Mission Impossible: Consistency?
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Consistency is one of the most important concepts (if not the most important concept) in trading. On Sept. 15, 1999, we pulled out a calculator and did a simple exercise: If a trader was consistently profitable and he doubled his money every year (after tax), how much would he make after 20 years of trading? The result was amazing. (See the article below.) Consistency is so important (and so difficult to achieve!). Therefore, it is listed under our General Concepts: http://skybluemonthly.freeservers.com/thoughts/thgen.htm
Let us assume that a consistent trader has US$10,000 at the beginning of year 2000, and he is very consistent and doubles his money every year (after tax), the calculation is:
This is the result if you can double you money every year. (Annual Return = 100%) I have not seen anyone who has done it. Obviously, it is a daunting task. It may be the ultimate Mission Impossible!
This simple calculation clearly indicates that the most important thing in trading is consistently profitable. For those who know Mathematics, the above is an exponential function. Exponential Function is incredibly powerful. A good example can be found at this site: http://www.isat.jmu.edu/users/klevicca/GIST141B/Unbounded/unbounded.html Under optimum conditions, Eschericia coli (E. coli) grows and divides approximately every 20 minutes; if optimum conditions can be maintained, after 24 hours, the mass of the bacteria would increase from 10-12 g (the mass of a single E. coli cell) to 4,000 metric tons. Of course, we are talking about money and profit here, not E. coli. But the basic principle of exponential growth is the same.
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