The most consistent trading strategy will ultimately lead to unparalleled results in the long run.
Paradoxically, consistency in trading both exists and doesn’t exist. This gives us a feel for the weirdness of superposition as is the case with Schrödinger’s cat.
Top profitable traders are consistent, but are they predictably consistent? Hardly @DwightSchrute . This does not mean that the strategy they are using is defective, but rather that it requires improvement.
Consistency depends on a multitude of factors and is ubiquitously improved technically. The less obvious enhancement approaches are the biological one and mental one. The former requires fighting bad habits, while the latter calls for warding off short term obsession with the result and trading in an external state.
This said, the Sharpe ratio is one important indicator investors can use to spot consistency and detect whether the trader is working on optimizing results while sticking to it.
How so? If we attempt to reverse engineer the Sharpe ratio, which is easier said than done, we notice that one path to do so is to generate small returns in a persistent recurrent way and then magnify them through leverage.
Traders would start by reducing volatility through lowering net exposure to a 10% band (it would be helpful if net exposure was added to the statistics), and repeatedly generate small returns while increasing leverage gradually as they go.
Just saying.
