As a trader, you can't look for things that are sure to happen. You have to accept that anything can happen at any time on the stock market. If you're still not sure, think about how there are millions of traders trading for institutions, funds, investors, swing traders, scalpers, etc., all of whom act in different time frames and use different types of analysis.
The point of trading is not to guess what will happen in the future, which is impossible.
If you accept this, it will be much easier for you to lose without feeling bad about yourself. When you make a trade, you accept that you don't know what will happen next. You don't think this trade will turn out to be a winner. The only thing you know for sure is that something will happen.
So how do you make money when you don't know what's going to happen? You think of trading as a game of chance. Here's an example of a game based on chances:
Suppose I throw a die:
- Every time I play, I pay $1.
- I win $2 if I roll a 3, a 4, a 5, or a 6. I don't win anything if I roll a 1 or 2.
Every time I roll the dice, it's clear that I have no idea what will happen. But I know that the odds are in my favour every time I roll. In the long run, I'll win four out of every six times, which means I'll have to pay $6 to win $8. If I play long enough, I will always come out on top.
In math terms, the amount you can expect to win every time you play is
(4/6) times $2 = $1.33, which means you make $0.33 (you pay $1 to play).
In a different version of this game, you could win $3 if you rolled a 4, 5, or 6, but nothing if you rolled a 1, 2, or 3. In this case, every time you play, you can expect to
(3/6 x $3 = $1.50), which means that in the long run, you'll make $0.50.
So how does this help us in business?
Every time you roll the dice or make a trade, you don't know how it will turn out. But you know that every time you roll the dice, the odds are in your favour to win money, and if you play long enough, you will win money.
So, you need to know that the odds are in your favour for each trade you make if you want to make money. The second example shows that it doesn't mean you have to win more often than you lose. Also, it depends on how much you win when you win and how much you lose when you lose.
How do you improve your chances?
Using technical analysis, fundamental analysis, market internals, etc., you need to find a way to stand out from other traders. Before you make a trade, you need a number of things to be true. You should always use the same set of things. Your trading plan should clearly define your edge, which is how you plan to enter and leave trades.
All of this can be summed up like this:
- When you make a trade, you don't know how it will turn out. You accept that anything can happen, so you don't expect anything from that trade.
- You believe in your trading strategy, which means you think the odds are in your favour for every trade you make.
You think that the result of a series of trades is fairly certain and can be predicted.
To return to the dice example, how will you feel if you don't roll a winning number? No, because when you throw a dice, you accept that you don't know what will happen. You don't expect anything. Use the same idea in your business to save your pride.
The idea that trading is like a game of chance has changed the way I feel about losing a lot. Mark Douglas's book "Trading in the Zone" told me about it. I really think you should read this book.
If you have a good trading plan with a strategy for when to enter and leave trades, a successful trade is one where you stuck to your plan, even if you didn't win.
And remember, if you don't follow your plan, you'll never know if it works.
