Go for Quality and Quantity in Trading

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Quality vs Quantity – Which is Better for Trading?

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There seems to be a ton of confusion on both sides regarding the Quality vs Quantity Argument when it comes to trading. Being such an important subject for a trader, I have been wanting to write about this for some time so it’s time to put some of the myths, mis-information and confusion to bed here.

One of the big forex trading arguments going around has to do with ‘Quality vs Quantity‘, and it is often masked in the typical;

-Trading Higher Time Frames = More Accuracy

-Trading Smaller Time Frames Carry More Risk

-Anything Below The 1HR Charts is Just Noise

-Quality Trades Make More Money Than Quantity

In regards to the above statements, only one of them is true, but it is incomplete by itself and does not paint the whole picture.

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Today’s article is here to dive into this subject, explore both sides of it, and talk about which of the two competing theories is correct.

Quality Is Better Than Quantity When It Comes To Trading
I know two groups of billion dollar business entities that would completely disagree with this argument. They would be Casino’s and HFT shops ( High Frequency Trading ).

Casinos often times ( in the various games you can play there ), only have a slight edge, often times 1-4%, meaning they are 51-56% likely to win at every play, with a 49-44% chance to lose. This small edge might not seem like a lot, but played out over 1000’s of times a day, and it all adds up.

HFT algos also take a similar approach. They are not trying to make huge winners and let trades run for days. They are in anywhere from hours to minutes, perhaps seconds, or even nan0-seconds. They make small trades for ultra small profit, but they do this hundreds of times a day, and make money year in year out.

These two things alone debunk the whole quality is better than quantity argument , as they are highly successful at what they do. In 2020 alone, HFT firms made over $1.2B ( yes, billion ) in profits. Not bad for having such an inferior trading style!

HFT methods simply use the mathematics and repetition of the edge to make profit. It’s an edge – maybe not the easiest for a human trader, but an edge nonetheless, and it makes money.

The bottom line is, if you have an edge, the more times you can apply it with the same level of accuracy, the more the edge will play out in your favor . And that leads to more profits.

A Comparison Approach
To really see the numbers and a comparison approach, let’s take System A with 60% accuracy, trading 5x a month, risking 100 pips and targeting 200 pips. Below is how the math works out;

5 trades over 12 months = 60 trades per year
60 trades x 60% accuracy = 36 winners and 24 losers
36 winners at 200 pips gained = 7200 pips gained
24 losers at 100 pips lost = 2400 pips lost
Total Profit = +4800 pips

Now, lets take System B , which is the same as System A, but bring down the accuracy just 5%, assuming you will be less accurate trading the same system on a lower time frame. Let’s have you trading 20x a month (

5x per week ), risking 50 pips and targeting 100 pips (same ratio of risk to reward). Here is how the math plays out below;

20 trades a month = 240 trades per year
240 trades at 55% accuracy = 132 winners and 108 losers
132 winners at 100 pips gained per trade = 13200 pips gained
108 losers at 50 pips lost per trade = 5400 pips lost
Total Profit = +7800 pips

Assuming you risked the same equity % per trade using System B – trading quantity over quality made more pips and profit . Even if I make System A 15 % more accurate than System B, here is how the math plays out;

60 trades at 70% accuracy = 42 winners and 18 losers
42 winners at 200 pips gained per trade = 8400 pips gained
18 losers at 100 pips lost per trade = 1800 pips lost
Total Profit = +6600 pips

As you can see, even being 15% more accurate, System A still under-performs System B . Only until you get to 77% accuracy will System A outperform System B.

So this whole argument that Quality over Quantity is mathematically false .

One of the key questions you should be asking yourself then is;

Can I be 77% accurate trading my system on the higher time frames?

If not, you may want to reconsider how to maximize your edge, which is all you are really doing in trading. But the fact is that trading on higher time frames will take longer to make money as you will have less signals in the market.

Key Points
A few of the typical or vanilla counter-arguments to the quantity makes more than quality statements are;

1) Trading higher time frames is less stressful and is More Accurate

2) Anything below 1hr charts is just noise

3) Trading lower time frames causes you to over-trade and over-analyze

Of the above statements, only one is true to some degree (#1) , but again it is incomplete by itself and needs to be fully understood. Let me break down each one so you can fully understand the differences.

Trading Higher Time Frames is Less Stressful and More Accurate:
Of all the statements, this is really the only one with some truth, and it has to do with the second part ( being more accurate ).

