Frequent or infrequent trading?

Every answer is welcomed except for ones like "do whatever suits you"
ok e.g.
R:R ratio 1:3 your chances of winning at 80%, 20% chance of losing. assume spread is around 3pips.

3,4,5,etc trades a month or 1 huge one worth the 3,4,5,etc trades a month?

e.g. 2: 10 dollars a pip, win $300 and risk $100+30(spread) 3 times a month or $900 dollars and risk 300+90(spread) once a month.

The question came to my attention after reading on some website that apparently statistics show that majority of traders that trade frequently lose more money than traders that trade infrequently.

"professional traders are aware of the dangers of trading too frequently"
looking forward to hearing your responses.

Hmm.... I don't think so will lose more money in high frequent trading. This has to depend on trader strategy performance and probability. I would sure agree with your point for the past of me. All i can say is trader's experience, concept and observation.

Actually, there are at least two issues that you need to think of:

1. trading costs
2. portfolio volatility

The higher your frequency, the higher your trading costs (in terms of bid-ask spreads, commissions, and slippage): BAD. However, in general, the higher your frequency, the lower your portfolio volatility (you can fit the market better, and also be "out-of-it" rather than "ride-out-the-volatility") : GOOD.

I would suggest that you look at your track record in those two terms and compare - the results will be a little different for everyone.

On a higher level, you can also compare the strategy with the rest of your portfolio. Given the same risk/return, I would pick the one that is least-correlated or most negatively correlated with the rest of your strategies.

But in general, I agree with the general sentiment that the less you trade, the better. If you want to trade more frequently, you must have good execution and low costs.

I have 2 comments.
First, the answer about frequency is simple.
Any trade from any strategy (good or bad) that is executed without flip-flopping has a 50/50 chance of wining with a R/R of 1:1. So, in the long run should be a Breakeven... but that is breakeven less spreads.
Therefore, if you use short stops and make a lot of trades, you will lose more or win less.

Say, you want to sell a high pivot. Every time price hit a previous high pivot you sell it.. that's it. If you use 5m chart, and use 10 pips TP and 10 pips SL, it is guaranteed that you will loss money. The spreads will eat up the 50/50 winners/loser given by default.

If you use same strategy in the 1h chart... 50 SL 50 TP you may win or loss little (less trades...less spreads). That is why scalping strategies end up being losers all the time.

Now.. if you use that strategy in the 1h charts... but works with 10 pairs, then, that would not be what I consider a high frequency. Even that I would have many trades. Basically, the length of the stops has more relevance to the profitability of any strategy then the frequency itself.


My other comment is about your example.
In a 1:3 risk/reward ratio the chance of wining is not 80% ... to me it is 33% by default and that is all.

I mean, I can assign any chance % I want, but I would need to prove it to myself. For example... I would need to gather stats of some 3000 trades using, say, 30 SL and 90 pips TP (100% consistent per 1 set of rules).

Now, If I have Have 2400 winners and 600 loss... then I can certainly say the chances of that specific entry is 80% in a 1:3 R/R. If not, it is whatever it is. Even a 40% winner will still make the strategy good, but the point is that when anyone talks about chance, it has to be backed up with some stats.

I mean.. as described, would be the holly grail.

J.

The 80% chance of winning the trade i was just using as an example, and for the 33% comment.. i was saying for it more like 80% chance of winning a 1:3 trade.

im hoping for some statistical answers
like trading "frequent style" 3 trades for example at 1:3 RR and 80% chance of winning the trade $10 a pip, 3pip spreads. 10pip s/l, 30pip t/p

1. t/p = 300, 130 if you lose (100 +spread) 80% chance to win
2. t/p = 300, 130 if you lose (100 +spread) 64% chance to win
3. t/p = 300, 130 if you lose (100 +spread) 51.2% chance to win
all in all if you win all the trades you end up with 900 or down 390 if you lose all

trading month 2 with just 1 big trade (same style)
1. t/p = 900 or 390 if you lose 80% chance to win.

where im trying to go with this is that if you trade more frequent you have more chance of losing a trade however you have a very low chance of losing all the trades.. most of the time you will end up with something but not much. As for the second and less frequent style, you have more chance of winning the 900 total however by chance that you lose you will lose all 390 and end up with nothing for the month.

if we expanded it into a 2 month period for the less frequent style
first month $900, 80% chance of winning
second month $900, 64% chance of winning
or 4% chance of losing 2 months in a row

i'm not sure if im on the right track or not, help please

I would recommend that you don't get too obsessed with % winning trades.

If you find a winning strategy with higher % winning trades, the average wins will tend to be smaller than the average loss. This sounds good for the beginner, but it's like collecting pennies to be run over by a truck once in a while: this is the the type of business that options sellers are in.

Moderately experienced traders would recommend that you follow the trend with lower % winning trades (because markets are sideways most of the time), which often come with larger winners and smaller losses. But that also means you need to have the patience to ride out the bleeding trades during sideways and choppy markets until your trending market pays off.

If you get even more experience, you might focus more on drawdowns and time to recovery, which tend to be better measures of risk: by this level, you will be more obsessed with risk rather than with profit.

But none of this might have any meaning for you unless you go through trial by fire. Depending on how you tightly you place your stops and target prices, that will impact your frequency of trading.

Like everything in this business, you have to find a risk-level that you can tolerate, psychologically, or you will not stick around long enough to ride out the bad times.

So the real answer, unfortunately, is, it all depends on your level of risk-aversion. BTW, Jeuro is right - throwing out theoreticals, in this case, isn't very meaningful. You need to test different systems and compare those results within the context of your tolerance for risk.

One other last note: you will know the answers to your specific questions if you run enough tests/systems. The answers are in the results.

Not sure how you are calculating the chance of wining..but t does not sound correct.

If you place a trade with 30 SL and 90 TP, your chance of wining is 33%.
If you place a 300 SL and 900 TP, your chance is the same 33%.

Each trade will have the same chance, the chance will never change if you you keep a 1:3 in each one of them.

But in theory, you have a better chance of "making money" or losing less using 300/900 then 30/90.

For example... say, you had a perfect results as per chance. or say you won 30% of the time.

using 30/90 you had 100 trades, 10 winners, 70 losers
Using 300-900 you had 10 trades 3 winners 7 losers.

With the same market move and same % of wining trades, you will have more money in your account have you used 300/900 Because you saved the spread of 90 trades. ( we don't see it in our balance , but in reality we had to make those extra pips for our balance to be equal... and that is at least 180 pips.)

To be honest, the least amount if pips targets should be around 40 pips, any less then that becomes a race against the spreads paid.

J.

Answer via question; If you were a fighter-jet pilot flying missions during a war, do you feel it would be safer for you in the long term, to fly 5 missions per day or 1 or 2 missions per week (or even month)?


If you were engaging in 5 “missions” per day would you become “war-weary”? Would your judgment become cloudy? Especially after the “war” had dragged on for years.


If you engaged in 1 or 2 “missions” per week would you be able to keep a clearer head over the long term? Which “pilot” would stand a better chance of surviving a 20 year career?


Not really an answer. Just food for thought (as I ask myself the same questions).

PS. You have to use a little imagination in the comparison but I'm sure you get it.