Small profit more frequent trades or big profit less frequent trades

3 day swing trade in CF

One of the constant question faced by new traders. They constantly shift from one end to another. Last night I got two emails and that had me thinking about this.

One person wants to only swing trade few triple etf while the other wants to only focus in finding stock likely to double. Focusing on less number of things will make higher returns or improve focus is the basic assumption.

Having thought about this issue a lot and researched it a lot in last decades , my view is the more opportunities a trading method produces better it is. Given a choice a method that produces 1000 trades in a year is better than a method that produces only 10 trades in a year.

A swing trading method or day trading method that produces frequent trades has big advantage over methods that trade less frequently even though the profit per trade is small. For example in the above CF trade I risked 254 dollar on a trade in a 110000 account to make 672 dollars in 2 days. In a year I am happy to find 500 plus trades like these and risk small amount. With commission cost being so low, it is better to trade frequently. For example in above CF trade my commission was 4 dollars. That is insignificant cost. 

A trader who focuses only on finding big opportunity has to bet significantly higher per trade to ensure higher returns. That significantly increases risk.

While a swing method that produces say 10 trades per day with lower per trade profit is significantly better as long as it has net profitability over large number of trades. Currently 53% of my trades work and give me 2.05/1 risk/reward. Then it becomes a task of finding more trades. Higher the number of opportunities, better it is. More trades you take with say 53% expectations level better it is as you can bet just .25% and still make good returns by increasing number of trades.

While everyday I look for a big opportunity trade like FB which made over 70% return on one trade last year , I am more focused on finding the small opportunities. The big trade is a bonus if it comes along, I will definitely take it.But as these trades require big risk if they do not work out , finding next opportunity involves long wait periods. 

Grinding out profit using swing trading is less risky due to small per trade risk as long as you have profitable method and it produces large number of trades. that allows you to increase your account in small but frequent increments and is less stressful. 

For a new trader who is just starting out this is even more important . Frequent trading with low risk allows you to build your skill faster than a less frequent trade method. It is also the reason most of the wall street and quant traders use high frequency trading methods with low per profit trade. With commission cost being so low, it is better to trade frequently.