The biggest mistake beginner traders make is to become overconfident once they make a substantial profit on a one-off trade. In many cases, this is more because of luck rather than real skills. The best traders, investors, and fund managers worldwide are the ones who manage to deliver consistent returns. That is why every professional you ask will tell you that it is more important to continuously make small wins, instead of the rare big one. To nurture that philosophy in traders, the Gauntlet Mini™ program employs the so-called “Maintain Consistency” rule. Here is what it says and why it is so important.
How The Maintain Consistency Rule Works in Practice
The “Maintain Consistency” rule is based on the daily calculation of your PnL, as well as the total profit of your Gauntlet Mini™ account. The rule states that you won’t be allowed to pass the examination if your PnL for a single day accounts for over 30% of your total profit. The daily PnL is taken into account regardless of whether the current account balance is below or over the starting one.
You are taking the Gauntlet Mini™ $100,000 trader program, and your total profit equals $10,000. However, you made $3,500 of that profit on a single trading day. That sum represents 35% of your total profit, which exceeds the allowed 30% maximum.
Just because this is the case does not mean you fail your evaluation. Instead, you will need to continue trading until you increase your total profit. Increasing your total profit will decrease the percentage share of the profit that one $3,500 trading day makes up. This makes your overall performance more consistent and brings you closer to the 30% requirement. You will have to continue trading until there is no day for which the PnL accounts for over 30% of your total profit.
Why Is This Rule Important?
The simple truth is that the “Maintain Consistency” rule is important because it helps you become a better trader.
Although financial markets move in cycles, no cycle is identical to the previous one. Market dynamics change, which means trade setups are unique and really hard to replicate over time. The best way to navigate the changing market environment is by building a sound trading strategy that delivers more often than not.
The “Maintain Consistency” rule is designed to prioritize consistent performance over one-off profits. Its goal is to award your discipline and the willingness to follow a trading plan and remain on track by adhering to your pre-defined rules.
On the other hand, it helps minimize the speculative element in your trading style. It also lets you build habits that will ensure your long-term success. It does so by putting a cap on how much one-off trades affect your total profit. This reduces the effect luck plays in your overall trading performance.
How Does it Affect Traders?
This is especially important for beginner traders who may often fall into the trap of overconfidence. Many traders out there have, at some point, thought that they somehow cracked the code of the financial markets, just because they made a significant profit from a one-time trade.
However, the truth is that extreme one-off profits are more often than not a matter of luck, rather than skills. That’s because the specific momentum or opportunities that gave rise to them might simply never replicate. This means relying on the exact same trading philosophy isn’t viable if you want to become a successful trader. Besides, in the long-term, consistently earning small returns tends to prove much more lucrative than winning the odd one-off trade here or there.
If you think of the industry’s finest, you will see that most of them have a reputation for being consistently profitable, not for just a few impressive trades. Warren Buffet’s investments and Jim Simons’ funds have been reliably delivering profits for ages.
On the other hand, John Paulson, the hedge fund manager who made 15 billion dollars betting against risky mortgages during the Financial Crisis and inspired the “The Greatest Trade Ever” book, never managed to top or even replicate his past performance. In fact, he had severe losses on several trades later on in his career.
How To Maintain Consistency
To maintain consistency, you need a sound trading plan. A sound trading plan means a strategy that is tested and fine-tuned to work within your preferred market. You need to tailor it to your trading style and the asset’s specifics. It needs to be time-tested to ensure it can deliver under different circumstances. In addition, it needs the right risk management tools to allow you to mitigate losses and get out of the market as soon as it turns against you.
On the other hand, a sound trading plan isn’t a universal solution that you can apply equally when trading bonds, stocks, futures, ETFs, and FX. You should know that it also can’t work 100% of the time. It will inevitably lose money in some situations.
What’s essential is to make sure you have done everything right when constructing your strategy, and don’t let emotions get in your way. Make sure to stick to your trading plan no matter what distractions you face.
For example, the number one thing to avoid is to jump on a high-profit potential trade the second it emerges if it goes against your trading plan. If you want to maintain consistency is to make sure you think twice when faced with such a tempting opportunity. Even if you do and it turns out lucky, in the long-term, you will fail without discipline. Throwing your risk management strategy in the bin makes you prone to huge losses.
A great way to maintain consistency is to keep a trading journal with records of your trades and emotions when losing and winning. That way, you can analyze your past performance and the circumstances around particular trading setups. Doing so will help you make more informed decisions in the future.
Do You Have to Follow This Rule After Getting Funded?
You don’t have to follow the rule after getting funded. You have to comply with it only during the evaluation period.
However, if you aim for consistency throughout your career, adopting it as a core principle can only help you improve and become a better trader.