got all these other markets around the world too. So, if you find a system that works and you have enough capital there’s no reason why you can’t increase your trade frequency by expanding to different markets.
I mentioned before that my trend following model you can bring it down to a one minute chart. So if I get 50 trades a year from an end of day chart, well you can imagine if I go down to a one minute chart I’m probably gonna get 20 or 30 opportunities a week. So that’s another way to increase your trade frequency is by going down on a time frame or several time frames.
Obviously, personality dictates if you really want to sit in front of a screen all day. Maybe you do, maybe you don’t. Some people do. But that’s a way to increase your trade frequency.
Positive Expectancy
Another way to increase your trade frequency is once you understand positive expectancy and why it will work for you, you’ll automatically start to see other trading opportunities. You start exploiting your positive expectancy. So you might have strategy number one sitting over here ticking away with a positive expectancy. Now that you fully understand positive expectancy, you can have strategy number two ticking away over here as well and then strategy number three, and strategy number four. All you’re doing is exploiting positive expectancy using different strategies.
It all comes back to positive expectancy though, not the strategy. Most people look for the holy grail, they look for one strategy.
