Thursday, August 03, 2006

Probabilities

Why does it take so long to become consistently profitable in trading?
For most of us, it's thinking in probabilities which is so difficult to learn. Do you expect to have an accident when driving a car, when riding your bicycle, when going to swim. Sure not.
Of course you know, you might have an accident, but deep within, you don't expect it. Even if you drive dangerously or swimm, where you should not. You don't expect to have an accident. You expect to get away, to be a winner.
In trading it's different. Every single trade can become a loser. And your chances often are not better than 50% that this one single trade will be a winner.
Sure in the long run that doesn't matter, as you might have a system, which gives you more winners than losers, which gives you more USD for winning trades than you have to pay for losing trades.

But your subcontious mind is not easily convinced that that will be the case. That this one single trade doesn't matter in the long run. And it has powerful emotions to play with to convince you not to take a loser. There is hope, despair, inability to take a decision, inability to click the mouse button or fear to name a few. But also stubborness, an (unwarrented)knowledge to be right, to know it better than the market. 
And it uses them as it sees fit and all in your best interest or so it thinks.

You don’t have an accident, if your subcontious mind is right.
You won’t get hurt, if your subcontious mind is right.

Only when you can no longer ignore the reality, your subcontious mind accepts defeat. But that might take time. Time you don’t have in trading. Time which will cost you dearly at times.

Take care of your losers, the winning trades take care of themself is a saying in market lore.

And as many of these sayings there is some truth in it. You know about this feeling in your stomach, when you can no longer bear to see this losing trade, when it hurts so much, that you just want out. (A great reversal indicator btw) If you manage to move that point up, if you achive to have that feeling, when your trade is down say 10–15 ticks, then you have done very well, then you have taken a big step towards profitability.

You need to rewire your subcontious mind. It has to think in probabilities, it has to see the big picture and should not see the individual trade as important.

2 comments:

mostpowerfulstrategy said...

Bingo!! Most important trait you need to have in your subsconcious mind as a successful trader.

Too many traders focus too much on every losing trade and never see in totality whether they have more winning than losing trades..

Blaiserboy said...

Excellent thoughts in this post. aqppreciated