Trading and its Scalability
Today I would like to dedicate this entry to one of the aspects that I consider fundamental in trading, and that certainly was key in my beginnings to decide to dedicate all of my efforts: its scalability .
In fact, the great potential of trading lies in the fact that one is able to multiply their income without spending one minute in the actual trade. It’s possible today to double, triple or even quadruple your salary working exactly the same hours as today and doing exactly the same tasks. Not so when working a salaried job. With trading, it’s certainly possible.
There is no shortage of people who land in the trading world attracted primarily by money. Beyond money, and as passionate about the productivity that I am, what attracted me most was the potential to scale results by applying the same effort.
I was clear that I was not going to obsess about making a lot of money as soon as possible, but the real goal was to take what was, and then to be able to increase positions. I was looking for efficiency in trading, not abundance.
It is curious how the approach of those who face trading to get as much as possible as soon as possible eventually end up losing money 95% of the time, and yet, those who settle for doing little by little, usually have more favorable results and consistency over the time.
The “Dairy Tale” is very handy to explain scalability. It is common for a trader who is starting to target $100 per day in intraday trading. A round figure and seemingly reasonable target. I think it is manifestly obvious that making $100 is going to be more complicated than doing, say $20 a day. And surely, to make $100 a day you are going to have many losing trades along the way, so assuming your stop loss is also $100, surely your winning trades should be well over $100.
However, if your approach is to achieve $20 a day at first and climbing positions, things change. Making $20 is noticeably easier. If you do it consistently, the time may come when instead of trading with 1 contract, you decide to trade with 2.
Doing exactly the same trades as before (only doubling the risk, of course), you will be able to get $40 instead of $20. And it may even be time to trade with 5 contracts and reach that $100/day goal you were seeking with that single trade.
Although the reality of multi-contract trades is not exactly what I describe in this example, it is a common and very effective practice to use the various contracts to manage the position during each trade. But I think the idea of scalability is more than clear, which is why I consider that trading has an unusually attractive potential .