Better Trades
Today I wanted to reveal a secret -- something to consider when putting together your system because your goal should be to have a better trades system.
All traders know that good entries and exits are important and they're correct. But successful traders know the secret . . . it's not that your entry was so good or that you ticked the top of the move.
It's not the number of wins versus losses. The truth is it's how big your wins are compared to your losses.
Don't fall for the hype that some system has an 80%, 90%, or 100% win rate. That type of come-on is a "never sell" system. Stop and think, if you have a losing position and never sell it there are no losses!
There will always be losses in trading. A better trades system is one that manages losses -- keep them small! Here's an example, say we have two trend traders and we'll call them A and B.
Both traders follow a system. The system is one that trades once per week on a valid entry signal. Traders A and B both traded the same stocks once a week for a month. Here's how they did for the month --
Trader A:
$200 Win, $100 Win, $300 Loss, $10 Win = $10 Profit
Trader B:
$50 Win, $100 Win, $25 Loss, $25 Win = $150 Profit
A big winning percentage isn't necessary, but controlling the size of losing trades is imperative. I could show you systems I've built that have 60% winning trades and are extremely profitable.
As we move forward I'll have more ideas that will help you achieve the big wins/small losses better trading system.