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In Trading Winning Means Nothing – Part 1
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The more I trade the more I am convinced that winning is almost all luck and losing is where the true skill lies. In the Alice in Wonderland world of trading that we live in where at at any given moment the market can change direction on a dime can anyone honestly claim that they have a “bullet proof” system for winning?
Trading is tough because its has no analog in the real world. There is no true repetitive process for success. In any other business activity you simply need to produce a good product or service and replicate it a billion times. In trading, there is no such thing as a uniform product. Every trade situation is different. For example the other day I realized that just by making our take profit 10 pips less we would have picked an extra +1000 pips on our P/L since the start of the year.
That’s trading for you, where a random 10 pip target can make difference between huge gains and big losses. Imagine if Mcdonalds was subject to such capricious rules. A patty that was just one degree cooler than certain temperature would result in a loss on the whole burger. Would MickeyDs be able to make billions of profits on trillions sold? Of course not.
If you are really honest with yourself, you will admit that all your winning trades are pure luck. This week we had four winners in BK and they all followed same path -- great entry, almost no retrace and a near vertical line towards our target. We could have left them all on auto-pilot and those trades would have landed themselves. Were we brilliant? Of course not. We caught the breakout wave and rode it for all its glory. But how many times in the past have the breakout failed this year? How many times have we been clipped into trades that went nowhere except straight to our stop loss?
Our process of selection was the same in both cases but results were vastly different- and therein lies the essence of trading in my opinion. In trading your long term success does not depend on short term selection skills, but rather on your continued ability to avoid losses at any cost. That is why both in personal account and in our BK strategies I am always looking for ways to neutralize risk.
This Friday we traded the NFPs live. Now the BK NEWS is a very accurate set up that has been winning 90% of the time. However recently I realized that it could be improved by moving by stops to breakeven once price moved a certain amount of pips into the money. On Friday we did just that and managed to get out of the trade with no loss. Now no loss may not sound like much, but its was actually the best trade we made all week. Why? Because we DID NOT LOSE MONEY. That helped us preserve our profits from the other trades and go into the weekend in much better financial shape.
Next week I will discuss some the ways that we can neutralize risk and improve our skills as traders.