The “High Probability” Distraction

When traders are struggling to get results, I often hear a story that goes something like this:

I’ve tried a lot of different strategies. They just weren’t right for me. I’m sure they work for other people but I’m still looking for something that will work consistently for me.

The desire here is for two things:

Comfort and Consistency

Comfort that the strategy is something that works

And consistency because they want to see it work “for them”, right away, and continuously

I’ve got good news and bad news for you

The bad news is that you will not get both of those from the markets at the same time.

If you are looking for “comfort” in the markets, then you are looking in the wrong place. The markets are inherently uncomfortable. The markets reward those who don’t mind discomfort and take the right actions regardless of their comfort level.

And the challenge with looking for consistency is that the strategies which provide the most consistency have one of two negative characteristics which usually outweigh the benefits.

Those two negative characteristics of highly consistent strategies are:

  1. Very low reward, and/or
  2. Enormous tail risk

For example, treasury bonds and Certificates of Deposit provide extremely consistent returns with very little risk. But the returns are the lowest you will find.

And if you want to find highly consistent returns that are not very low, then you can play with far out of the money short options or high probability mean reversion strategies. These can be leveraged to provide much higher returns, but these same strategies have sent many professional traders and hedge funds to an early and sad retirement.

If you would like to have consistency with high returns but without the risk, then watch this presentation to learn how to add income with commodity options trading.