1- Decent Volume
The more trades you enter, the more you give a chance to the odds to be in your favor. You can’t expect a system with a risk/reward of 1:1 and odds of 60% to be consistent if you’re only taking one trade a month.
Of course what we all want is consistent profit and that’s a solid argument, but if you’re joining a investment program or following someone’s trade and there is no trade opened at all after a week, you will start wondering.
Too much trades will opening the account to too much risk, especially if the trades were opened just because “it has to”, however too little trades and investor will start to doubt. Decent volume and frequency is the key here.
2-Shorter Trade Duration
The longer you hold a trade, the more unexpected variables can affect your trades. Unforeseen events can change the momentum of a profitable trade in a dramatic fashion.
You could argue that the event can make price action go your way, but the point of trading with an edge is to avoid relying on luck.
By holding trades, you are also increasing the amount of decisions that you can possibly make. For example, let’s say a signal has been profitable for a couple days. Suddenly, something big that could affect the trade happens, such as an economic news. Are you going to take your profits? Are you going to move your stop-loss? Are you going to let the trade run until either your stop-loss or take profit is hit?
By trading on shorter term, your signal provider limits the amount of variables that could cause a bad decision to be made.
3-Consistent Position Size
By entering positions of similar sizes, your signal provider is making sure that their losses are limited, and the size of their winning trades is consistent.
Although it might sound logical to increase the position size on high probability setups, it can become rather difficult to calculate a good “position size to probably percentage” ratio.
Increasing the position size on a trade that was thought to be of high probability could lead to regret, doubt or other trading mistakes. This is why I believe that using a consistent position size should be common practice from a consistent signal provider.
If you are looking for a high risk/high return signal provider, then go ahead and choose a trader that will pull the trigger when they feel the time is right. Don’t start complaining when their big trade goes against them, though.
Consistency can only be achieved by someone who has been trading for a long time, and who has a successful track record. Experience doesn’t only mean that they know their strategy like the back of their hand, and that they have applied it lucratively.
Experience also means that they will not be making any execution mistakes, such as entering the wrong position size, or accidentally entering a trade. They’ve probably done it in the past, and swore to never do it again.
It also means that they will show restraint when market conditions are not optimal and refrain from pulling an unnecessary risk for a possibility of big gain. If you see your provider entering a trade on bigger size than usual just because he thinks he can make a fortune from a big event that will be coming that day, consider it a warning sign. No matter how sure he is, there is always a chance that market won’t go the way he predicted and by doing this he put his entire investor’s funds at risk.