“Ergodicity.” It sounds like a planet in a bad sci-fi novel.
But in trading, it is the invisible wall that separates the professionals who survive from the talented amateurs who go bust.
We often hear about “average market returns” or the “expected value” of a strategy. We run backtests and see that, on average, a setup prints money. So we load up the truck, take the trade, and eventually… we blow up.
Why? Because we confused the Multiverse with our Timeline.
The Casino Experiment
Let’s look at a simple thought experiment.
Scenario A: The Group Trip (The Multiverse) Imagine 100 different people go to a casino. They each have $1,000. They each bet their entire stack on a single coin flip heavily weighted in their favor (say, a 60% win rate).
- 60 people double their money.
- 40 people go bust.
- The Group Average: The group as a whole is up significantly. The “system” works!
Scenario B: The Solo Grinder (Your Timeline) Now, imagine you go to that same casino alone. You have $1,000. You play that same game—betting your entire stack on a 60% win rate—100 times in a row.
- In Game 1, you might win. You now have $2,000.
- In Game 2, you might win again. You have $4,000.
- But eventually, inevitably, you will hit a loss.
- And since you are betting 100% of your stack, one loss equals zero.
In Scenario A (the group), the average outcome was profitable. In Scenario B (time), the outcome is a guaranteed 100% loss.
This is the definition of Non-Ergodic: The experience of the group does not match the experience of the individual over time.
“Nobody Wants to Get Rich Slow”
Why do traders consistently choose Scenario B? Why do we leverage up and bet the farm on “high probability” setups?
Warren Buffett was once asked, “Your investment thesis is so simple… why doesn’t everyone just copy you?” His response: “Because nobody wants to get rich slow.”
We try to force the returns of the “Group” into our personal “Timeline” instantly. We want the 10-year average return this month. But when you try to compress time by increasing size, you are playing a non-ergodic game. You might be using a strategy that wins in 99 parallel universes, but if you hit the “ruin” sequence in this one, you are done.
The Goldilocks Zone: Survival vs. Growth
So, how do we fix this? How do we ensure our personal timeline looks like the profitable group average? We shrink the bet.
This is where position sizing stops being “risk management” and starts being “survival mechanics.” By sizing small, you smooth out the ride. You make your trading Ergodic. You ensure that your long-term result converges with the strategy’s expected edge.
But—and this is critical – it is also possible to trade too small.
If you are betting pennies on a million-dollar account, you are ergodically safe, but you are wasting your time. You will never achieve meaningful growth. There is a mathematical sweet spot between “betting the farm” and “hiding under the mattress.”
I touched on this balance in my post about the Kelly Criterion, which calculates the theoretical maximum size for growth. And if you really want to see how these sequences play out over time, check out my deep dive into Monte Carlo Simulations—consider this post the spiritual sequel to that one.
The Chart Drifter Takeaway
I see traders every day searching for the “Holy Grail” indicator that never fails. They are trying to eliminate risk.
I don’t try to eliminate risk; I try to eliminate ruin.
I keep my position sizes small enough that no single bad trade can knock me out of the game, but large enough that the “law of large numbers” actually pays the bills.
Check your sizing. Are you betting like you’re part of a diversified group, or are you betting like a survivor walking a tightrope? Because in this game, you don’t get to respawn.