I have quantitatively tested various 1, 2 and 3 bar price action signals (over 24 in total), such as pin bars, inside bars, engulfing bars, 2-bar reversals, outside bars, and more across every time frame from the 1m to weekly. Statistically, if you are just trading these patterns by themselves, they tend to be more accurate on time frames such as daily and 4hr strategies (along with the 1hr), then they do on say the 5m.

The reason for this is, a daily candle includes 24hrs of price action, therefore 24hrs of market sentiment and order flow, which is three sessions total. This can have a lot of info as to how players are positioning themselves both intraday and daily.

Thus, with a greater amount of market sentiment over a longer period of time, you can trade some of these patterns with greater accuracy.

However, as we have seen above, greater accuracy does not always = more profits. One thing should be noted though accuracy is not the same trading the often promoted NY Daily Close.

I have one system that on the NY Daily Close, on one pair, trades highly accurate, but another pair quite poorly. If you have an idea as to why, write in a comment below, but the statistics and profitability are night and day, so NY Daily Close is not ideal for all systems, pairs and time frames, and in many cases, under-performs massively.

Thus to sum it up, trading the higher time frame ‘can’ lead to more accuracy.

However, the notion of trading the higher time frame is less stressful is not true, and really a matter of having a successful trading mindset. Some people are more naturally wired to have a set and forget style of trading. Others are better at managing small details, so trading a higher time frame would actually work against their natural mindset.

There is no one-size fits all, thus the key is to find what is most natural to you.

I would like to state generally, if I was starting with a new student, I would start them on a higher time frame as accuracy in the beginning is critical to the learning process. This is exactly how it is in my archery training – in the beginning you start with a target close by, say 3-6 meters, and only after time do you move to targets farther away.

But the idea of lower time frames being more stressful is a matter of mindset, training and practice. Stress is based on how one perceives information and reacts to stimuli. To some people, being bored is more stressful, and there are tons of studies that boredom can hugely interfere with the trading and learning process. For an F1 driver, being stuck in traffic may feel like torture, but doing 150MPH may be joyful. Food for thought.

Anything below 1hr charts is just noise:

First off, this argument often comes from daily chart traders saying price action below the 1hr is just noise. Ironically, this same argument comes from 1hr chart traders who say the 1m time frame is just noise. Who is right, and is it just a matter of perspective?

The truth of the matter is, although there is a greater possibility to witness ‘ noise ‘ (price action that is the result of non-directional interest and order flow), on lower time frames, support and resistance levels work just the same. They simply require a little tweaking. But the bottom line is, order flow creates price action, and price action is simply information.

Using a recent example of a live intraday price action trade I did on Gold, take a look at the two charts below;

Exhibit A (4hr Time Frame Gold/USD)

Looking at the chart above, we can see three strong reactions to the $1685 level on Gold, all communicating strong buying interest at this level.

Now look at the chart below which is the third rejection on the 5m time frame.

Exhibit B (5m Time Frame Gold/USD)

Looking at the chart above, we can see the same strong reaction and buying interest off this level in the first wick. But we can also see there are two high quality price action signals off this level, with a pin bar false break, along with an inside bar + pin bar combo.

I actually got long on this trade, and made over +1415 pips of profit just using pure price action on the 5m chart.

Does the price action at the bottom of this chart look like ‘ noise ‘ to you?

I don’t think so, and it shouldn’t.

Learning to filter out useful information and helpful information is just a matter of training and time. But the idea anything below the 1hr chart is just ‘noise‘ is ridiculous and really a freshman understanding of price action.

Trading Lower Time Frames Causes You To Over-Trade and is Greater Risk:

Although there is some truth to this, it really is misleading. If you analyze each bar, sure, you will be over-analyzing the charts, but this applies to any time frame. In a choppy range, you are not watching every bar for clues, especially the bars in the middle of the range.

However, if you are marking your key levels on a higher time frame, and simply looking for signals at those levels, then the chances of you over-analyzing are slim. It is really a question of trading and preparation- not a fact that you will over-analyze.

The mind has neuro-plasticity to it and can learn almost any skill. You can learn to filter out unimportant bars and price action on the chart – all it takes is a little practice. Once you do, you wait for your key levels and signals, and get in without any extra analysis or stress.

The whole idea of doing less is better for you (or being lazy), I have already demonstrated, doesn’t make you more profitable. Try this same logic to exercising, playing piano or hitting a golf ball, and tell me how that works out!

