Posted by: joetradingplace | May 21, 2012

Thinking In Probabilities

A lot of traders become very nervous when they place a trade, they always want to win every trade, but that’s impossible. Learn to accept a loss and move on to the next trade. Dont focus on one trade, focus on a big sample of trades, learn to think in probabilities. All trades are independent from each other, so if your last trade is a losing trade, don’t let that affect your decision on the next trade. We are playing a game of probabilities, nothing more nothing less. Think of yourself as a casino, they play a probability game, they know that they will lose mny and make mny, but if they win more than they lose, they stay in business. So as a trader, if yu win more than you lose, you will live to trade another day. A loss is nothing but a cost of doing business.

The other thing I always tell other traders is not to get upset or angry if the market stops them out by several ticks or whether they lose several ticks or react as if they are the happiest person on planet earth if they make $x,xxx USD on a trade for example.As a trader you have to keep an even keel, view it as another day at work no frills, it’s just work.

Alternating from extreme anger to extreme sadness,  to extreme happiness, to extreme anger again & so on, the market cannot play you like that. I have also noticed that a lot of traders look at every single trade and count how much mny they made on a single trade, why not focus on sample of trades…look at weekly/monthly or quarterly results. Checking your account balance every day is like being on a diet and checking your weight every day…you wouldnt notice much change and that might de motivate you. Try to avoid things that add no value to your trading business. I don’t think a doctor will thinking about how much money he is making when he is operating a patient…he focuses on the job at hand.

I have also noticed that a lot of traders want to put pressure on themselves…like I want to make £2000 per week…I know its advisable to set some goals, but as a trader you dont know what the market will give or take from you. So focusing on making £2000 per week adds no value to your trading, coz you just put too much unnecessary pressure on yourself. Feeling that you have to maintain a certain quota, no matter the cost has little value.

I dont have a target, I just trade my setups as they come…if I see a setup, I will take it. I know that I am playing a game of probabilities, I know the odds are in my favour coz I have confidence with my trading method and it has proved to be profitable over the years. Imagine if you have a target of lets say 100 pips per week…you reach your 100 pips and you call it a day….and lets say that week the markets are crazy, they have moved 3000pips. Just because you set yourself a target of 100 pips, you have missed on the big move of the month or even year. And lets say the next few weeks the market is not moving, just digesting the moves from the previous week, now you can’t make your 100pips a week because the market is in a tight range. Thats when you start to over trade trying to make your targets…but remember you have missed a big move coz your weekly targets were reached.

I’d rather have a downside limit than an upside limit…what I mean is if I am losing, I have a limit of how much I can lose…but if I am winning, I keep trading as long as I have a setup. In trading you don’t know what trade or week will make up the profits for the month or quarter. Why do I only have a limit when I am losing…its like in any sport eg football, when a player is out of form and not performing well, he/she is substituted. So as a trader, i don’t have a coach to substitute me when I am not performing well in my trading…so thats the reason why I have a limit when I am losing. It’s not every day that you are in tune with the markets…so its not everyday that you perform well.

 

 

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