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Thursday, July 24, 2014

Losing Trades, Winning Trades

“The vast majority of "rich" people I've known have accumulated wealth as a result of taking risks, working very hard, and spending and investing their money wisely over time.” – Joe Ross

Snake-oil vendors promise you that your account would double every month and you can often win 55 trades successively. You’re blown off. After all, who doesn’t like to make consistent profits? Is this kind of lofty promise sustainable?

Traders who entertain lofty thoughts can’t control their emotions on the battlefield of the financial markets. This is possible because when a signals provider or an open position does not go according to their lofty thoughts, irrational emotional outbursts follow. In order to break free from this kind of harmful mindset, we must bear it in mind that no-one on earth is perfect (no not one). We all make mistakes, every one of us. This is why we can’t be a good trader if we think that we or others mustn’t have a negative order in their account history.

We’d be prudent when we don’t expect perfect results in our account history. The reality reveals that we all make some trades that don’t go positive. If anyone can show a valid account history with a minimum of 500 trades which are all positive, then that person is already a god. In reality, there is no speculator that makes only winning trades always. When we shy away from realities – the emotional effect can be satisfactory, but the career would be replete with disillusionment and ire. 

As we surf the markets, we come across price actions we detest or make orders that we regret. However, we can react positively and constructively to these situations. It’s to do with our mindset.

Constant Profits Don’t Come By Chance
Some people think that the majority of traders lose their money. But they lose not because they don’t make profits; they lose because they don’t know how to capitalize on their profits. Losses are alternated by profits. Isn’t that correct? If you said “No,” I’d donate $50 to your favorite charity if you can lose 50 trades in a row. Every trader, including pros and noobs, make both losses and profits, but the pros know how to maximize their profits and minimize their losses.

One research carried out by a big trading company reveals that majority of traders make profits. This is absolutely true. Sadly, as a result of irrational and illogical behavior, most of these traders (who could’ve been victorious) are using negative expectancy methods, like running their losses and cutting their profits; like making their stops wider than their targets.

Less risk comes with less roll-downs; and the other way round. Don’t think you can make higher profits on an individual order without increasing the risk on it. You can’t make an omelet while, at the same time, trying to save the eggs, as one writer puts it.

Is there any benefit when you place 10 trades and you win 7 trades, making $2 per trade and you lose 3 trades, losing $6 per trade? 

It’s easy to make money over the time only when we use positive expectancy methods. Constant profits don’t come by chance. If you can do the opposite of what irrational speculators do, you’ll end up becoming successful. Truly, this is what we want.

This article ends with the quote below.

“The real difference between winners and losers is not so much native ability as it is the discipline exercised in avoiding mistakes.  What separates the amateur from the old pro is that the pro makes fewer mistakes.” - Roy Longstreet 



Learn from the Generals of the Markets: Market Generals

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