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As we approach the end of the June trading month, it seems timely to reflect on what has turned out to be a bumper month. We placed 14 trades during June and were rewarded with a positive month. In all, 7 trades were winners and 7 turned out to be losers, however we still made money. Although we still have one trading day left, the month will likely return a 2.7R profit. In keeping with the monthly statistics, we tend to have winning trades twice the size of losing ones, so even though half the trades lost, we still made money. When considering trading methods or systems, one of the most misleading numbers often quoted, is the number of winning trades. This number alone, doesn't tell the whole story. It is quite possible to have systems with very high winning percentages and still lose money, conversely low winning percentage systems can be highly profitable (trend following). What matters more than the number of winning trades, is the amount won or lost per trade. With our swing trade style we consistently find the win rate hovers around 50%, but each winning trade is normally twice the size of the losing ones. This happens because we actively tighten stops when in a trade, such that winners are protected and losers cut short before they reach the original stop loss. It is unusual to hit -1R for a losing trade, whereas quite a few of the winning trades exceed the 1R initial target. So when you consider a trading style, whatever it may be, or is claimed, always dig into the statistics and make sure you fully understand the results over a large sample of trades. We will continue to apply the methods described on this site and by being disciplined traders, we can confidently allow the statistics to work in our favour. Edit: The month is now closed, profit was 3.2R
How do we handle a series of winning trades? This may not be a question that you have thought about, but it warrants some serious thinking, as a professional trader.
It is of course a nice "problem" to have, a set of winning trades. Suddenly you are checking the price of the Ferrari you always wanted, maybe a luxury trip somewhere? You can't lose, right? The money just keeps rolling in and very soon you can retire to a tropical island without a care in the world.... The reality, of course, is somewhat different! Professional traders always respect the law of statistics and understand that a cluster of winning trades can easily and probably will be followed by a losing period. We must remember each time we place a new trade, is that the outcome is largely random in the overall number of trades placed during our trading career. Although it feels great at the time, it is important to understand that every trade stands alone. The outcome of one winning trade had no bearing or relevance to the next one and so on. That is why mastering emotional control as a trader is vital. We shouldn't get too excited by winning trades and conversely not be bothered by the inevitable losing ones either. Treat each trade as a separate event and allow the statistics of your method to play out over time. That way it becomes easier to maintain a balanced state of mind, whether you win or lose. When we experience a streak of either winning or losing trades, it comes down to luck, pure and simple, as trade distribution cannot be predicted. Stay balanced about each trade outcome and don't order that Ferrari just yet!
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AuthorJohn Morris is a professional financial trader, this site shows you the setups and results achieved, using the simple methods described. Archives
June 2023
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