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Wudda Cudda Shudda. A retail trader’s favorite pastime. If only I “wudda” taken that trade, I “cudda” made massive pips. I “shudda” just traded. What an idiot I am.
If you haven’t had that internal dialogue with yourself you clearly haven’t traded for long enough. Of all the things that frustrate me about trading the “wudda, cudda, shudda” game is the worst. You never, ever learn anything from it. You wind up feeling miserable and helpless and most importantly annoy everyone around you, who no doubt find your endless whining to be worse than whatever trade setup up missed.
The other day, however, it suddenly hit me as to why we continue to play this useless game. It all has to do with how we view our trading. Without even realizing it we view each trade we take in moral terms. The trade is either right or wrong. If we win the trade is right. If we lose the trade is wrong. It doesn’t matter if the trade made sense or not, all we care about is that the trade is a winner.
And that is exactly how we turn trading into gambling and lose all of our money in a month. Allow me to explain.
Last week, I was chatting with Rob Booker and we talked about how new traders just want the price action. They don’t care to learn about market structure, trade management, risk control or market news. They just want to trade, trade, trade. As a result, they become “liquidity fodder” (my new favorite term). Their stops or margin calls become the smart money’s take profits. It is essentially socially sanctioned theft – just like Las Vegas.
But here is the thing. If you judge your trades on a right and wrong spectrum you’ve just become “liquidity fodder” because you have turned a probabilistic enterprise into a binary game. We all know intellectually that strategies are simply probability paths across time and price. But if you judge each trade as an isolated right or wrong incident you have basically stopped trading and started playing FX roulette.
Black or red.
I can’t tell you how many times I have seen traders quit a set up after they lost 2 or 3 trades in a row because of this right or wrong paradigm.
So how about this. How about, instead of using a false moral dichotomy we start treating trades as true or false. This is a lot harder than it sounds. In order for the trade to be judged true, it must follow every single condition of your set up. The outcome doesn’t matter at all. The only thing that matters is that the trade is true to your setup principles.
As I said this is a lot harder than it sounds. Once you start classifying trades as true or false you’ll notice how many times you cheat, rush and generally ignore your set up. Staying true to your rules means sitting on your hands above all else until every single variable lines up. But the benefit of this approach is tremendous. One, you’ll start to be much more selective in your trades. Two, you’ll stop crying like a five-year-old girl every time the trade does not work because you’ll have the confidence that it was a true setup. Three, and this is by far the best part of the process – you will see success. Even when you pass up on “true” setups you will be pleasantly surprised that most of them work out exactly as you thought.
So take a deep breath. Stop acting like “liquidity fodder” to the market. Take control of your trading and change your mindset.
No more right or wrong.
Only true or false.