As to trading the lower time frames or intraday trading equaling greater risk, is a confusion. Risk has nothing to do with the time frame. Risk has to do with three things;

1) Position Sizing
2) Size of Stop Loss in Relation to Target
3) Accuracy

I can have a 3 pip stop (via position sizing) = more risk than a 500 pip stop. I can also make more money with a 50 pip target and 20 pip stop (2.5:1 reward-risk ratio) than a 500 pip target and 250 pip stop (2:1 reward to risk ratio), with the same equity % at risk per trade. So this notion that risk is > on lower time frames is mis-informed.

Does This Mean Quantity Is Better Than Quality?
This is the real question, and it comes down to edge, personality and availability . If you are not available to trade more throughout the day, and have a full time job with only a few hours to view the charts, then I’d suggest trading the higher time frames. However, if your personality is more suited to being more active, then trading 4-5x a month could be harmful to your learning process. So remember trading rule # 1 – know thyself when it comes to trading, and find a system, time frame and style that best suits you.

And we always have to consider our edge. If we trade the daily time frame at 60% accuracy, and the 4hr or 1hr time frames more often with slightly less accurately, do the math and see how it works out. If it’s more profitable trading more often with slightly less accuracy, then do it, as long as it doesn’t throw off your life or health.

But the bottom line is, the whole argument quality is better than quantity doesn’t always hold up , and you need to do the research and the numbers to determine which has a greater edge. And without a doubt, it is a fact if you can take your same edge, and apply it more often than you are now, you will make more money and be more profitable.

Thus, in regards to the question as to which is forex trading method is better, the answer is neither one is better, but both!

Quality matters, but can under-perform. Quantity repeats the process faster of making profit, but has to be considered in the larger scheme and what is most natural for you. However neither forex trading method is better, and the best edge lies somewhere in between the two.

So don’t be fooled by any freshman arguments stating one is better than the other – because they are simply not true, highly inaccurate and misleading.

Hopefully this quality vs quantity forex trading article will put a lot of the mis-information to rest, and give you a new perspective on this critical subject. In a follow up article, I will talk about how I approach this subject in my personal trading, and what I think is the ‘ Ideal Trader ‘ in relationship to these two.

Kind Regards,
Chris Capre

Quantity vs. Quality

Hello traders! This week I’d like to discuss a common misconception that new traders have – that professional traders sit and stare at their computer all day, making dozens of trades during their trading day. In addition, I’ll suggest a progression of trades you can add to your trading plan to help keep you from over trading.

During many of the Online Trading Academy classes that I teach, the question often comes up as to how many trades I take during a day or a week. Many new students are surprised when I give my answer of “between zero and three trades a day.” Their surprise is especially evident when discussing the forex market because it is open 24 hours a day, from Sunday afternoon to Friday afternoon! With all that time to find trades, why don’t we trade dozens of times every day? My answer is always, “We don’t get paid on the quantity of our trades, but on the quality.”

In this GBPUSD 60 minute chart, there are a couple of supply and demand levels drawn in, with several blue arrows indicating potential trade entries from those levels. (Trade exits have been discussed several times before, and I’m sure will be discussed again in the future!) Seeing these high quality supply and demand zones would lead us to take only about five trades in this period of time-about 10 days. Why only five? Aren’t their several other support and resistance areas, plus maybe a trend following trade or two in there? Of course! But the professional trader and the Online Trading Academy student knows to take the high quality levels, those which offer them the highest probability of being correct in a trade. Each one of the numbered trades would have potentially earned the trader anywhere from 70 to 150 pips per trade over the next few hours or days.

In this GBPUSD 10 minute chart, covering only a portion of the previous 60 minute chart, there were a couple more opportunities with correspondingly smaller profit targets. Common knowledge of trading says that the smaller the time frame you watch, the more trading opportunities you will have – with both smaller stops and smaller profit targets. Which then leads to one of my favorite things about the markets-you get to customize your trading style to your life, instead of living your life around the markets! Not many experienced traders want to stare at the screens for hours a day, trying to take advantage of every potential move that shows up. Most of us want to set up our trades and walk away from the screen, letting us enjoy the rest of our time pursuing other interests. This is the beauty of our current trading technology available to the retail trader! Many platforms allow us to “set it and forget it” – meaning we can place our entry, stop loss, and profit target(s) with a few quick keystrokes in a matter of seconds. Twenty years ago when I first got into the markets, active traders had to be a lot more hands-on during the trading day, rarely leaving our trades alone. Once you have a few high quality supply and demand zones on your charts, most of our time now is spent either waiting for price to get to a level so we can enter our trades, or waiting for price to hit the next level so we can exit our trades! The actual time spent doing the physical activity of trading is negligible.

