You Learn More from Losing, than you do from Winning

This is the 2^nd Article by Adam Harris and is part of a series on Professional Trader Habits and Beliefs

Why you should understand the difference between how much you win, and how often you win.

A common misconception amongst many new traders is how to interpret their trading results, which can often adversely affect trading consistency and headspace going forwards.

In my earliest days as a new trader, I was indoctrinated into the belief that the only trades worth taking had to have a potential reward to risk of 3-to-1. Nobody really spoke about how often trades of this kind would likely setup, and conclude as a winning trade. Nobody mentioned how we ‘newbie’ traders would unconsciously keep track of how many recent winning trades we had, versus how many losing trades we had had over the same period of time.

Certainly, no one mentioned that the feeling of success in the beginning is often crucially tied to how I would feel, which was, in turn, tied to how many winners I had had.

It is very important to not only understand that different strategies not only offer a different risk:reward ratios, but that each strategy comes with its own win ratio i.e. how often it wins. This second condition is monitored very closely by our untrained ego.

Our ego, in layman’s terms, is that part of our mind, which is most concerned with how we feel about ourselves, but which has nothing to do with how the market feels about us!

As we mature as traders, we learn to separate our ego from our winners and losers, and we learn to focus on forever improving the execution of our strategy based on an abundance of indicators (trade setup conditions).

Mentally, trading should be approached as a habit, from a cold and evidence-based approach, since thinking in terms of winning and losing, introduces expectations and emotions.

One experienced trader mentioned to me that he never celebrated his winning trades. Why not? Because he said it would create a false sense of expectation. He said that positive outcomes in his trades should be treated as statistically likely, and are therefore not special, or worth celebrating over, and certainly not worth patting oneself on the back. He did what he was supposed to do, and the strategy did what it was supposed to do.

In a perfect world, we would execute our strategies perfectly every time, based on optimal setup conditions. In those scenarios, the outcome would be frequently positive. Then of course, we could push our risk consistently higher until we are making as much profit as possible. But, of course, this is not how so many events unfold. We cannot foretell which of our strategy trades will have positive outcomes, nor which ones will offer the greatest reward to risk. So, we keep our risk well managed and constant, and we aim to master our analyses and execution of our strategy.

The strategy will determine the win ratio - the statistical frequency of positive-outcome trades versus negative-outcome trades.

Trading strategies will be based around market chart conditions that have inherent risk-to-reward ratios, and the only thing that will improve the success of each trade is the mastery of the execution of the strategy and it cannot be fast-tracked.

The ideal strategy offers the disciplined trader plenty of opportunities, with a high-probability of a positive outcome (win:ratio), and fair profits (risk:reward).

In the end, our goal is to earn a solid income from the markets, which is steady and un-ending.

We find traders who invest their effort into mastering their strategy, as opposed to jumping between strategies, mature faster. This means they quickly grow to learn what is important and what is not important. It is similar to having lots of short relationships, instead of learning how one single relationship evolves and grows.

Finally, remember that your profit for trading comes not from trading a lot, or trading with more risk, but from trading with precision execution.

Follow the link below to register for our next live webinar:

How to Trade Forex with Precision runs on

• Tuesday 11th August 2015 @ 5pm New York, 10pm London, 7am Sydney (next day) and 9am Auckland (next day)

Regards,

Adam Harris

The TWP Team