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Do You Want to Be Right or Do You Want to Make Money?
There are no asterisks in life only scoreboards
“Do You Want to Be Right or Do You Want to Make Money?” That is a very common question that every trading guru likes to pose in order to “demonstrate” the need for risk control. But the more I trade the more I think that this is a very simplistic and conventional view of how the markets really work. The fact of the matter is that if you want to make money you need to be right. You have to take a point of view. You have to challenge the market and you have to suffer all the slings arrows of outrageous fortune.
Of course you cannot be right all of the time. For high reward strategies where you risk one dollar to make two you cannot be right even most of the time. But to be a successful trader you must learn to be wrong as little as possible. This is not the same as being right.
To be right in the market means that you are implicitly engaged with it. You not only hold a view, but you actually carry a position. To be wrong as little as possible, means that you may often pass up opportunities to participate. It means that you become much more of a spectator rather than an actor in great financial drama of the day.
As I have written many times before, my true profit now comes not from creating any strategies ( at this point I have plenty that work well enough) but in being much more selective in using them. This is extraordinarily hard to do on a consistent basis especially for anyone with an aggressive personality that likes to tussle with the world (which I believe describes the vast majority of individual traders).
So how do you put this plan into practice? I have no perfect solutions but one way I try to satiate my craving for battle with market with the need to be highly selective is to try to be “wrong” small and “right” large. Basically I will take a lot of small mediocre trades in one of my accounts to satisfy my need to speculate and will take very few, much larger trades, in my “investment” account to try to earn “real” money. This by no means works all the time. Sometimes you can have an unbelievably hot streak in your spec account and a miserable run of losses in your investment account but the key is to maintain this duality and discipline no matter what because in the long run this is the only way to succeed.