The Mathematical Trap of Frequent Trading: Why Are You Destined to Lose Money?
1. The "Invisible Killer" of Trading Costs
Assuming a single trade cost of 0.5% (including commissions and slippage), if you trade 5 times a day, the annual trading cost will reach a staggering 625%! This means that even if your win rate is very high, frequent trading will have your capital consumed by costs.
2. The Harsh Reality of Win Rates
Even if you have a 60% win rate, what is the expected return from 100 trades? The calculation is as follows:
(60 winning trades x 1% - 40 losing trades x 1%) - 100 trades x 0.5% = -0.3%. This means that the final result of frequent trading is likely to be a loss.
3. The Warning of the Kelly Formula
The Kelly Formula tells us that when the trading frequency exceeds the optimal betting frequency, the capital curve will experience exponential decay. Frequent trading is like walking a tightrope over a cliff; a slight misstep can lead to a fall into the abyss.
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