“It takes a lot of showing up, for you to be lucky” – Krista van Heerden.
As a trader this is a concept you need to familiarize yourself with. We often hear overnight success takes 10 years.
When placing a trade, you have no clue whether that particular trade will be a winner or a loser. You certainly don’t need a skill to be on a losing or wining trade. All you have to know is the probabilistic edge your trading system has over a series of trades. Unfortunately this a concept most beginner traders battle with. Either they have no understanding on thinking in probabilities or they are in a state of euphoria after a couple of consecutive wins. Every trade has a 1 of 5 possible outcomes.
- Big winner
- Small winner
- Break even
- Small loser
- Big loser
Your job as a trader is to ensure you limit the possible outcomes to exclude a big loser. All my big losers came as a result of euphoria. When you step into that state, your mind tells you to bet big because “you know this trade will be a winner, otherwise you wouldn’t be placing the trade”. I can assure you it’s not true and not worth the trouble.
This is just as true when it comes to winners. You can never possibly know if this trade will be the big winner. However, you have to place the trade to find out. It’s going to take a lot of showing up for you to find that big winner. It’s going to take placing each trade or at least as many trades as possible that fit the within your edge/system.
Even with a “high probability” that has, for example, a 70% hit rate, you still need to live through the 30% miss. The distribution between hits and misses is random. There is no way of telling how 3 in 10 will be spread out or if they’ll come at you back to back. Even when you miss 3, it doesn’t mean the next one is the 1 out the 7. It could be part of the 6 in 20(still 30%) miss. You have to take the trade to find out.
Small winners and small losers are the more likely to occur. This is especially true for trend traders, because markets generally spend more time in ranges than in trends. There’s no amount of technical analysis that can guarantee a break-out to a trend. You will often find yourself in “fake trends” that end quickly either in a small loss or a small win. How small is small? How big is big? It depends on the risk management strategy.
It takes having capital in your account to show up for every potential trend. If you bet the farm every time you show up, it won’t take many consecutive losses to wipe your account. You won’t be around for the big winner. Betting a small percentage of your kitty gives a bigger chance to be able to show up for the big winner that comes from time to time.
To me the discipline to show up and execute with precision on each trade is possibly the most important skill to master in order to consistent profitability.
This for me means, on every trade I:
- Wait for my buy/sell signal.
- Wait for the signal to confirm.
- When placing a trade, place a stop loss at a logical level. The ATR tells me where that is.
- Size my bet (position size) to only expose 2% of my portfolio on that trade.
- Monitor the closing prices. For me that’s daily closes.
- When my trailing stop loss is triggered, exit the position.
- Record the trade in my trading journal.
Most importantly, I have to show up for each trade that fit my criteria on time. If I show up enough times, that “lucky trade” that becomes a big winner will find me.
If you enjoyed this post, there’s a very high probability that you enjoy more of my posts. Why don’t subscribe and be notified every time a new one is out. I promise not to spam your email.
Thank you loads