Trading Success: Winning While You Are Losing January 17, 2012
Posted by janey in : business success , trackbackMany amateur traders are searching for that Holy Grail of trading success, which for them is finding the ideal indicator to realize the ideal entry. Let me state emphatically that there is no such thing as the ideal indicator. Why do folks believe that there is?
It has been suggested that traders believe that being involved in the entry of a trade somehow implies they have control of the market. It is true that when you enter a trading position, you do have absolute control of the entry, but that is where your control ends. You have no control over how the market will behave, since the market will simply do as it wishes.
It is not when you buy the stock that controls what quantity of money you make, but when you exit and what amount of money you put into the trade in the first place that determines how much money you will make. This is the core principle of wonderful money management as being followed by any Metastock expert.
With any trading system, there will be wins and there will be some losses. Many successful trading have success rates only of 30% to 50% and they are still highly successful overall. This is because their profitable trades far exceed their losses. Let me explain how this can happen.
You trading system may provide a profitable trade one third of the time. It is quite feasible that every profitable trade may be four times more profitable than the equivalent loss in the losing trade. A winning trade may generate, for example, a profit of $400 and the equivalent losing trade a loss of $100. Even though the system wins on average only a third of the time, the overall result is a profitable one.
The rationale is that each winning trade more than compensates for the losing trades. That is an element of the trading success. In this particular example, over 3 trades, there would be a profit made of $200.
Trading isn’t all about finding the perfect indicator to get the entry just right . You need to think about other things, for example proper cash management.
Money management is managing your risk. It is a set of rules and guidelines you set up to minimize your risk. Remember that each trade is individual and whether you win or lose has nothing to do with what has come before.
It’s vital to recognize that with any trading system that you create, a specific number of trades will go against you. There is no such thing as a system that is one hundred % successful, just as there is no perfect indicator which may give you the ideal entry ever single time.
In summary, no system gets it one hundred % right and each trade is independent from the prior trade. Wonderful money management rules ensure that your positions are tiny enough that you do not blow your capital, yet are big enough to maximise your profit. Get these rules to maximize your risk in place and enjoy the rewards of a well functioning trading system to achieve your trading success. Look for a Metastock download to help you get started on the right track.
Comments
Sorry comments are closed for this entry