Jim DiMaria learned an important trading principle in the less lucrative arena of baseball statistics: The players who score the most runs are home run hitters, not those with consistent batting records. It's the same with trading, DiMaria says. Consistency is something to strive for, but it's not always optimal. Trading is a waiting game. You sit and wait and make a lot of money all at once. The profits tend to come in bunches. The secret is to go sideways between the home runs, not lose too much between them.
Jim DiMaria
Why is basing your time horizon on quarters such a big mistake? The preoccupation that so many people have with twelve month returns is not smart trading. Top traders could not care less about twelve month returns, so why must you? The prime objective of top traders worldwide is to make money.
Quarters do not predict: Top traders know that focusing on quarterly objectives has nothing to do with success since that would assume you can control how much you make. Does anyone believe they can control how much they make? Quarterly performance reporting is nothing more than another way to mislead yourself pretending you can predict the market or shoot for profit targets.
Quarters are not real: They are artificial start and stop points. You are bombarded by references to quarterly performance numbers from almost every media outlet right? Most people focus on their portfolios from a quarterly perspective only. Why? Because the perspective may not be real, but it is easy, and most people prefer to go through life mindlessly. However, to properly evaluate any trading style a rolling 36 month window must be employed at a minimum. For example, say your trading system had little performance gain for the last 3 months of the year, but since Trend Following is long term in nature, it explodes with profit in the first month of the new year. With quarterly reporting you would look at this system as having a bad fourth quarter and a good first quarter. How does this interpretation help you? It does not.
Ponder what Jim DiMaria said above. Home runs may not feel easy or safe, but what is your alternative? You can either trade aggressively putting yourself in position to get rich or you can give your money to a mutual fund and buy and hope. DiMaria is really talking about being trapped in the quarterly performance cycle spin. You can worry about meeting some artificial time objective or you can be a home run hitter and take what the market gives no matter when it arrives.