In our Extended Learning Track programs, most classes begin with what is called a “splash screen” where different levels are chosen by the lead instructor. These levels are potentially tradable supply and demand zones. You will find that there are only a couple of quality levels marked – again, quality over quantity of trades.

This leads me to our next topic this week, overtrading. As previously stated, many new traders think that you must take many trades a day to make a living at trading. Your broker will love you for being an active trader, but your profitability may not be much higher than someone who takes far fewer trades than you. In fact, it may be worse! During class I suggest new traders to take only a small number of trades per day or week, and only increase that number as they become more and more profitable. Here is my suggestion: if you plan on being a daytrader, consider only taking 2 trades a day. This way, you will concentrate on the higher quality levels, and not chase any trades. If you know you will be near your trading computer for several hours today, but only allow yourself two trades, I doubt that you will fire them both off in two minutes!

When do you get to trade more often? When you are bored making money with 2 trades a day. That sentence has two very important components. The first is you HAVE TO BE MAKING MONEY! I wouldn’t want to trade more often if I wasn’t profitable – all you would be doing is losing more money faster! The second component is you have to be bored with that level of activity – you have to want to trade more often. When do you get to do 4 trades a day? When you are bored making money with 3, and so on and so on.

What about swing traders? Try 2 trades a week, until you are bored with it. Position traders may do 2 trades a month. Eventually you will get to a point when trading more often isn’t really adding much to your P & L, but it is adding to your time in front of the computer. Walk away and do something else with your time!

In conclusion, concentrate on the higher quality supply and demand zones, take fewer trades, and maybe make more money! Until next time,

In Trading, It’s Quality, Not Quantity

Today it seems like our lives are ruled by “quantity”. How much money we make, how many toys we own, how many 10-second texts we get/send, throw-away electronics and cheap processed food. Quantity has become very important, and quality has been left in the dust in many ways. The ironic thing is that to get more “quantity” (or quality, hopefully) in our life, many of us turn to trading–a seemingly easy way to make more money. Unfortunately, trading doesn’t reward you for taking as many trades as you can; it rewards you for taking quality trades.

The Drive For Quantity

In trading I see two common themes (there are more, but these are the most common) which drive traders to trade too much, and thus dwindle away their trading capital on low quality trades:

  • The first is the idea is that “If I make $100 (or whatever your profit is on an average trade) on one trade, then I make $1000 if I take 10 trades.”
  • Humans like to find reasons for doing things–even if the reason is totally flawed and illogical. If your brain decides it wants to make a trade (maybe you are bored), your brain then starts giving you all sorts of information to confirm making a trade. In other words, when there is no reason to trade, your brain makes up reasons.

A Move Toward Quality

While the first bullet point is mathematically true, when day trading there are only so many good opportunities each day. The number of high quality opportunities you find will depend on your strategy, but you can’t force good opportunities to arise. Either they show up or they don’t, so you can only trade what is given to you.

Some days there will be no trades; other days there will be more. If you are patient and disciplined, only taking good opportunities as they are arise, you will likely be much better off than if you try to trade more. By trying to take more trades, you’ll typically end up with more losing trades and erase the profit from the good trades.

The second bullet point is harder to overcome. The first step is to ensure you have a detailed trading plan, telling you exactly when and why you will get into and out of trades. If your brain starts telling you to get into a trade, look at your plan. If what your brain is telling you to do isn’t part of the plan, don’t take the trade.

This is hard to do. But slowly the mind will stop sabotaging you. You must remain disciplined and stick to the plan, even when you brain is screaming something different. If you struggle with not being able to stick to your plan, see The Problem of Trying to Outwit Your Trading Plan.

Bringing it Together

Great traders take trades when the price is near certain levels, or experiencing very specific conditions. When those price levels or conditions aren’t present, great traders look for reasons to avoid trades.

Poor traders try to find reasons to make trades at any level, regardless of whether it is an important level or specific conditions are present.

There is a big difference in market outlook between the great and the poor trader. The great trader is opportunity seeking at high probability times only, while the poor trader tries to create opportunity everywhere and ends ups dwindling away his capital.

In trading it is about quality. Focus on refining your strategy to produce a handful of high probability signals most days. Realize that some days there just aren’t many great opportunities, and be disciplined enough to hold onto your capital for days when there are.

Each dollar you waste on a random, undisciplined, low probability trade is money you can’t use when you see great opportunities.

The world is ruled by the quest for quantity. Don’t fall for it. Focus on quality, and your trading–and life–will improve.

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