I wanted to share Mr. LT results because everyone in this industry is so fixated on Risk vs Reward. While its important to have your winners be bigger than your losers, what about winning more than you lose?
I have found in so many situations day traders ignore trades that are extremely profitable because they aren’t going to win twice as much as they are going to risk.
What I always tell all my traders is to pay attention to momentum instead of actual trade setups and rules for trades, ie: risk vs reward. The reason behind this fundamental change in thinking is that we are leaving out a complete set of trades that are extremely high probability that most other people in the industry consider “aggressive”.
Normal risk vs reward ratios are in the 60% to 70% range and are normally a minimum of 2 to 1. In other words, a trader should win 60% to 70% of the time and make twice as much on his winners as he does on his losing trades. I’ve mentioned this in a few webinars recently:
What about 90% to 95% winning trades but only a one to one risk vs reward ratio?
Fundamental shift in thinking isn’t it? All of our traders in the training program normally send us their trades every weeks and I wanted to highlight Mr. LT’s results because we always have to think about the times when we aren’t able to make 50% winners? What if we are just having an off week and aren’t making good decisions?
Expecting not to lose money is foolish and is a part of trading, we cannot expect to be right all the time. As a trader that has been in this industry for nearly ten years I can tell you that losing is part of the game.
This is how the day trading industry forces us to focus on the wrong things. If we are able to read momentum and understand how the market works risk vs reward is thrown right out of the window.
It doesn’t matter how much you win as long as you are winning.
If we combine the trades that only win 60% of the time with the number of trades that we take that win 90% of the time, which have much smaller winning ratios, our winning average skyrockets to over 75% depending no how many of those trades that we take.
I wanted to also point out this trader specifically because there were a few technicalities in a previous post where we talked about a trader winning only 34% of the time. Many comments were left that it wasn’t fair to consider that a winning week when commissions where not accounted for.
I’d encourage those to calculate the numbers with commissions included in this weeks results. This is another scenario where our traders that use the Congressive Trading System are able to win even with winning only 45%. By assuming 10 contracts and commissions on the number of trades & win ratios above,
this trader could have made $5,812.50 in gross revenue.
Assuming the $3.20 round trip commission rate for the Emini S&P 500 (we have exclusive rates for everyone in the training program) that would be a total of $1,056 in commissions leaving a total profit $4,756.50. Calculate that over the year and we have a grand total $233,000 in a year.
This in essence is another scenario where we are focusing on the wrong thing. If we have a trader that’s just starting out with a new strategy do should we focus on whether he is making money or making the right decisions?
If we are just learning how to trade the concept is to focus on making the right decision, not making money.
Make sure that when you are trading that your focus in the right place. Many of us point fingers at the day trading companies that have taken advantage of us only to avoid looking in the mirror and realizing that we are part of the problem.
Our focus has to be in the right place.
It isn’t about making money, it isn’t about making a billion dollars, and when we are learning how to trade it isn’t about trying to calculate our profits with or without commissions.
The focus should be making the right decision because if we are able to understand how the market works then we will be able to make money every day. It isn’t about indicators, software, high risk vs reward ratios, rules based strategies, or even sales pitches.
If you understand how the market works then rules don’t matter because you can adapt to the market. Remember, anyone can take indicators away from you but no one can ever take away the ability to understand how the market works and adapt to the ever changing market dynamic. Nobody.
This one article is so dense with important take-aways that many a beginning trader could mistake the simple ideas presented for false or trivial statements.
Don’t be one of these traders!
I would encourage anyone and everyone to carefully read this article a few times over; to stop and think through every sentence.
Trading should not be complex if approached properly, but that does not mean it is easy either.
That is why one needs a good coach to facilitate the process of developing skill and understanding of momentum.
Thank you for being that exceptional teacher, Marcello!
Nice post man! That’s the mindset to have.