The importance of consistency over absolute returns

Daksh Murkute | | |

What do you think is better, making money consistently in trading, or having huge wins followed by huge losses every now and then?


I’m sure you might have a perspective already or might even not, but it is very important for you to know the right thing as it will shape the way you trade.


In this blog post, I’m going to tell you about consistency and absolute returns and I will tell you exactly why you should aim for consistency in trading than to try and aim for more and more profits.


So I’d suggest that you stick around till the end as this is something that can directly affect the way you trade.




What is consistency?


What is Consistency?


So the literal meaning of the word consistent is something that happens over and over.


Now when I use the word consistency in trading, what I’m actually referring to is consistency in profits made or the money earned in the market through trading.


You will have heard traders say that they are consistently profitable. What does this mean? It means that they make profits repeatedly, from time to time, and it’s not a temporary thing.


Say that a trader is trading with a $100,000 account and they have been trading for 3 years.


Their yearly gains might look something like this -

Year 1: $40,000

Year 2: $60,000

Year 3: $50,000


What can you understand from this? The trader does not make money in one year only. They are making money consistently over a period of time.


This is something that every trader should aim for. But wait, I’ll get to more on this later on in this blog post.



What are absolute returns?


What are absolute returns?


Absolute returns here would mean the total amount of money earned or the total profit made through trading in the market.


Say that a trader started trading with $100,000 in their account and say that after 3 years, their account is now at $250,000.


This means that they have earned a total of $150,000 within 3 years, and it seems pretty decent right?


So this is what absolute returns are. Here I have mentioned it in proper dollar terms, some traders might say it in percentage terms.


For example, if the trader trading with a $100,000 account says that he has earned 150% within 3 years then they’re saying the same thing, they earned $150,000 within 3 years.


These numbers seem big, right? But what if I told you that you shouldn’t just look at absolute gains? I’ll explain it to you now.



Why should you aim to be consistent over having more returns?


Why should you aim to be consistent over having more returns?


I’ll explain this to you with an example. Say that there are two traders, Tom and Harry. Both started trading with a $100,000 account and after 3 years, both have $250,000 in their account.


You might say that both traders are the same as both made the same absolute gains of $150,000 each.


But what if I gave you more information on their yearly gains, then you might rethink.


Tom -

Year 1: $40,000

Year 2: $60,000

Year 3: $50,000


Harry -

Year 1: $100,000

Year 2: -$50,000

Year 3: $100,000


Do you notice something that is clearly evident here? Tom has been consistent with his gains while Harry’s equity curve would have been all over the place.


Now, this might not give the entire picture here as both traders might be trading with different strategies and their performances would’ve been affected due to different market conditions.


Their strategies might be based on order blocks, breakouts, reversals, or even just plain support and resistances.


But I want to put light on the fact that being consistent with your profits or gains is the way to go in trading. Having a smooth equity curve is something you would want to aim for.


It might seem difficult to maintain such an upward rising equity curve year after year but you need to prioritize that over making higher absolute returns.


That’s because if you prioritize absolute gains, then you are thinking more short term than long term and you might start taking unnecessary risks to achieve that.


But on the other hand, if you prioritize consistency, then it means that you are thinking long term and you will trade with that proper mindset, which trusts me when I say, is key in trading.



What do you think?

I want to know how you approach this topic. Do you prefer absolute returns over consistency or vice versa? Do let me know.


Having such conversations is very important as it helps shape our mindset and perspective and it might just unlock the next level in our trading.


Don’t forget to share this blog post with others and let them also get a perspective on this topic.


Feel free to ask me any questions in the comments section below and I’ll get to it at the earliest.

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