Pip Mavens Principle #1

Be unconventional.

If you follow conventional wisdom, you'll get conventional results.

This is acceptable in many areas of life where the conventional result is generally positive.

In trading however, this is not the case.

In trading, the conventional result is negative; Most traders end up with a net loss!

And not only that, the distribution of profits does not follow a normal distribution.

It follows a power curve.

Profitability power curve

The disparity between the winners and losers can be described by a power curve:

profitable trader minority

At the bottom majority of the curve (in red) we see all the traders who struggle to turn a profit. They lose various amounts of capital ranging from a few hundred, to tens of thousands of dollars or more.

Meanwhile, at the top of the curve is a small group of winning traders (in green) who make substantially larger sums of profit.

In financial markets, the distribution of rewards tends towards a winner-takes-all dynamic.

The larger the herd, the lower the returns

Trading is - at best - a zero sum game.

The implication is that the more popular a trading approach, the less profitable it's likely to be.

Such is the nature of the game; The more people know about a trading method, the less money there is to be made with it.